Guide to Intraday Trading

Intraday trading simply and correctly implies that investment positions are opened and closed during the same day.

Intraday traders may buy a stock in the morning with the hope of selling it later in the day for a profit. Likewise, positions may be held open for a few hours, or day traders might buy a stock and sell it only minutes or even seconds later. In general, they do not hold a stock they have purchased overnight. A day trader's primary focus is to profit from daily market swings.

How Much Do Intraday Traders Make?

Most who consider intraday trading as a career approach the subject with unreasonable expectations. It's not hard to understand why, since there is no shortage of advertisements on television and on the Internet promising outlandish returns. Consider the fact that a mutual fund manager that consistently earns 40 percent returns per year for her clients would probably be afforded guru status among those who have been in the business for a while. Also consider the fact that mutual fund managers have access to much better information and are more experienced than the average retail day trader. There are day traders who are making annual returns of 70 to 100 percent or more, but it's unlikely that an inexperienced trader can expect these types of returns in his first year.

Build a Foundation

As with the late 19th century California gold rush, a few struck it rich and the majority lost money. The reality of intraday trading is that inherent risks are present and the unprepared are especially vulnerable to losing money. This profession is not for the faint at heart or the risk averse. Likewise, intraday trading is not a profession for the uninformed. Success takes knowledge, money, a good strategy and deep commitment. Simply opening a brokerage account and buying stocks without a plan for where to get in, where to get out and what to do if something goes wrong is a sure-fire recipe for disaster.

Pros and Cons of Intraday Trading

The business of buying and selling stocks and other investments throughout the day can be exciting, risky and rewarding. Intraday trading offers unlimited potential profits, but it also exposes traders to high amounts of risk. Before deciding whether to commit to this profession, it's wise to look at the advantages and disadvantages to determine if you're ready and willing to take the plunge.

Before you run out and open an account with your online broker and start throwing money at the market in hopes of making your millions, it's important to build a foundation of knowledge, make sure that you are properly equipped and make sure that you have explored the advantages and disadvantages of intraday trading.

Considerations

Up until the last decade or so, access to the market and market data was limited to well-capitalized, large brokerage firms. In the Internet age, information that was only available to the privileged few has now been made available to the masses, putting everyone on an equal playing field. Software and hardware needed to get started in the intraday trading business is widely available and relatively cheap.

Warning

Every buy in the stock market has a seller on the other side, and every sell in the market has a buyer. Those who are unprepared to compete in this zero-sum environment very often find out the hard way that competition is fierce. To be successful you have to be smarter than your competitor, because in reality you are in a competition to take their money away from them and they are trying to take your money away from you. If you're just getting started, make sure you're committed to spending the time and energy necessary to learn your new trade and to develop your skills.

References

• The Motley Fool: Day Trading