Day trading was once the domain of people who had access to ticker-tape machines that eventually evolved into early networks using dumb terminals. Then the internet came into being, and day traders had near real-time access to the stock market. Brokerage houses opened up access via trading accounts, and the rest was history. Just about anyone can become a day trader with a computer or smartphone and the ability to track stocks wherever he or she may be. But day trading is more than simply buying a stock and flipping it when it increases in value. Here’s what you need to know about day trading in the digital age.
The Human Element
Image via Flickr by cogdogblog
Traders have long looked toward automation when it comes to day trading. The idea that a computer can track trends and make trading decisions on its own is a tantalizing one. Unfortunately, the reality doesn’t hold up to theory. Computers can be used to execute trades when stocks reach a certain price point, but they don’t have native intuition when it comes to picking a stock or determing whether it’s better to buy or hold even though a desired amount has been reached. Don’t underestimate your own instincts when it comes to picking, buying, selling, or holding, as a computer AI won’t have the same insights.
Picking a Brokerage
All brokerages are not created equal. You want a brokerage that caters to day traders and provides the priorities you need to execute a trade with the least amount of slippage. Brokerages that are day-trader-friendly will make it a point to let you know about their services in order to attract your business. Look for a brokerage that offers fast trades, low-cost trades for high volume, and trading tools that help you execute your trading strategies or even improve upon them.
Always keep in mind that brokerages are going to charge fees in order to make money on their end. It’s part of the cost of doing business so make sure you’re comfortable with the fees that are being charged and that there are options to keep them at a minimum.
Be a Flexible Trader
Let’s say you bought a stock prior to its earnings report coming out in order to take advantage of a potential price increase. However, the stock wound up underperforming, which shook its price lower. Remember that the stock may not always stay that low, especially if it’s got a proven performance history. Holding onto that stock for a while won’t do you any harm, and you can wait for the stock to return to its purchase price or increase in value to a point where selling it will net you a return.
Being a day trader can be a lucrative experience, provided you’re willing to be patient and put in the effort to learn how it works. The digital age has made it a lot easier to day trade, but the fundamentals of the stock market haven’t changed. Be smart, be patient, and do your research before you make a trade.
Rachel Slifka is a freelance writer and human resources professional. She is passionate about helping fellow millennials find success with their finances and careers. Read more by checking out her website at RachelSlifka.com.