What is a Day Trader? | Definition and Example

A day trader is an individual that buys and sells stocks and assets to profit from short-term price shifts. As a day trader, you work up to 12 hours a week. The average working day for a day trader could be from 30 minutes to 2 hours. These traders can even use leverage to strengthen their market returns, but this can also cause their losses to be amplified. 

Day trader in a nutshell

  • A day trader profits from short-term price changes in shares and assets.
  • In day trading, financial assets are bought and sold within one day.
  • Day trading requires a complex investment strategy and is recommended for experienced investors.
  • It is a legal but capital-intensive option that often requires a minimum investment of $25,000.
  • Day traders rarely hold assets overnight and face challenges such as market volatility and competition.

What is Day Trading?

Day trading is a form of stock trading in which individuals buy and sell stocks over the internet during a trading day to take advantage of small price movements. It happens in the stock markets, foreign exchange markets, or future markets. Day trading occurs when you buy or sell the same financial asset on the same day in your margin account. 

Day trading is neither criminal nor dishonest. But day trading requires a complex investing strategy and is only recommended for proficient or seasoned investors. 

Day trading is a legal and legitimate trading option. But most new investors don’t have the time, capital, or understanding it takes to make money sustainably from day trading and be able to continue it. Day trading from cash accounts is strictly prohibited. 

This rule applies to the day trading of any asset.

Understanding day trader

Day traders spend considerable amounts of their days monitoring the markets for trading prospects and observing potentially open positions. Many of their evenings are spent investigating and enhancing their trading strategies and working on their trading skills. 

A week of work for a day trader would include trading, examining, and practicing to strengthen your trading knowledge. A day trader aims to profit from very short-term price movements, requiring detailed market knowledge and a strong trading strategy.

Day trading stocks is a capital-intensive option and can require up to a minimum of $25,000, making this not the best choice for a novice trader. Day trading in stocks is not a good choice for beginners as it requires more initial capital upfront without reassurances or fail-safes. 

Day traders rarely retain assets overnight. It is why they are termed, day traders. Making money consistently in day trading requires several skills and attributes, including knowledge, discipline, trading insight, mental strength, and experience. 

It isn’t easy for beginners to execute or pick up quickly on basic tactics such as limiting losses or making profits. Also, it is difficult to sustain trading discipline due to market challenges like major losses or the market’s volatility

A trader should also remember that day trading is a saturated market with a lot of competition. It requires going head-to-head with millions of market professionals who have access to highly developed technology, extensive market experience, and trading expertise with access to enormous capital.

An example of a day trade

An example of a day trade could be you open a new position of a certain stock at 8am in the morning by purchasing 350 shares in the stock market at a low price. After a while, the price increases, and you choose to sell the shares at a slightly elevated price (per share), leaving you with a profit and closing that exact position with that exact stock by 5pm in the evening. 

To conclude, a day trader is an individual investing in assets with the goal of potential profit due to small price fluctuations or movements in the stock market. 

Binary day trading hinges on speculating on the price relationship between currency pairs. For instance, analyzing the AUD/USD relationship allows traders to predict price movements. If your speculation proves correct within a specified time frame, such as 5 minutes, you can earn a substantial return, often around 85 percent.

How to do day trading with Binary Options?

Binary options day trading refers to an all-or-nothing trade in which traders predict how the price of assets will move within a fixed time frame, with options open for a few minutes to several hours. For instance, speculating on an EUR/USD relationship on a 1-minute expiry can yield a profit of 92% if the prediction is correct.

Our step-by-step guide will take you through the intricacies of day trading binary options:

1. Know the market trends

Besides the simple yes-or-no question, predicting whether the market will exceed a certain price requires in-depth knowledge about the market. Traders need to analyze past events, anticipate future market movements and stay informed about world events. Stay informed about news, politics and technological developments to make accurate predictions.

2. Pick your asset

Dive into markets that captivate your interest, be it politics influencing currency or the intricacies of oil supply and demand. You have the freedom to choose from various underlying assets, including the Forex market, stocks, commodities like gold or oil, cryptocurrencies, stock indices, and more.

3. Choose strike price and expiration

When choosing the right strike price, probability and risk must be balanced. Analyze bid and ask prices to predict how likely it is that the market will reach a certain level. It is important to understand the profit potential and risk associated with each strike.

Traders must carefully select the timeframe based on their market forecasts. It can be set between 5 seconds and several hours.

4. Start trading and monitor expiry

Place the trade by selecting the investment amount and choosing the Higher or Lower option. Wait until the trade expires. Certain brokers allow the trade to be closed early to minimize losses. Making a correct prediction will result in a payout of 75% to 95% of your initial investment, which varies depending on the broker and underlying asset.

Key Indicators for Binary Options Day Trading

Choosing the right indicators for day trading with binary options is crucial. Below, you find three key indicators to successfully day-trade binary options:

  1. Relative Strength Index (RSI)
    • The RSI indicates whether a market is overbought or oversold.
    • Day traders use the RSI to make informed decisions about entry and exit points.
  2. Moving Averages (MA)
    • Identify support and resistance levels.
    • Traders use MAs to understand the performance of an asset compared to the previous day, thus helping to analyze trends.
  3. Average True Range (ATR)
    • Based on a 14-day moving average, the ATR helps to estimate potential price movements.
    • ATR highlights minimum and maximum limits.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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