The day trader or intraday trader is defined as the person who operates in the stock market in the very short term, seeking to benefit from market movements and implicit volatilities that may exist in daily operations. For this, the trader will base his decisions on the technical analysis and the fundamental analysis.
A day trader buys and sells on the same day. In this way, it tries to avoid the financing costs of the interbank market, as a result of the extra cost of maintaining operations for more than one day or overnight operations in cash markets, which can reduce the expected return on your investment.
A cash market that has financing costs, for example, is the Forex market . This financing cost varies daily depending on how the difference in interest rates of the currencies on which you want to operate are, being its price base, the interest rates imposed by the Central Banks of each country.
In this regard, there are intermediaries such as broker financial rate market maker , who take advantage of this situation by charging a differential to the customer, usually associated with the Euribor or the Libor , called mark up , with the cost of much higher funding cost market. If we add that we also have to take into account the spread , that is, the difference between the purchase price and the sale price, where the broker will also put a premium or mark up on what he receives from his liquidity providers or liquidity provider .
In short, we can say that intraday operations become very difficult and that the one that does the most operations in a day does not earn more, but the one who knows when to enter the market, when to exit it, how to adjust its risk and how to cut a failed operation, in addition to adequate monetary management with reduced leverage and adequate mathematical logic between the volume of orders you enter.
Types of day trader
Generally, there are two types of Day Trader (see types of trading ):
- Scalper:the speculator seeks to benefit from the movements of the stock market constantly operating in a few seconds or minutes, here the automatic investment systems, prop trading and high frequency trading would come into play . In this regard, there are many theories that say that it is not the way to earn money on the stock market, since people who earn money on the stock market, which are not many, do so in the long term.
- Swing trader:It is a technique that is based on the trader carrying out purchase-sale operations but in a broader time frame, from hourly operations, to operations that can last in the market for several days.
Day Trader Routine
There are a number of daily methods that a Day Trader must carry. This text does not pretend to be the bible about how to have a daily routine when trading in the stock market, but it does pretend to give a series of guidelines in this regard:
- First thing in the morning, starting at 7:00, we must do a series of exercises and stretching to prepare the mind and body for the psychological activity of the stock market investment. We have to keep in mind that we are handling money and this can affect us. Sooner and later we will make mistakes, from these we will learn. No one is born knowing, error-proof and with perseverance we will achieve our goals.
- Set a maximum loss stop, the possible strategy to follow, seeing the closures of the previous day in the technical term through the price charts.
- Review the economic dataand closures from Asia and Oceania (Japan, China, Australia) mainly, to see what the market sentiment is and how it can affect the European opening at 9:00 in the morning.
- Analyze the risk that exists in the opening, economic news that may affect the asset in question both at the microeconomic level and at the macroeconomic level, data such as GDP , non-agricultural ADP, comments by the Fed or the ECB , possible interest rate changes . We must reduce our market exposure at the time this news is published, if we do not have much experience, since the volatility that is generated is very large, we must control the mind and the famous fat finger .
- Have the strategy clearly defined, analyze the correlations between the different assets, currencies , raw materials, indexes , stocks , bonds , etc. We must know and quantify the risk of operations, when cutting the bleeding if we make a mistake in the operation, sometimes it is better to lose 100 euros than to lose 500 euros, control leverage, have a favorable benefit-risk ratio.
- Attentive to the opening of the American market, being the largest market in the world and acting in a global context, its news affects the rest of the economies