Stock Day Trading

Successful Stock Day Trading

Risky financial trading is normal for the day trader. Different categories of financial instruments include cash or derivatives. Commodities are readily available in tradable forms that are not present outside the context of financial markets.

Securities are categorized as equity securities and debt, or registered securities and bearers. The usage for securities change for both the holder and issuer. Capital raisings defines the securities characteristics expanding vastly over modern times.

A certificate is the representation of a security and includes shares of bonds, mutual funds, corporate stocks issued by governmental, stock options, investment instruments, and units of limited partnership.

A stock is defined in financial terminology as a raised capital of a corporation issued and distributed through shares. Shareholders are any legal entity in possession of the shares, or fractions of the shares.

An individual must know the basic criteria to become successful in stock day trading. They can be considered a potential stock day trader if their actions meets four characteristics.

1. Liquidity. Liquidity refers to the existence of buyers and sellers in sufficiently quantities permitting easy trading. Fast executions are important for a day trader.

High liquidity reduces the spread of bid-ask in a certain stock leading. Liquidity cannot be measured but can be estimated based on volumes, number of shares, ownership breadth, and numbers of market makers.

2. Volume is a liquidity component. A good stock day trading should trade 500,000 shares per day or better. High volumes of stocks permit a day trader to flip stocks in large quantities without affecting the stocks’ long term price. The day trader has no vested interest in a company, unlike traders who base their future fortunes on a stock’s ability to generate wealth in the future.

The day trader only wants to keep the stock healthy so they can trade again another day, with equal expectations of generating a profit.

3. Good volatility. Volatility is the expected. Money is only made when the markets are volatile. A day trader is looking for actual movement of the stock’s price within a certain period of time. Little movements in pricing are not a good. Day trading needs $2.00 dollars fluctuations in stock prices, at least.

4. Transparency. This is the ability of obtaining information following an order flow in a certain stock. Quote systems such as Nasdaq II (displays information from highest ask prices and lowest bid prices) and NYSE (displays information from Highest bid prices and lowest ask prices).

Two decades ago when mutual funds were just becoming popular thousands of people lost their life savings because they wanted to make 30%. They thought they could buy a stock and keep it in their portfolio forever. When they lost their money, they blamed the brokers. It wasn’t the broker’s fault but the investors.

Investors should always keep tabs on the markets. A managed account takes the burden out of trading, but it does not relieve the investor of their ultimate responsibility. A brokerage house is not a bank. Depositing with them does not ensure security.