Day trading

Quick definition

Updated: Jan 20, 2023

Day trading is the process of buying and selling assets for a profit within a single working day.

Key details

  • You can day trade just about anything, including stocks, cryptocurrencies, forex and commodities.
  • Day trading requires you to focus on technical analysis rather than fundamental analysis.
  • It can lead to rapid profits, but it is not a strategy for the faint of heart because it requires lots of time and commitment. 

What is day trading?

It is an aggressive trading strategy that allows you to take advantage of market volatility. Whereas long-term investors buy an asset in the hope it will rise in value over time, day traders buy and sell assets in an attempt to quickly flip them for a profit. The ‘day’ component of day trading is just that: all positions are closed by the end of each trader’s working day.

Day traders set their own trading day since it is a highly autonomous profession. In the case of stocks, these working hours will usually mirror the same hours a stock exchange is open. By contrast, for the 24/7 cryptocurrency market, traders will need to impose their own time constraints. 

Conventional investing requires a focus on the fundamental value of a company and will require you to study information like its balance sheet. By contrast, day traders are more interested in the market itself, keeping a close eye on candlestick charts for technical indicators and patterns so they can enter and exit trades at the right time.

Day traders can both go long – in the belief an asset will rise in value – or go short – in the belief an asset will fall in value. In addition, experienced day traders will often use leverage to increase their exposure to certain trades, though this is a high-risk strategy.

The pros of day trading

There are plenty of benefits to day trading over conventional trading and investing. Chiefly, day trading is the best way to accelerate returns since all profits occur in a daily time period. As a result, it can be a genuine pathway to financial independence for those committed enough to persevere through the challenges.

In addition, your capital is always being put to work rather than sitting stagnantly in a long-term position that isn’t delivering growth right now. Moreover, there is no long-term exposure to risk because positions are closed rapidly, and there is no overnight risk because all trades are concluded by the end of each trader’s working day. 

Lastly, day trading can be an excellent way to take advantage of volatility created by news events and market sentiment. Day traders can actually make money on poorly performing and overvalued stocks provided they can read investor sentiment accurately. By contrast, regular investors generally need to invest in a strong company to achieve growth. 

The cons of day trading

Day trading does however come with several disadvantages. Firstly, it is an intense strategy, meaning that a huge amount of research and self-discipline is required to obtain success. Moreover, it involves sitting at a computer for a large chunk of your day, and it can also lead to you becoming somewhat obsessed with every small price movement in the market. 

Additionally, day trading requires inch-perfect timing and an embracement of volatility and risk. As a result, it is not well suited for everyone and can trigger rash and emotional decisions in those who bore or stress easily. 

Where can I learn more?

We have released an in-depth guide explaining how to day trade, and you should check that out if you want to learn more. Furthermore, you can check out our stock, cryptocurrency, or commodities hubs to learn more about investing and trading in general.

Sources & references
Risk disclaimer

Invezz is a place where people can find reliable, unbiased information about finance, trading, and investing – but we do not offer financial advice and users should always carry out their own research. The assets covered on this website, including stocks, cryptocurrencies, and commodities can be highly volatile and new investors often lose money. Success in the financial markets is not guaranteed, and users should never invest more than they can afford to lose. You should consider your own personal circumstances and take the time to explore all your options before making any investment. Read our risk disclaimer >

Charlie Hancox
Financial Writer
Alongside his passion for trading, Charlie has represented Great Britain and won national championships as a water polo player, and as a budding film director, has… read more.