Phase One Flashcards
(17 cards)
Primary goal of day trading
Capturing small but consistent gains
What is overnight risk?
Uncertainty that can arise from news or events whilst markets are closed
Gap down
When a position drops significantly whilst markets are closed, and opens at a much lower value
Gap risk
The risk of large drops and losses during market closure, as the safety net of a stop loss is removed
Three forms of trading
Day trading
Swing trading
Long term-trading
Technical analysis
Using historical price data and chart patterns to predict future movement
Momentum analysis
The use of stocks moving strongly in either direction to ride the wave of buyer/seller momentum
Fundamental analysis
Focuses on a company’s earnings, revenue, debt and macroeconomic factors
Set ups
Predefined conditions or combinations of signals which indicate a high-probability trade
Three pros of day trading
Potential for quick profits
No overnight risk
Opportunists are frequent due to volatility
Three cons of day trading
Can be very time intensive
Can be emotionally and mentally taxing
Easy to lose money, especially without a calculated strategy
Bid
Highest price buyers are willing to pay
Ask
Lowest price sellers are willing to accept
Bid/ask spread
The difference between the bid and ask values
This acts as a cost of entry to a position: if you buy at ask and sell at bid, you’re instantly down spread amount
Three factors determining spread
Liquidity: high liquidity means a tighter spread
Volume: more trades provides a tighter spread
Stock price and volatility
Liquidity
The numbers of buyers and sellers actively in the market
Volume
The number of shares traded over a given period
