Investing For Canadians All-in-One For Dummies by unknow

Author:unknow
Language: eng
Format: epub
ISBN: 9781119736684
Publisher: Wiley
Published: 2020-11-10T00:00:00+00:00

It’s All in a Day’s Work

The definition of day trading is that day traders hold their securities for only one day. They close out their positions at the end of every day and then start all over again the next day. By contrast, swing traders hold securities for days and sometimes even months, whereas investors sometimes hold for years.

The short-term nature of day trading reduces some risks, because no chance exists of something happening overnight to cause big losses. Meanwhile, many investors have gone to bed thinking their position is in great shape, then woken up to find that the company has announced terrible earnings or that its CEO is being indicted on fraud charges.

But there’s a flip side (there’s always a flip side, isn’t there?): The day trader’s choice of securities and positions has to work out in a day, or it’s gone. There’s no tomorrow for any specific position. Meanwhile, the swing trader or the investor has the luxury of time, as it sometimes takes a while for a position to work out the way your research shows it should. In the long run, markets are efficient, and prices reflect all information about a security. Unfortunately, it can take a few days of short runs for this efficiency to kick in.

Day traders are speculators working in zero-sum markets one day at a time. That makes the dynamics different from other types of financial activities you may have been involved in.

When you take up day trading, the rules that may have helped you pick good stocks (see Book 2) or find great mutual funds (see Book 3) over the years will no longer apply. This is a different game with different rules.

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