- The stock market has evolved in to a medium-term trader's market, according to CNBC's Jim Cramer. The old ideas of buying a stock and holding it for years or decades have been replaced by a strategy of holding a stock position for weeks or months. But some stock traders only hold their stocks for hours, minutes or even seconds. These traders are referred to as day traders. Most day traders do not hold onto stock-market positions overnight.
- Day trading is often done with the help of computers. By programming preset buy and sell levels, large amounts of stocks can be traded very rapidly and profits can be made by capitalizing on the short-term momentum created by the actions of large investors.
- The North American Securities Administrators Association reports that 70 percent of all day traders lose money. The Federal Trade Commission says this: "If you're considering becoming a day trader, don't give up your day job." Of all of the assets that the investor has, there is one that is the lowest risk and is the one source of the largest gains in the investing community: Time.
- One reason day traders lose money is because they remove the asset of time. True investing is done by carefully evaluating a company's financial data in an attempt to make an educated judgment about its future value. Day traders have the nearly-impossible task of predicting a stock's minute-by-minute movement, which can sometimes be correlated only to what hedge fund and mutual fund managers are thinking on a given day.
- Don't believe what you read. While many seminars, books and articles advertise the newest secret way to counter the trend and make large amounts of money by day trading, according to the SEC and FTC, other than a small amount of mostly institutional investors, day trading fails for a majority of those who attempt to make it profitable.
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