1. An introduction

The Basics of Day Trading

Day trading usually refers to the practice of purchasing and selling a security within a single trading day. It can occur in any marketplace but is most common in the foreign exchange (forex) and stock markets. Day traders are typically well educated and well funded. They use high amounts of leverage and short-term trading strategies to capitalize on small price movements that occur in highly liquid stocks or currencies.

Day traders are attuned to events that cause short-term market moves. Trading based on the news is a popular technique. Scheduled announcements such as economic statistics, corporate earnings, or interest rates are subject to market expectations and market psychology. Markets react when those expectations are not met or are exceeded—usually with sudden, significant moves—which can greatly benefit day traders.

Day traders use numerous intraday strategies. These strategies include:

  • Scalping:This strategy attempts to make numerous small profits on small price changes throughout the day.
  • Range trading: This strategy primarily uses support and resistance levels to determine buy and sell decisions.
  • News-based trading: This strategy typically seizes trading opportunities from the heightened volatility around news events.
  • High-frequency trading (HFT): These strategies use sophisticated algorithms to exploit small or short-term market inefficiencies.

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