Trading for Dummies® 2nd Edition

Chapter 17. The Basics of Day Trading

In This Chapter

• Exploring day trading

• Deciphering account restrictions

• Reviewing day-trading strategies

• Assessing day-trading risks

Day traders enter and exit trading positions sometimes more than a hundred times within a single day. Day traders may even get into and out of a position within the span of only a minute or two.

Some players compare watching the charts and jumping quickly in and out of positions to the rapid-fire action and excitement of a video game. However, much more is at risk. Instead of merely losing a game, a bad move can mean the loss of your entire portfolio, or maybe even more. Yes, day traders sometimes end up in negative positions, owing money to the firms with which they're trading. We explain how that can happen later in this chapter.

For now, you need to know that day traders rarely hold a stock overnight and that watching a computer screen for hours at a time is a critical part of the day for this high-stress type of trading. Although neither of us is or ever has been a day trader, in this chapter, we nevertheless explain how this type of high-risk trading works, give you some common strategies used by these types of traders, explore restrictions the United States Securities and Exchange Commission (SEC) places on day traders, and show you the high levels of risk day traders face.

What Day Trading Is All About

Day traders try to fashion a career out of buying and selling stocks quickly throughout the day. A certain amount ...