One of my main trading mottos has always been “don’t hold overnight.”
Though I’ve been saying this for well over a decade, I believe that it holds even more true in today’s trading environment.
There is a common perception that intraday trading is one of the riskiest forms of trading, but it can actually be one of the lowest risk forms of trading, as I will explain in this piece.
Here are five reasons why you should consider sticking to intraday trading instead of swing or position trading:
1) It’s Less Risky
Since the Global Financial Crisis, more major market news and events tend to occur within a given 24-hour period than ever before. The reason for this is the ongoing trend of globalization, as well as constant intervention from central banks as they attempt to boost their economies in these difficult times. Every time a central banker speaks or a major central bank makes a new announcement about its policies, the global markets tend to react very strongly. Many of these moves occur overnight and are inherently unpredictable, which tends to catch traders off guard, and on the wrong side of the market.
2) You Will Sleep Better at Night
This value of this cannot be underestimated. Getting proper sleep is a major part of being a successful trader. It is very difficult to sleep when you are holding an aggressive position overnight – trust me, I know from experience! The better sleep you get, the more prepared you are to think clearly when trading the next day. The more clearly you can think, the less likely you are to make rash, emotional decisions that will cause you to lose money.
3) You Have More Prep Time
Every time you close your position out at the end of the trading day, you have a clean slate to work with. You are not emotionally tied to losing trades, nor are you overconfident from your positions with paper profits. Having the evening and night-time to prepare for the next day of trading is a gift. You are able to scan the market and news for the next best day trading opportunities and you can plan your precise strategies and tactics without the pressure of already being in a position. Emotions are your biggest enemy in trading; anything you can do to reduce panicky feelings and pressure is beneficial.
4) You can Capture Moves that Others Don’t See
As an intraday trader, you can capture countless intraday “micro-moves” in individual stocks that the broader market is not paying attention to. While many market participants are watching the big daily moves made by high-profile assets, from Microsoft Corporation (MSFT) stock to the Euro to SP500 futures, daytraders like myself focus on banking moves in small, under-followed Nasdaq stocks that move quickly. Because less market participants are watching those moves and key technical levels, there is less of a chance of market trickery than at highly-publicized technical levels such as $1,200 in gold or 18,000 in the Dow futures, for example.
5) You Can get More Leverage
As an intraday stock trader, you have more access to leverage than swing or position traders do. If you are holding overnight, the maximum leverage that your broker can give you by law in the United States is 1:2 – ie., if you have $25,000 in your account, you can only trade a maximum of $50,000 worth of stock. If you are a daytrader, however, you can trade with up to 1:4 leverage – ie., if you have $25,000 in your account, you can trade up to $100,000 worth of stock. It’s not that I am advocating excessive use of leverage, but for very skilled traders in slower-moving stocks, it can be helpful to have the extra leverage from time to time.
This article originally appeared on Equities.com.
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