If you are new to trading or an intermediate trader, one essential decision is whether to be a day trader or a swing trader. However, this can be after you have opened an online trading account, mastered the act of trading profitably, understood market sessions, and known what time works best for you.
In this, we will explore the meaning, advantages, and disadvantages of both day trading. We implore you to carefully consider each advantage and disadvantage and merge them with your personality, daily routine or activities to see how they best fit you.
Let’s dive into what day trading is all about without further delay.
What Is Day Trading?
As the name suggests, day trading involves placing trades within a day and getting short-term profits. The profits usually range between 20 and 50 pips, as the case may be. Day traders are often regarded as full-time traders. This is because they solely make a living from trading and are often on the chart all day long.
Day traders rely strongly on technical analysis and use shorter time frames to enter various positions and look for exit opportunities strategically. One attribute of day traders is that they don’t keep any position open overnight. It doesn’t matter if an open position hasn’t reached its take profit; day traders will always close the trade at the end of most active market sessions.
Advantages of Day Trading
1. Potential for Quick Profits
Day trading allows you to place trades daily, catch a few pips, make profits, and close. In so doing, you can make quick profits in no time, unlike other kinds of trading that allow you to hold on for a longer period before making profits.
2. There Is no Overnight Risk
There are no overnight risks associated with day trading. You get to open and close your trade in a given session. For example, if you’re trading during the London or New York sessions, you get to close your trades during or after the session and realize your profit or loss for that day. You don’t have to wait until the next day to know what the market might bring.
3. Liquidity
Certain sessions in the market occasionally record high liquidity. In this period, the market moves faster, making it easier to place a trade and make a profit faster. Day trading lets you trade with the big banks. You are in when there’s enough money moving the market and out when the market becomes sluggish.
4. Independence
As a day trader, you possess control over your time. Since most day traders are full-time, you can determine how much time you spend trading. You’re not a day jobber whose time is affected by his work schedule. You can watch the chart and execute any strategies that trigger a trade.
Disadvantages of Day Trading
1. High-Stress Level
As a day trader, you’re often faced with a lot of stress due to the persistent staring at the screen, monitoring your stop loss, performing trade management at each level, and observing if your trade is about to make a home run to take profit. Doing all these will require you to spend much time on your smartphone or laptop, resulting in higher stress levels.
2. Financial Risk
Day trading opens you to a lot of financial risk. You might be tempted to trade more since you constantly check the chats. The likelihood of losing more trades is high when you always trade. There’s always a financial risk as a day trader, and if you’re not well disciplined, you might keep trading excessively, opening you to higher risk.
3. Time Intensive
Day trading demands that you spend much time on the chats, and this will make it difficult for you to balance it with other commitments. If you’re probably running other side gigs or business and day trading, you may find it challenging to balance these two.
4. Frequent Commission
As a day trader, you have the flexibility of placing a high number of trades every day. However, whenever you get in on a trade and exit, you get to pay a commission to your brokers. Lenient brokers charge at least $4 per standard lot. It might not make sense if you’re trading a smaller account or opening a nano lot. But imagine putting all the commissions together when trading a $1,000,000 account; then, these commissions will make more sense to you.
Summary
Day trading is often suitable and more beneficial to traders who see trading as their ultimate job. It comes with many advantages and disadvantages. However, statistics have shown that day traders tend to make more profits than swing traders, and at the same time, opens them to higher risk.
To successfully enjoy day trading, you should open a trading account with a broker that offers tight spreads and flexible options. Visit Olymp Trade to open your trading account today.
