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Day Trading Basics

The basics of Investing via Day Trading are quite straightforward. Common questions such as "What is a stock", "What is a 'ticker symbol'?," "What is margin" and "What is shorting" are easily answered. Behind all these basic concepts is the meaning of the "bid and the ask". Let's take a look at order types, and then how these relate to the bid and ask.

Order Types

The main types are-:

Market Order - an order to buy or sell a stock at the best bid or ask. A market order WILL get exercised for you, and fast, but you might not like the price! Of course, by then you have no choice but to take the price and hope your day trade is in the right direction. If the market is moving fast and you simply HAVE to get in, sometimes a market order is the only way. The floor traders love market orders from 'the paper' (i.e.off-pit traders) because this is how they make most of their money. Try to use market orders as little as possible. With a day trading spread betting account, market orders are as dangerous as on a standard brokerage account.

Limit Order - an order to buy or sell a stock at a specified price or better. This is the day trading order of choice for day traders and indeed traders of other types. If you are afraid your day trading order might not get filled and are tempted to use a market order instead, remember this golden rule, from almost EVERY famous trader this century - "Never chase the market".. It is more important that you get the trade on at the right price, than that you get on at all. If you buy it too dearly, or sell it too cheap, chances are you will regret it immediately.You will also be amazed as you start to realise that intrabar volatility often causes excrutiating pain to day traders who use anything but day trading limit orders.

Stop Order - an order that becomes a market order when a specified price (the stop price) is reached. Used mostly to protect a day trading position from incurring larger than acceptable losses should the day trade start to go the wrong way. A "buy stop" order is placed above the current price and a "sell stop" order is placed below the current price. Until you are VERY experienced, NEVER open a position without also creating a stop to protect yourself.

How to read a Stock Quote

You have probably seen day trading stock info from various financial websites on the net that look a little like this:-

Last Trade Change
Prev Cls
Volume
Div Date
17:14 122.00 p
+0.50 (+0.41%)
121.5
390,807,040
08-Aug
Day's Range Bid Ask
Open
Avg Vol
Ex-Div
121.25 - 123.75
121.75
122.25
122
322,890,500
04-Jun
52-wk Range EPS (ttm) P/E
Mkt Cap
Div/Shr
Yield
100.75 - 134.75
-14.41
N/A
83.178B
1.69
1.39


Items like 'Open' or 'Prev Cls' are obvious, but what does the rest of it mean?

  • Last Trade: This is the price and time of the last recorded trade in this security.
  • Day's Range: The distance between the high and the low for the day.
  • 52 wk Range: The difference between the High and low over the course of the last year.
  • Change: How much the security has risen or fallen since yesterday's close.
  • Bid: The best current offer to BUY the security.
  • Ask: The best current offer to SELL the security.
  • EPS: Earnings Per Share.
  • P/E: The price to Earnings Ratio.
  • Prev Cls: The previous close.
  • Open: Where the security opened this session.
  • Mkt Cap: The Market Capitalisation of the security.
  • Volume: The number of shares of this security traded this session.
  • Avg Vol: The average volume traded per session.
  • Div/Shr: The dividend paid per share.
  • Div Date: The date the dividend will be paid.
  • Ex Div: The date upon which the dividend will no longer be paid.
  • Yield: The dividend divided by the last trade price.

As a day trader these items should be second nature to you. You should be aware of these figures automatically for all the day trading stocks you are interested in.

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