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Generally speaking, anyone that pursues trading as a career or full-time profession can be considered a day trader. Day trading is an option that allows you to best capitalise on unexpected, but lucrative market activity. As a day trader, you are required to consistently and actively engage with the markets using intraday strategies, meaning that you do not maintain a position overnight. In some cases, people opt for automated trading systems, alternatively known as trading robots, to do their day trading for them. By merely setting some predetermined rules and parameters, the robot is then able to trade on one’s behalf and follow through on the entry and exit points dictated by the parameters.
With that said, one of the benefits of day trading is that it helps you avoid overnight risk and market fluctuations that may lead to great losses. These overnight risks may be political or economic, and are often fuelled by macroeconomic conditions. Although market and political conditions do change during the day, at least then the trader is able to react accordingly and mitigate possible losses. When these unfavourable market conditions occur after trading hours/overnight, however, by the time a trader is able to react, it may be too late. Day trading works to avoid such circumstances. Moreover, day traders need to have a great understanding of the markets, historical data to guide strategies and decisions, sufficient resources, as well as the ability to identify lucrative entry and exit points. With that in mind, in order to be a successful day trader, you need to be self-aware and understand that it requires financial and market knowledge, discipline, risk tolerance and consistent commitment to the task at hand.
It goes with saying that all investment opportunities carry a certain level of risk and pros and cons, and day trading is no different. As day trading can be implemented by both forex and stock traders, the best way to prepare yourself to make the most informed decisions, in light of unexpected market changes, is to ensure that you use credible analysis tools and have access to share market analyses online. Below are just some of the pros and cons that are associated with day trading:
The possibility to trade from anywhere in the world and allows one to hold multiple positions at once.
No overnight funding charges apply because positions are not held overnight.
Volatile and presents an opportunity to act fast and immediately on potentially lucrative market changes that occur.
Presents the opportunity to make use of an automated trading system for the repetitive aspects of day trading, based on prior knowledge and experience, to override the human element and flaws in trading.
Minimal chance of getting rich or making an exorbitant amount through one big trade, more often than not, wealth is accumulated through multiple small trades over time.
Multiple transaction fees apply because of the numerous positions held and the fast-paced activity on the financial market that one is involved in.
Very time consuming and requires consistent and disciplined analyses of market conditions.
Because profits are built up gradually over time, there is a risk of losing it all through one major loss.
We hope this blog was able to help you better understand the pros and cons of pursuing a career as a day trader. This being said, what are your conclusions about it? Would you recommend it to a friend? Let us know in the comments below.