What Is Day Trading?
This is the definition of day trading in the context of forex trading: buying and selling of currency pairs over a one-day period with the objective of profiting from the price moves that are made within that day.
Day trading is also known as ‘Intraday trading’ where day traders are usually entering and exiting trades within the same trading day. This simply means that no trade is carried overnight.
So is forex scalping day trading? The answer is yes… forex scalping is an intraday trading technique that fits into the day trading category.
So day traders are much more interested in quicker and smaller profits. Day traders do all their trading during the day when the day is over, they shut shop (stop trading).
7 Advantages of Day Trading
- day trading is about taking smaller profit targets therefore if you take smaller profit targets then the risk per trade you take is also small.
- a successful day trader can use the power of compounding to increase the overall profits because of the many trades that are placed each day.
- day trader can make money a lot faster
- some day traders like day trading just because of the rush.
- a day trader is always actively participating in the market.
- Because day traders close their trades at the end of the day, they are then able to take advantage of interest earned in their account.
- They limit the risk of leaving their trades running overnight because anything unexpected can happen in the market overnight like bad economic news etc that can cause the price to fluctuate wildly and wipe out their profits or even their forex trading accounts
9 Disadvantages of Day Trading
- Day traders trade a lot therefore, their transaction costs are much higher because of the spread and this can impact your profits.
- Day trading can be very difficult to learn and master and it can be quite difficult for many to become successful unlike price action trading and swing trading.
- As a day trader, you need to spend a lot more time in front of your computer waiting for setups and therefore it is really time-consuming and if you have a full-time job, day trading will not work for you.
- Day trading is a fast paced activity and day traders need a lot of concentration therefore it can be very stressful.
- As a day trader, you put your trading account at a lot more risk because you are taking many trades a day and therefore you can lose a lot of money in a very short period of time.
In day trading, a small mistake can result in a huge loss.
- Because day traders just focus on the very shorter period, they ignore the bigger trends that cause big market moves and therefore it can be a bit hard to predict the market.
- Day trading can become addictive and if a day trader is not careful, this can almost make day trading like gambling.