Day trading is the practice of buying a stock or other type of security and selling it in the same day. Not all day traders sell a stock in the same day they buy it. It is generally the willingness to sell the stock very quickly that categorizes transactions as day trading. Here are a number of tips for the day trader.
Use Stops
Online brokerages help propagate day trading. They require very little money to open an account, they're highly automated and efficient, and they have great tools for all kinds of stock traders like "stop losses" or "stop orders." A stop order is an an instruction in advance to the brokerage to sell your stock automatically if it reaches a certain prices. In reality, stops are not necessarily "stop losses" because they can be set at higher-than-market prices or lower-than-market prices. If they are set lower than the trading price, they are invoked to protect you from losses; if they are set higher than trading price, they are invoked to convert your profit to cash. They are more commonly used to stop losses.
Trail Your Stops
Strategies vary. But once your have purchased a stock and it has gone up in value, set a stop order at less-than-market value. If your stock keeps increasing in value, there's little reason to sell it. As it increases, though, increase your stop order. This is often thought of as "locking in profit." For example, if you buy a stock at $50 per share and it goes to $60 per share, set a stop at $55. You want to set your stop at a price that intra-day volatility won't invoke a trade; it needs a little room to fluctuate. Then, if it goes to $65, increase your stop to $60.
Be Aware of Gaping Down
While stops or automated orders are important tools for most active traders, there is an intrinsic danger you should know about. Stocks can "gap down," usually overnight. Typically, with a highly traded, liquid stock, if you set a stop at $25 per share and the stock was coming down from $32 per share, it would stop out at $25. If, however, there is no buyer at $25, presumably because of catastrophic news relating to the stock, the next trade will be at whatever price a buyer is willing to pay and a seller is willing to accept. "Gapping" usually occurs in stocks that are not widely traded, such as penny stocks. Or they occur when liquidity is interrupted. Most often, news about a stock during off-hours may effect its trading the next day. If the value goes down and you have a stop, you're not going to be guaranteed your stop price. You will get whatever price the first buyer is willing to pay.
When in Doubt, Go to Cash
When a market or market sector has momentum, it is like the tide: It is clear to everyone who watches it which way it is going. But the overall economy, as well as many specific sectors, do not always have clear momentum. There's uncertainty in the market. Don't feel obligated to actively trade during these times. Day trading is about predicting short-term momentum. If there is no short-term momentum, go to a capital preservations strategy. Sell your investments and hold the proceeds in cash until you identify a distinct market trend.
http://www.ehow.com/info_8089955_tips-day-trading.html
