Day Trading: An Introduction

Day Trading for a Living
There are two primary divisions of professional day traders: those who work alone and/or those who work for a larger institution. Most day traders who trade for a living work for a large institution. The fact is these people have access to things individual traders could only dream of: a direct line to a dealing desk, large amounts of capital and leverage, expensive analytical software and much more. These traders are typically the ones looking for easy profits that can be made from arbitrage opportunities and news events. The resources to which they have access allow them to capitalize on these less risky day trades before individual traders can react. Individual traders often manage other people's money or simply trade with their own. Few of them have access to a dealing desk; however, they often have strong ties to a brokerage (due to the large amounts of commission spending) and access to other resources. However, the limited scope of these resources prevents them from competing directly with institutional day traders; instead, they are forced to take more risks. Individual traders typically day trade using technical analysis and swing trades - combined with some leverage - to generate adequate profits on such small price movements in highly liquid stocks.


Day trading demands access to some of the most complex financial services and instruments in the marketplace. Day traders require:

  • Access to the Trading Desk
    This is usually reserved for traders working for larger institutions or those who manage large amounts of money. The dealing desk provides these traders with instantaneous order executions, which can become important, especially when sharp price movements occur. For example, when an acquisition is announced, day traders looking at merger arbitrage can get their orders in before the rest of the market, taking advantage of the price differential.
  • Multiple News Sources
    In the move "Wall Street" Gordon Gekko says that 'information is the most important commodity when trading’. News provides the majority of opportunities day traders capitalize on, so it is imperative to be the first to know when something big happens. The typical trading room contains access to the Dow Jones Newswire, televisions showing CNBC and other news agencies, as well as software that constantly analyzes various other news sources for important stories.
  • Analytical Software
    Trading software is an expensive necessity for most day traders. Those who rely on technical indicators or swing trades rely more on software than news. This software typically contains many features, including:
  • Automatic pattern recognition - This means that the trading program identifies technical indicators like flags, channels and even more complex indicators like Elliott Wave patterns.
  • Genetic and neural applications - These are programs that utilize neural networks and genetic algorithms to perfect trading systems to make more accurate predictions of future price movements.
  • Broker integration - Some of these applications even interface directly with the brokerage, which allows for instantaneous and even automatic execution of trades. This is helpful for eliminating emotion from trading and improving execution times.
  • Back testing - This allows traders to look at how a certain strategy would have performed in the past in order to predict more accurately how it will perform in the future (although past performance is not always indicative of future results).

Combined these tools provide traders with an edge over the rest of the marketplace. It is easy to see why, without them, so many inexperienced traders lose money.

by Justin Kuepper