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Day traders should never be confused with day trippers … while most days they may have a one-way ticket, it might not always be a winning one. Basically a day trader is somebody who buys and sells shares and other financial instruments such as futures and options on a frequent basis. Often it is within the same day and certainly on an active basis. For some it's an intensive hobby and for others they have given up their day job and spend every weekday watching the markets. Rarely would you find somebody start as a day trader from nowhere; inevitably it is an interest in the markets that builds up over time.
Daley describes the type of person best suited to active trading as someone "who has the time to monitor the sharemarket regularly, is able to analyse market and company performances, can understand the greater economic and business issues affecting industry sectors and is comfortable with trading stocks regularly.
You also need to be self-directed and disciplined. While not all day traders are alike, the one thing they all have in common is a strategy or trading plan. However, the nature of these strategies can vary significantly in terms of risk, assessment techniques, size and even types of investments traded. Diversification is the name of the game, particularly if you are gearing into your trades otherwise the risks can be substantial.
You need to diversify across companies and across industries, so that if one sector falls, you limit the downside. The Commsec product allows you to monitor movements as they happen, personalise your desktop for your trading style and place orders. In addition to this, many traders use software programs or toolboxes that reflect their trading style. Some programs are set "black box" programs which just provide you with a proprietary system that tells you when to buy and sell without explaining the reasoning behind the decision.
You are probably better with a program that gives you the flexibility to adapt it to your own needs. And this is where you need to educate yourself so you are in a position to make the toolbox your own and thus make wise trading decisions.
What you choose will depend on your strategy. The different strategies include charting, momentum trading, mispricing and fundamentals. Whatever strategy you choose you need to be disciplined in your trading to maximise your returns.
So, for instance, if your rule of thumb is that once a share price grows by 10 percent, you will sell out, you should stick with it. Commsec, for instance, has a tool that automatically triggers a sale when you reach your target.
The new product on the block is the contract for difference or CFD, where you can bet on whether a share will go up or down without physically owning the stock.
However, as CFDs are traded using leverage, if you misjudge the market your losses will be amplified. Another increasingly popular type of trading, according to Dan Semmler, associate director at Macquarie Equities Markets Group, is pairs trading where you go long in one stock and short in another but in the same market sector.
Karen Robinson from Queensland gave up full-time work as a professional musician back in to concentrate on day trading. Robinson is a chartist and so she chooses not to look at the fundamentals of the company at all bur rather the patterns in speculative stocks. Her first foray into the market was back in the dotcom boom where she entered as a long-term investor only to see all her gains disappear when the bubble burst. It took me a couple of years to know what I was doing.
By Gillian Bullock Mar 2nd, By Gillian Bullock, ninemsn Money Day traders should never be confused with day trippers … while most days they may have a one-way ticket, it might not always be a winning one. So what is a day trader and what does it take to be one?
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