Traders are professionals involved in the financial markets, engaging in the buying and selling of stocks, futures, foreign exchange, and other financial derivatives, aiming to achieve small gains through frequent transactions in the short term. Traders employ various trading strategies and styles, ranging from institutional traders who trade billions of dollars daily to independent traders working from home.
Key points include:
Traders participate in the market by buying and selling securities; day traders typically complete their transactions within a single day.
Day trading can occur in any market, but it is most common in the stock and foreign exchange markets.
Day traders utilize leverage and short-term trading strategies to profit from minor fluctuations in highly liquid or heavily traded currencies or stocks.
Discretionary traders trade based on personal research and judgment, while system traders use computer programs to automatically execute trades.
When not executing trades, traders monitor multiple markets, conduct research, read analysts' commentary or reports on securities in the media, and exchange information with other traders.
Traders and Various Trading Styles
Traders can also be classified based on how long they hold positions (i.e., holding period) and how they identify trading opportunities and place orders. Discretionary traders are decision-based traders who observe market conditions and make decisions based on available information at the time. System traders, on the other hand, focus on automation, using a set of clear rules to let computers scan for market trading opportunities and execute orders automatically.
The following table outlines each trading style, its corresponding time range, and methodology.
Traders vary individually, and there isn't a so-called "typical" day for a trader. It is also difficult to determine the average return rate of day traders.
With this in mind, let's explore a common day for a day trader, which is how many get started with trading.
Pre-market
Before the market opens at 9:30 AM Eastern Time, most day traders are busy preparing, having breakfast while keeping an eye on overnight events that might affect the day's trading. They read various newspapers and financial websites, as well as listen to the latest reports on financial news networks like CNBC and Bloomberg.
The futures markets and overall market indices are considered crucial for traders to form opinions about potential market directions. Traders also examine the economic calendar to understand important financial reports due for release that day, such as the weekly petroleum supply status report. It's noteworthy that many traders engage in round-the-clock markets like futures and forex, where more trading activity might occur before the 9:30 AM Eastern Time market open.
After understanding the event landscape and noting analysts' opinions, traders head to their offices, power up their computers and monitors, and launch analysis and trading platforms. There's a multi-layered stack of technology involved, from the trader's computer, keyboard, and mouse to the internet, trading platforms, brokers, and finally, the exchanges. Thus, traders spend time ensuring everything on their end is functioning properly to ensure readiness before the trading session begins.
If everything is operational, traders start scanning the market for potential trading opportunities. Some traders focus on one or two markets (like a couple of stocks or electronic futures) and open those charts applying selected technical indicators to gauge the markets. Others use market scanning software to find securities meeting their precise criteria. For instance, a trader might scan for stocks trading above their 52-week high, with a trading volume of at least 4 million shares, and a minimum price of $10. Once the computer generates a list of stocks fitting these criteria, traders add them to a watchlist.
Early Trading Stage
The first half-hour of trading is often highly volatile, hence many individual traders opt to observe and wait for the market to stabilize to avoid being forced to close positions immediately.
Now, it becomes a waiting game, as traders look for trading opportunities based on their trading plans, experience, intuition, and current market activity. For trades with shorter holding times and smaller profit targets, precision and timing become increasingly important. Once an opportunity presents itself, a trader must act swiftly to identify and seize it—mere seconds can make a crucial difference between profit and loss.
Traders use order entry interfaces to submit orders to the market. Many also submit orders for profit targets and stop-losses simultaneously to protect against adverse price movements. Depending on their objectives, traders either wait for that position to close before entering another or continue scanning the market for additional opportunities.
Many traders also look for trading opportunities later in the morning. As the U.S. session approaches midday, with Asian and European trading gradually leaving the financial markets, whether it's the stock market, foreign exchange market, or other financial markets, they enter a relatively calm trading period, during which price fluctuations and trading volumes shrink. Therefore, many day traders aim to secure profits or unwind positions before the U.S. midday session ends.
Late Afternoon's Second Wave
Once institutional traders return to the market post-lunch and meetings, market activity, trading volume, and price volatility become active again. Traders seize this second wave of opportunity, looking for additional trading prospects to engage in before the market closes at 4 PM Eastern Time. Positions entered in the morning now must be closed before the day ends, so traders are keen to enter trades as early as possible to achieve their profit targets before the trading day concludes.
Traders continue to monitor their positions and look for more opportunities. As day traders don't hold positions overnight, many set a cutoff time after which they no longer open new positions (for example, 3:30 PM). This ensures they have enough time to realize profits before the market closes.
Approaching 4 PM, traders close all positions and cancel any open orders. This step is critical, as open orders could execute without the trader's awareness, potentially leading to losses. Traders end the trading day either with a profit, breaking even, or at a loss. Regardless, this is just part of the job, and experienced traders neither celebrate profits nor mourn losses. What matters most to traders is long-term performance.
Post-market
After the market closes, traders wrap up their day by reviewing their trades to summarize the day, noting what went well and what could be improved. Many traders use a trading journal, a written record that includes notes on all traded securities, the trade setup (why a trade was made), entry and exit prices, the number of shares, and any market conditions relevant to the trade or that might have affected it.
If traders consistently use a trading journal, then it can provide valuable information for traders seeking to improve their trading plan and performance. Many traders then return to financial news networks to review the day and begin planning for the next trading session.
Summary:
Day trading offers many advantages. You can be your own boss, set your own schedule, and potentially achieve limitless earnings while working from home. Despite often hearing about these benefits, it's important to note that day trading is also very demanding, and you might work 40 hours a week without making any money.
Day traders spend most of their time scanning markets for trading opportunities and monitoring open positions, while evenings are spent largely on research and improving their trading plan. Trading can be a solitary job, some traders choose to join trading "chat rooms," not just for social reasons but also to gain educational information.
