Day Trading Guide – Chapter 3: Taking Up Day Trading As a Living

We can divide professional traders into two categories. The first category are those who are employed in large institutions. The second category are those who work alone. The majority of day traders are actually those who are employed in large institutions. This group of traders has access to a large reserve of capital and margin, a direct line to the dealing desk, and special analytical software to help them spot trends in the market.

They are especially interested in opportunities to make a quick profit that can be had from news events or from arbitrages. With the array of resources that they have at hand, they are able to capitalize on these opportunities before the individual day trader even has the chance to react.

Individual day traders on the other hand, usually trade with their own money or with money entrusted to them by others for day trading. Some might have access to a dealing desk but normally they have a strong relationship with a brokerage firm due to the amount of commissions that they bring in to the brokerage. Nevertheless, due to the limited nature of their resources, they have little chance of competing head on with any of the big players in the market. As such, to be able to realize profits, they have to take bigger risks. Usually, these traders have to rely extensively on technical analysis and swing trades coupled with some leverage trading to be able to make enough profits from the small fluctuations typical of day trading.

Prerequisites of a Day Trader:

Experience and knowledge of the marketplace:

Day trading is like walking into the lion’s den. If you do not have any experiences or knowledge of the market that you are dealing with, you will definitely end up losing your shirt.

Sufficient Capital:

You will need sufficient capital to deal with enough volume to generate a profit from the small fluctuations typical of day trading. In addition, with sufficient capital, you will not have the problem of your emotions interfering with your trading decisions. Never embark into day trading hoping to make money. You can only do so if you have risk capital. Otherwise, your trading will be flawed in many ways due to insufficient capital.

Strategy:

To get ahead of the market, an individual day trader must have a proper trading strategy. There are arrays of strategies which one can adopt in day trading. These include: arbitrage, fundamental analysis, swing trading, technical analysis, trading news and many others. A day trader will continue refining these strategies until they reach a point where they will be able to yield a consistent profit stream and eliminate losses.

Discipline:

Even the best strategy is useless without discipline. The saying is “Plan the trade and trade the plan”. Although easier said than done, without discipline, you can never achieve success in day trading.

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