Day-trading offers many advantages over short-term trading or long-term investing. Typically a day-trader is out of the market at the end of the day, so there is no overnight risk. The day-trader watches the market in real time, enabling him to adjust his position live as the market develops. The frequent trades develops his skill much faster and will help to maintain it at its peak. Trades typically have lower risk with smaller losses and there is a quicker return when they are profitable.

The disadvantages of day-trading are also many. Over trading is a real problem with most day-traders. Quicker analysis and decisions, along with faster responses, are demanded. Emotion frequently interferes with good judgment and its roller coaster ride can be extreme. A margin account can be drained faster than with any other type of trading. Most day-traders give up regular careers in order to trade during regular business hours and so trading often becomes their only source of income, placing a great financial pressure on them. Still, most would agree that they wouldn’t trade day-trading for any other career.

When I first started day-trading I found it to be very stressful. I chose as my day-trading market the S&P e-mini, a market I knew well and felt comfortable with. The day would start out well, but as mid-day approached I found myself struggling and making trades repeatedly as I tried to keep up with the frequent changes in direction. Afternoon would ease the stress some, but I found myself so exhausted that I could not focus well. I would make some profits, but by the end of the day I would find that I had spent so much in transaction costs that the profits were very meager. After a few weeks I found myself too worn out to get up and trade, particularly if I had just traded the day before. So I started to skip days that I would trade. Eventually, I was reduced to trading at best just every other day. It was clear that the income was far too little for my needs and I knew that any hope of a long term career in day-trading was in serious trouble. At first I thought I had to just force myself to trade more, but when I did so the situation still didn’t improve. In fact, it seemed to get even worse.

When I stepped back and analyzed what was going wrong I realize several issues were standing in my way. First, I was over trading. By the end of the day I would accumulate anywhere between $150.00 to $225.00 just in transaction costs, a huge portion of what I was making in profits those days. Second, I was getting too stressed out and this was impacting my ability to focus as well as eating away at my enthusiasm for trading. I simply didn’t enjoy it anymore. Third, most of the over trading and stress was occurring during the mid-part of the day.

When I reviewed what was actually happening in the market during the day I noticed that typically a trend would develop in the morning and afternoon, which were easier to trade and make a profit off of. But during the mid-part of the day the volume dropped off significantly and the market had a tendency to form a consolidation that was much harder to trade and required more frequent trades. It was during this time that the losses dramatically increased.

After realizing these facts I then decided that I would just eliminate all trading during the mid-part of the day. I would instead only trade the first two hours of the morning and the last two hours in the afternoon.

As soon as I implemented this plan I saw an immediate change in the end results. Trading was less stressful, less frequent and of course, less costly since the number of my transactions had dropped off significantly. I was able to take my time and enjoy a pleasant lunch and even though I was spending less time actually trading, I was still much more profitable. Trading was enjoyable again.

When I first started trading I would have hardly imagined that this simply change would have such a drastic effect. My ideal job turned out to be even more ideal than I originally thought it to be. I really liked the fact that I now had a legitimate reason for taking a two hour lunch, it actually made me more profitable.

My experience highlights the importance of taking into consideration the time you spend actually trading and adjusting your schedule to match what is best for the markets. If this simple change had such an immense bearing on my results, imagine what a similar change could do for you and your trading.

In reflection, there are a number of factors that I learned from this experience. First, it is best to trade when the market has a tendency to trend. Consolidations can be hard work, stressful and very frustrating. Trends are much easier to trade, are easier to read and are more forgiving if you make a mistake. While this depends on the consolidation and the trend, likely you have found these conclusion true for yourself.

The first time that I traded the Forex I had a similar experience just as I did when trading the S&P e-mini. By examining the times that the Forex repeatedly trended I was able to again improve my results by adjusting when I traded.

Additionally, markets have periods of time when they will tend to trend more often. The S&P e-mini will trend more often during the morning and afternoon sessions, the Forex will trend more often when a major international exchange opens and most markets in general will trend more often when their respective floors are open for business.

When the traders are mostly trading then the market will mostly trend.

By taking the usual trending times of a market into consideration and adjusting the time that you trade to match it, you too are likely to improve your results. All it requires is for you to review several days of a market in order to discover which times are best for trading. While a market can trend at any time, trading when it is more likely to do so will make it much easier to trade.

Author: Michael J Parsons
Article Source: EzineArticles.com
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As a trader that utilizes both short-term and day-trading strategies, I have been given a unique insight into the true benefits and disadvantages of both. As a teacher of trading, I have also had the opportunity to hear many oft quoted expressions in regard to trading that are firmly believed, but simply do not hold up under scrutiny. Many of these center on the subject of day-trading. If you are interested in day-trading, then it behooves you to know what is true and what is not.

Myth 1 – Day-trading is risky, much more than short-term trading or investing.

Without doubt, the risk is greater for short-term trading. In any single trade you are risking far less in a day-trade than in ether a short-term trade or long-term investment. What gives the appearance of greater risk is that you are typically taking more trades. Even on my worse day I have never lost as much as I have short-term trading. Yes, that is right. Even on my worse day combining all of those day trades I still have not matched what I have lost with some of my short-term trades even though they are just one single trade. My own experience demonstrates that short-term trading and investing often proves riskier than day-trading. Surprised? You shouldn’t be, it is a matter of common sense. How much do you risk on a day trade as opposed to a short term trade? If a short-term trade has so much of a greater potential loss than any day trade what is going to be the naturally outcome when trades go bad?

Myth 2 – Day-trading is gambling

Any trading is gambling if you trade without a plan or allow emotion to control your decisions. The key difference is whether you are putting the odds in your favor or not. If you are doing so then the trading, whether you are talking about short-term, investing, or day-trading, becomes a business. If you can’t put the odds in your favor then all of them can be considered gambling. None have an advantage over another.

Myth 3 – Day-trading ties you to a computer all day

I have to laugh at this myth. My typical day is an hour and a half in the morning and two hours in the afternoon, with a two hour lunch break. Even when I am trading I don’t watch the market all the time because I am waiting for set ups to develop, so often I am playing a game on the computer or watching television while waiting. There are limited times when a market trends during the day, the most profitable times to trade. Most of the time it just consolidates. During these down times when the market is in consolidation there is no need to watch the markets like a hawk. There are very simple ways to alert you when it is time to prepare for a trade. Frequent breaks should be the norm, not the rarity. I don’t know of any other career that can pay you as much and yet give you so much free time.

Myth 4 – Day-trading is too stressful

Any trading is stressful if you are losing money, just as any trading is easy if you are making lots of profit. It isn’t the type of trading, but how well you adapt to it and whether you are successful or not. The stress of day-trading typically results from two things; poor trading and the inability to adjust emotionally to the fast pace. Day-trading requires much faster responses because they are made in real time. There isn’t much time to analyze and then reanalyze a situation before making a decision like a person might do with short-term trades. So a trader needs to know their trading method well, to the point that it is almost second nature and they also need to keep their emotions in check. While it may be difficult to initially do this, many of us have already mastered other endeavors that require real time critical decisions, such as driving an automobile. To acquire such ability is a simply matter of practice, practice and then more practice.

Myth 5 – The Biggest money is made on longer term moves lasting weeks or longer

A day-trader can double, triple, quadruple, and more beyond that of a person trading the longer term trend. This is because a market will naturally weave up and down as it develops, allowing for repeated profits covering the very same range. Having done both I know firsthand that a successful day-trader can blow away any short-term or long term investor when it comes to profits. The only time a short-term trader will manage to make more profit is when a market gaps overnight, but even with this figured in a successful day-trader will usually be rewarded much more handsomely over the long term.

Myth 6 – When you day trade you miss out on the big profits generated by overnight gaps

You also miss out on the overnight losses as well. Gaps indicate high volatility and in many cases the market will swing violently both ways. Day-trading protects you from that overnight risk. But here is the surprising twist about overnight gaps; it is not uncommon for a market to close an overnight gap during the day, giving a day trader a chance to capture the profit generated by overnight trading anyway. There are of course some markets that are not well suited for day-trading, while others are. So market choice can make a considerable difference when it comes to this issue. Trading a market that is inclined to overlap itself during the day will more than make up for any overnight gaps that occur.

While there are many more myths that could be dispelled here, it is also important to be balanced and consider the other side of the coin; the negative aspect of day-trading. While day-trading is a great way to make a living when you are consistently profitable, it can also be the worse career choice if you consistently lose. This is true of any type of trading, but in day-trading an individual typically has given up a regular job and of course, a regular income. Also, more is demanded emotionally. This latter factor is one that most assume is personally of no concern and yet often proves to be the one issue preventing their success. There is an inherent weakness of emotion that everyone has and yet most refuse to believe they personally could have an issue with it. So they often fail to ever address it correctly and it continues to plague them.

However, if a trader does learn to trade profitably on a consistent basis and they also learn to control their emotions then day-trading is absolutely one of the greatest means for making a living that anyone can pursue. The freedom to work when you want to, the amount of money that can be made, and the lifestyle it provides is truly amazing. It really is all that is promised; the dream job. Although it takes a lot of work to reach that goal, do not be swayed by the myths about day-trading. This one is for real.

Author: Michael J Parsons
Article Source: EzineArticles.com
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