Day trading can be a lucrative strategy for investment, with day trading profit exceeding more than 200 percent return on investment in some instances. Day trading is not a strategy to be taken lightly, though, and any prospective day trader must study and analyze the market in a way that few other types of investors do. The best way to make a day trading profit is through the implementation of a comprehensive analysis system. This system should incorporate a number of elements that are designed to eliminate human bias and gut reactions to the movement of the markets. For day trading, intuition can be devastating.
Numerous studies have analyzed the success rates of day traders, with sobering results. One study indicated that only 20 percent of the traders studied were able to turn a day trading profit and that twice as many day traders lost money as made money.
The idea underlying day trading is that, by taking an extremely short position on a selection of particular stocks, an investor can turn a rapid day trading profit if any of those stocks rise substantially. Day traders take advantage of especially volatile market conditions which create the opportunity to make a profit even in difficult economic climates. For a day trader to be successful, though, he or she must stick to a system in order to realize that profit.
Day traders that adhere to a consistent system, and who specialize in a particular type of position, can achieve a high level of day trading profit. Unfortunately, the volatility that provides such lucrative potential for day trading also creates the possibility of considerable losses as well. Market volatility feeds, in part, off of human action that is difficult to predict for even the most experienced day traders. Neither long term nor hobbyist investors always behave rationally or in their own self-interest. This can make day trading as much of a gamble as a viable investment strategy.
Consistency and discipline are necessary for an investor to make a day trading profit. A day trader will often operate at either end of the spectrum of success, being either incredibly profitable or extremely unprofitable. Some day traders operate through margin purchases, which can increase the potential profit but at a considerably higher risk.
Margin purchases allow day traders to initiate trades while only putting down a percentage of the overall purchase funds. Often this provides day traders with the ability to generate higher returns without having to provide all of the initial capital upfront. Margin purchases can backfire on day traders, though, when purchases suffer losses. In that event, the day trader is responsible for the money that was fronted and lost.