There are so many website and courses out there which promise to turn you into an overnight day trading success. Quit your job, earn a million, win every trade – we’ve all seen them and most of us know that what they are promising is close to impossible. However, there is always just that tiny part of us which wonders. There are success stories out there, so can day trading help you achieve these dreams or is it just a fast way to lose a lot of money?
What Is Day Trading
Day trading is the practice of opening and closing positions within the day. At the end of the trading session, this type of trader will generally not have any positions remaining open. Day traders won’t leave themselves exposed to overnight risk, so a trade open overnight, or even over a couple of days is almost unthinkable. This avoids the possibility of the market moving against the day trader overnight.
A key point in day trading is that the market actually makes relatively small moves in a day compared to a few days, a week, a month or even longer. This means that in order to make a decent profit on a trade it is necessary for the trade size to be large. In order to trade large sizes, it is necessary to have a bigger deposit in your account to start with. So point number one, day trading requires a large balance on the account. Do not consider day trading if you don’t have a reasonable amount of risk capital.
Experience to control emotions
Larger trade sizes mean that the psychological impact of the trade is likely to be larger. Therefore, this means that more experienced traders most definitely have the upper hand. A seasoned trader is more able to control these emotions or is more likely to stick to a trading plan, even when the numbers on the profit and loss screen are large. Inexperienced day traders, trading larger sizes are more open to their emotions which often results in suboptimal trading decisions.
Should you decide to try trading smaller sizes, which means smaller potential profits, keep in mind this may actually be very difficult if there is a minimum commission cost. Often if you day trade small sizes in pairs where there is a high minimum commission you are shooting yourself in the foot as it is almost impossible to ever earn back the commissions on the trade in the day.
The speed of execution is so important to day traders. If markets move fewer points across a day, it is essential that you are able to benefit from the points it does move. This means fast execution. In order to be a successful day trader, you must trade with a broker which provides its exceptional execution. Vantage FX is an ECN forex broker meaning that its clients are offered tighter spreads, best in the industry execution and no requotes.
In conclusion, day trading can be extremely rewarding, however, to do so profitably trade sizes should be larger which requires larger a larger trading balance and more experience.