Wednesday, May 28, 2008

Day Trading Makes Money

There is a popular misconception that day trading does not make money. After all, the day trader starts with many disadvantages. First, she is restricted by time. Second, the trader cannot have the advantage of overnight gaps. Third, the smaller time frames have more noise with less trend. This reduces the chances of making money since it is a trend that makes money.
While all of the disadvantages are correct, they are offset by increased volatility in many markets. Volatility brings in large intra day moves thus providing enough trend to make serious money. When there is large intra day travel range , the trader begins to get the advantage of trending moves inside the course of a single day. Once a trend can be captured, all other disadvantages become irrelevant. The 'overnight gap' actually becomes an advantage, since it also ensures that the trader is protected from adverse gap open.
My conclusion is: In liquid markets with large intra day travel range, day traders have the possibility of making consistent money.