what is a day trader 
a day trader is a type of trader who executes a relatively large volume of short and long trades to capitalize on intraday market price action the goal is to profit from very short term price movements day traders can also use leverage to amplify returns which can also amplify losses while many strategies are employed by day traders the price action sought after is a result of temporary supply and demand inefficiencies caused due to purchases and sales of the asset typically positions are held from periods of milliseconds to hours and are generally closed out before the end of the day so that no risk is held after hours or overnight understanding day tradersthere is no special qualification required to become a day trader instead day traders are classified based on the frequency of their trading the financial industry regulatory authority finra and u s securities and exchange commission classify day traders based on whether they trade four or more times during a five day span provided the number of day trades is more than 6 of the customer s total trading activity during that period or the brokerage investment firm where they have opened an account considers them a day trader 12a day trader often closes all trades before the end of the trading day so as not to hold open positions overnight a day trader s effectiveness may be limited by the bid ask spread trading commissions as well as expenses for real time news feeds and analytics software successful day trading requires extensive knowledge and experience day traders employ a variety of methods to make trading decisions some traders employ computer trading models that use technical analysis to calculate favorable probabilities while some trade on their instinct day traders are subject to capital and margin maintenance requirements a day trader is primarily concerned with the price action characteristics of a stock this is unlike investors who use fundamental data to analyze the long term growth potential of a company to decide whether to buy sell or hold its stock price volatility and average day range are critical to a day trader a security must have sufficient price movement for a day trader to achieve a profit volume and liquidity are also crucial because entering and exiting trades quickly is vital to capturing small profits per trade securities with a small daily range or light daily volume would not be of interest to a day trader a pattern day trader pdt is a regulatory designation for those traders or investors that execute four or more day trades over the span of five business days using a margin account the number of day trades must constitute more than 6 of the margin account s total trade activity during that five day window if this occurs the trader s account will be flagged as a pdt by their broker the pdt designation places certain restrictions on further trading this designation is put in place to discourage investors from trading excessively day trader techniquesday traders are attuned to events that cause short term market moves trading 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 benefit day traders another trading method is known as fading the gap at the open when the opening price shows a gap from the previous day s close taking a position in the opposite direction of the gap is known as fading the gap for days when there is no news or there are no gaps early in the morning day traders will take a view on the general direction of the market if they expect the market to move up they would buy securities that exhibit strength when their prices dip if the market is trending down they would short securities that exhibit weakness when their prices bounce most independent day traders have short days working two to five hours per day often they will practice making simulated trades for several months before beginning to make live trades they track their successes and failures versus the market aiming to learn by experience day trader strategiesday traders use several intraday strategies these may include advantages and disadvantages of day tradingthe most significant benefit of day trading is that positions are not affected by the possibility of negative overnight news that has the potential to impact the price of securities materially such news includes vital economic and earnings reports as well as broker upgrades and downgrades that occur either before the market opens or after the market closes another advantage is the ability to use tight stop loss orders the act of raising a stop price to minimize losses from a long position another includes the increased access to margin and hence greater leverage day trading also provides traders with more learning opportunities intraday traders may have insufficient time for a position to see a profit there are also increased commission costs due to trading more frequently which eats away at the profit margins a trader can expect day traders that engage in short selling or use margin to leverage long positions can see losses amplify quickly leading to margin calls positions are usually closed at the end of each day and are so unaffected by risk from overnight news or off hours broker moves tight stop loss orders can protect positions from extreme movements regular traders have access to increased leverage and lower commissions numerous trades increase hands on learning experience frequent trades do mean multiple commission costs some assets are off limits like mutual funds there may not be sufficient time for a position to realize a profit before it has to be closed out losses can mount quickly especially if margin is used to finance purchases margin calls are a real risk example of day tradingzack is a day trader who uses technical analysis to make trades with his brokerage account by analyzing price trends over a single day he is able to predict short term movements to score a small profit several times per day during a typical trading day zack will watch metrics such as the relative strength index and the intraday momentum index to evaluate whether a particular stock is oversold or undersold he may also use margin trading to increase his profits he may also use stop loss orders to exit positions quickly if the market turns against him if zack is a successful day trader then he expects to have more profitable trades than losing ones over the course of the day however one bad trade could wipe out his margin position due to this risk day trading is sometimes compared to picking up pennies in front of a steamroller day trading vs other types of tradingday trading is one of several strategies for professional stock traders unlike other traders they look for predictable price patterns and small corrections over the course of a single trading day although the profits are relatively small they can accumulate over a long enough time frame day traders typically close out their positions at the end of the trading day reducing their exposure to swings in the overseas markets in contrast swing traders try to anticipate the peaks and troughs of a stock s price movements over a longer time frame often weeks or months with the right strategy swing traders can earn higher profits than intraday traders but they have to spend more time looking for suitable stocks similar to swing traders trend traders examine a stock s momentum and moving averages to determine whether a stock is likely to move higher or lower they then buy stocks with a strong upside or short those likely to trend lower trend traders are likely to look for chart patterns or technical indicators in their forecasts 