Learning objectives

After studying this chapter the student should be able to understand:
• Meaning and advantages of day trading
• Risks involves in day trading
• Strategies for day trading
• Momentum trading strategy
• Techniques for entry and exit in momentum trade

5.1 Day trading

Day trading means buying and selling a stock within the same day. The positions are closed before the market close for the trading day. Day trading is about discipline and training of mind. It is about waiting in the trenches till the right opportunity appears. The goal of a day trader is to capitalize on price movement within one trading day. Day traders maximize profits by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks or indexes. Because of the nature of financial leverage and the rapid returns that are possible, day trading can be either extremely profitable or extremely unprofitable, and high-risk profile traders can generate either huge percentage returns or huge percentage losses. Some day traders manage to earn millions per year solely by day trading.