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Day trader Versus Investor

The day trader's ultimate objective is to trade expensive and volatile stocks on the NASDAQ and NYSE markets in in increments of 1,000 shares or more, and profit from the small intra-day price movement. The day trader may make many trades in a single day, holding onto stocks for only a few 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 frame of analysis is rather short: one day. Their only intent is to exploit the stock's intra-day price swings or daily price volatility. Unlike 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 prices move up or down in any given day due to a variety of external factors. Even if the market is relatively calm, there are always stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that trend. "Trend is a friend" is a common motto among day traders. Day traders seek to pick up a relatively small stock movement, 1/8 or more on that stock. If day traders are trading a large block of shares (that is, 1,000 shares per trade), then day traders will profit $125 from a 1/8 price movement. Conversely, if a day trader acquired 1,000 shares and the trader was wrong, which also happens, then the day trader will lose $125 from a 1/8 price movement. Volatility is a double-edged sword.

For expensive stocks that trade for $100 or more, a 1/8 or 12.5 cents movement is such a small relative price change that it happens all the time. Consequently there are plenty of day trading opportunities. It is not common to see a day trader executing many, sometimes as many as 100, trades in a single day. On the other hand, an investor's time frame is much longer. Investors seek a much larger price movement than 1/8 to earn the desired rate of return. That takes time.

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

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15 comments:

  1. Interesting, so a day trader is more or so someone who trades "on the fly" and depends so much on exploiting how volatile the day's stocks would be. It's certainly not something for the faint of heart, as every day brings differences tot he stock market.

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  2. These are awesome investing tips about day trading. It's my very first time to come across this term, I'm commonly used to penny stock. I love it though.

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  3. As far as I understand, traders and investors really differs. Investors wait for larger returns , while traders look for profits in a specific period of time.

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  4. An amazing stock education course here. The day traders are looking to maximize their daily return instead of long term profits which investors focus to. Great information there.

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  5. Thanks for reeling out the differences between them..Now,I make bold to say that the free stock course is not a waste of time..

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  6. Great information on what a day trader look out for.since stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that,which I know its the right to do.

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  7. Thank you on throwing light on the difference between a day trader and an investor. As a new investor myself I have learn alot on this page.

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  8. Perfect distinction between an investor and a day trader. From this informatio I gather that a day trader is more reliant on investing tips than an investor.

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  9. Basically a day trader looks to profit in the short term while an investor is in it for the long run. I wonder who among the two stands to make the most profit.

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  10. Being an investor is less stressful than being a day trader. The latter has to do a lot of work and research and sharpening their stock education to stay ahead of the curve.

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  11. Being a day trader obviously involves more work but the reward is faster profit. Both an investor and a day trader have upsides and downsides.

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  12. It is safer to invest than to day trade in my opinion. As an investor you don't have to be on the lookout for investing tips every passing minute like a day trader.

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  15. Good thing that you have a free stock course. I've been looking for one in ages.

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