What is Day Trading?
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What is a Day Trader?
The term Day Trader has been coined
to describe individuals who trade stocks and other securities
within a narrow window of time - typically a single day. Unfortunately,
most definitions that are circulating today tend to emphasize
the duration of the activity (a single day) rather than the
nature of the activity itself (trading). This focus provides
only half of the picture.
In order to fully understand the
concept of Day Trading it is necessary to realize that there
is a fundamental difference between "trading" stocks
and "investing" in stocks. This distinction is extremely
important - because it gets to the root of the controversy
surrounding the Day Trading industry.
Trading by its nature requires speculation
and speculation involves risk. Day Traders essentially place
bets on the direction of stock price fluctuations in a handful
of volatile stocks. Price volatility is much more important
to the Day Trader than traditional investment fundamentals.
Investing, on the other hand, involves
a careful assessment of market fundamentals. Stock selections
are made on the basis of a company's current and long term
market position and expected future earnings outlook. This
more distant time horizon requires patience and a degree of
diversification. More importantly, however, it allows investors
to ignore short term volatility. Value is created as earnings
grow over time.
How
Does Day Trading Work?
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