Day trading is an attempt to micro-manage the market by capitalizing on stock market fluctuations over a short period of time. Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day traders usually buy on borrowed money, hoping that they will reap higher profits through leverage, but running the risk of higher losses too. It is not unusual for an investor to buy and sell a stock within one hour.
Day traders sit in front of computer screens and look for a stock that is either moving up or down in value. They want to ride the momentum of the stock and get out of the stock before it changes course. They do not know for certain how the stock will move, they are hoping that it will move in one direction, either up or down in value. True day traders do not own any stocks overnight because of the extreme risk that prices will change radically from one day to the next, leading to large losses. Day traders must watch the market continuously during the day at their computer terminals. It's extremely difficult and demands great concentration to watch dozens of ticker quotes and price fluctuations to spot market trends.
Since, fundamental analysis is a tool more useful in the long-term investing, technical analysis is a more popular tool with day traders. There are materials out there that range from books and newsletters, to computer programs. Some of the programs are complicated computer models which are designed to analyze data and automatically generate buy and sell recommendations.
There are several disadvantages to the day trading investing strategy. One is that most day trading companies/services make a significant portion of their revenues from the commissions they charge for transactions. This amount could be quite high in case of day trading, where high frequency and volume of trades takes place. Borrowing money to trade in stocks is always a risky business. Day trading strategies demand using the leverage of borrowed money to make profits. This is why many day traders lose all their money and may end up in debt as well. Because each day trade brings realized gain or loss, the cost of investing is the government short-term capital gain tax. Finally, day trading carries a heavier risk because of the unpredictability of the stock market in the short run. The smallest economic, political, or market factor might cause a stock to dip unexpectedly resulting in a potential loss.
Although there are successful day traders, these people are more the exception than the rule. The biggest profit takers in this particular industry are the so called "experts" who market the books, websites and materials. Because their livelihood is attached to selling their products, they are obviously going to make day trading sound as attractive as possible. However, in general people tend to loose more than they make, which doesn't translate into a very good investment.
