The Advantages of Day Trading

Historically, stock trading has been the domain of professional traders. Trading has been in essence a "private club" with restricted access. Day trading has changed that. For the first time, amateur traders have the tools (real time quotes and order execution) to compete with the professionals. 

Speed advantage of day trading

The key advantage of day trading is its speed. Now the technology is advanced enough to afford day traders the ability to receive and observe real-time price quotes tick by tick and to send electronically an execution order directly to the NASDAQ market maker. Electronic order execution is fast. Confirmations are received in seconds. Exiting trades is as easy and fast as entering the trade positions. 

Control advantage of day trading

The other key advantage of day trading is the control of trading. Day traders are always in control of their own trading. They are their own brokers. They examine the financial data, ascertain the trends, and make their own decisions to buy or sell. Day traders do not have to worry about the price slippage. They monitor market prices tick by tick. During trading, at any point of time the trader always knows the stock's best BID or ASK price. 

Going home "flat"

At the end of the trading day, day traders close all of their trade positions and go home "flat". Day traders do not need to worry about a "long" or "short" position - because they do not have overnight positions. Without any open positions, day traders do not carry any overnight risk exposure.

About the author

Tony Reed is the author of The advantages of day trading, please visit his website Stock Trading & Day Trading for more information. 

This article is free for republishing as long as you leave the article title, author name, body and resource box intact (means NO changes) with the links made active.

What's Day Trading?

Day trading consists of the direct opening and closing of stock positions with major stock exchanges, either using a computer on the trading floor of a branch office of a day trading firm, or using one's home or business computer to access an internet broker. The keyword in this definition is direct. In day trading, a trader has direct electronic access to NASDAQ market maker or NYSE specialists.

The market makers are NASD brokers and dealers who buy or sell NASDAQ stocks for the accounts of others, engage in the securities business for their own proprietary accounts. In essence, the market makers are stock merchants. One NASDAQ stock will have many market makers who are continuously trading in that stock and thus making a market for that stock. On the other hand, one NYSE stock will have one assigned NYSE specialist. The role of the NYSE specialist is to maintain a fair and orderly market in that security. The specialist may act either as a broker and execute orders for other securities brokers or as a dealer in a principal capacity when trading for his or her wo0n account. The specialist will take on the role of a principal infrequently in order to maintain stock marketability and counter temporary imbalances in the supply and demand of that security.

The day trader does not need a stock broker. The trader is not using a telephone to call a stockbroker, and the broker is not relaying that order to the brokerage firm's order desk. The clerk is not routing that order to the market maker. Day trading firms eliminate all that. Consequently, day trading firms have eliminated time delays and most of the expenses associated with middlemen processing trade orders. The day traders are their own brokers, and their order executions are fast and affordable.

The day trader can simply key in the stock symbol on a computer that has specialized trade execution software, press the appropriate function key, and buy or sell shares of stock on a major exchange. The software used by the day trading firms for order execution is relatively user-friendly7 and provides an efficient interface between the stock exchanges and the day trader.

About the author: Tony Reed is the author of " What's day trading", please visit his website stock investing & day trading for more information.

Day Trading With The Camarilla Equation

Discovered in 1989 by a semi-legendary bond trader called Nick Stott, it is allegedly a secret day trading formula that will help your day trading reach new heights of accomplishment, with the bare minimum of risk. Or so the story goes.

Origins of the Camarilla Equation

Discovered while day trading in 1989 by Nick Stott, a successful bond trader in the financial markets, the 'Camarilla' equation uses a truism of nature to define market action - namely that most time series have a tendency to revert to the mean.

The equation produces 8 levels that are meant to predict these reversal points allowing the trader to profit from them. The equation uses nothing more than the previous trading day's open, close, high and low levels and some interesting mathematics to produce these supports and resistances.

Trading the Signals

Now these levels are numbered L1-4 for the supports and H1-4 for the resistances but it is really the L3, L4, H3 and H4 ones that are most important.

When the price level reaches the H3 level the theory behind the Camarilla Equation says that there is a strong resistance at this point and that a SHORT trade should be made with a stop loss at the H4 level.

Conversely, when the price drops to the L3 level there is a strong support and a LONG trade is the recommendation with a stop loss at the L4 level.

Breakout Possibilities

While the H4 and L4 levels should normally be reserved for setting stop losses on the above trades, occasionally there will come a point when these points are broken through. If this breakout is maintained for a significant amount of time and the price is still on the move then a LONG or SHORT trade should be entered respectively.

These trades are not so common but could provide massive profits (or so the Camarilla Equation suggests)

Choosing entry point with Camarilla Equation

There are two entry points that you may like to consider when using the Camarilla Equation. Firstly you could trade as soon as the market reaches either the L3 or H3 level and go AGAINST the current trend but there is more of a danger that the trend will continue and you will lose out if this is your preferred method.

The alternative is to wait after the market has broken the L3 or H3 level until the reverse actually occurs and enter the trade just as the market passes the respective level once again. This allows you to trade WITH the trend which should prove a safer option.

So does it Work?

If you are interested in whether or not the Camarilla Equation provides a viable trading method then you may wish to follow my experiment which is testing the given levels for the FTSE 100, Dow Jones and DAX 30 stock markets.

Steve Waller has learnt much since he first took up financial trading over a year ago. His experiment on the Camarilla Equation is being blogged daily at http://camarilla-trading.blogspot.com