Day Trading Versus Long-Term Investing – Discover What’s Best For You

The day trader’s primary objective would be to trade expensive and volatile stocks on the NASDAQ and NYSE markets in increments of 1000 shares or more, and make money from the small intra-day price movement.

The day trader could make many trades within a day, holding onto stocks for only several minutes (or hours), and almost never overnight. Day traders are short-term price speculators. They are not investors, and they are not gamblers.

Day trading is not investing. The day trader’s time period of analysis is rather brief: one day. Their only intent is to exploit the stock’s intra-day value swings or day-to-day price volatility. In contrast to stock investors, day traders do not seek long-term value appreciation.

Stock volatility is generally a rule of the market rather than an exception. Most stock costs move up or down in any given day because of various external elements.

Even when the marketplace is relatively calm, there are often stocks that are volatile. Day traders seek to identify a stock that seems to have a trend and then go with that trend. “Trend is usually a friend” is a common motto amongst day traders.

Day traders try to pick up a relatively little stock movement, 1/8 or more on that stock. If day traders are trading a large block of shares (that is, 1000 shares per trade), then day traders may profit $125 from a 1/8 price movement.

On the other hand, if a day trader acquired 1000 shares and the trader was wrong, which also happens, then the day trader will burn $125 from a 1/8 price movement. Volatility is really a double-edged sword.

For highly-priced stocks that trade for $100 or more, a 1/8 or 13 cents movement is such a tiny relative value change that it occurs all the time. Consequently there are plenty of day trading opportunities.

It isn’t common to see a day trader executing many, sometimes as many as 100, trades in a day. Alternatively, an investor’s time frame is considerably longer. Investors seek a much wider price movement than 1/8 to earn the desired rate of return. That takes time.

In brief, day traders seek to extract an income from intra-day price volatility by trading the stock regularly, whilst the investors seek a long-term capital appreciation.

If you are in need of instant business capital and are keen on putting your money into the stock market, success doesn’t take place overnight.

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