You usually only hear the negative about day traders, how they affect the wild fluctuations in the market or the media picks up on the story of a crazy person who lost it all in the market and then took their revenge on co-workers. But the vast majority of day traders work quietly and diligently to make small profits each day. They are just a tiny portion of the hundreds of thousands of stock trades that make up daily activity in the market. Day traders make their profit on those market swings caused by factors such as big fund trades, bad quarterly news, rumors, and headlines or any other factor that may affect a stock price. To this end, day traders must be news junkies and research specialists.
The best day traders enter each working day with a plan developed the night before, and a solid exit strategy. A day trader researches stock picks based on the above mentioned factors, and places an order to buy or sell depending on the plan. Some traders keep constant vigil on the stock throughout the day, with multiple exit and entry points to capitalize on fluctuations in stock pricing. Others take a more conservative approach with an entry and set exit point. Once the stock reaches a certain price, automatic orders are in place to sell the stock. A saddle order may be in place to limit losses as well.
Swing trading takes a longer view toward the market. Where a day trader will live up to their name by day trading, a swing trader is looking at stock trades that can last a week, or even a month. A swing trader ignores the day to day fluctuations in stock prices, and focuses on a long term strategy. A swing trader may, through research, anticipate an uptick or downturn in a market, and place stock orders accordingly. The same rules apply when it comes to exit strategies, which is having one in place, along with protection against dramatic swings in the market to protect against extreme losses. But a swing trader can show patience in anticipation of a greater reward. Swing traders could purchase energy stocks in August to prepare for a winter cold snap that could affect 4Q profit reports.
To be successful at either day trading or swing trading, you must have a little bit of the soul of a gambler, with a high tolerance for risk, and an urgent desire for reward. Even in a market like this one, with the Dow down from record highs, and a turnaround just around the corner, day trading and swing trading still offer lucrative opportunities for properly timed trades. Which brings us to research. While the soul of a gambler is helpful, it’s the meticulous and dedicated time to research that can net the most gains. Traders must be consummate readers of financial reports, and almost addicted to news. Short term trading doesn’t rely on a buy and hold strategy that anticipates long term returns. The difference in day trading versus swing trading is the level of supervision one wishes to put on a stock purchase. By automating orders and putting protections in place, a swing trader can walk away from the trading platform for extended periods of time. The day trader must pay close attention to the mood of the market to prepare for any uncertainty. It’s the level of attention one is willing to place that determines what kind of trader they wish to be.
