Day Trading vs. Trend Trading: What Are the Key Advantages of Each?

in Business

Trading for consumers could present them with a new adventure. When reviewing ways to invest in the stock market, consumers may have a variety of questions and concerns. First, it is important for anyone who is new to the market to differentiate between day trading and trend trading. Once the individual understands these two concepts, they can move onto a complete assessment of the pros and cons of each opportunity. Reviewing the key advantages of day trading and trend trading shows consumers what opportunity fulfils their financial aspirations.

What is Day Trading?

Day trading is when individuals purchase financial instruments with the objective of turning a profit quickly. Essentially, the process involves buying stocks, futures, or currencies at a predetermined price, and the individual sells the financial instrument to generate a profit through the sale. Typically, the traders don’t keep the financial instrument overnight and sell it during the market’s operating hours. Hence the expression day trader means an investor who sells their financial instrument during the same business day. Since there are no guarantees, the individual is investing at their own risk and may seek advice about how the process works.

Advice is given about how day trading works in general, and brokers cannot make recommendations about specific financial instruments or a specific industry or sector for the individual to invest in. Brokers cannot provide guarantees for the performance of any financial instruments. They can simply complete the tasks requested by their clients and explain how investments affect the client based on the client’s financial status. Some brokers charge fees or collect commissions, and it is up to the client to discuss these requirements before starting any trades. Individuals who have an interest in investing in any financial instruments via day trading can find more information online from TradeZero right now.

What is Trend Trading?

Trend trading is based on an assessment of trends that are followed in the stock market. For example, if a store has become popular and individuals want to invest in their stock, the individuals would purchase stock in the company as the trend is on an upward climb in the market. However, the individual would need to review the performance of the trending stock and determine if new store openings or competition could affect the value of their stock. When it is clear that the trend has reached its peak, the investors begin selling their stock in the store to generate a profit. However, there isn’t a guarantee that trending stocks will stay profitable for long. With some trending stocks, their profitability could stop after a month. There aren’t any guarantees with these types of trades or investments, and individuals must make clear decisions based on the state of the market each day.

What are the Advantages of Day Trading?

The advantages of day trading start with access to free information and resources about each potential investment. Individuals who want to invest in a specific type of financial instrument have access to a wealth of information at any time and can compare each of the instruments of interest whenever they’d like. If the venture into day trading becomes highly profitable for the individual, they could venture out on their own and generate enough funds to write their own ticket, as the sky is the limit. Day trading has become a possible career option for some individuals. However, it is important to realize it isn’t for everyone and results vary from one financial instrument to the next. Even the savviest investor can make a mistake.

Day trades don’t present an overnight risk because the investor sells the stock before the end of the business day. The investor doesn’t have to worry about losing their shirt the next day if the market conditions tank. They purchase a stock, watch it carefully, and determine when to trade or sell the stock during the 24-hour period. Day trading gives the investor more control over their financial future since that future is right now. The investor doesn’t have to wait for a trend to gain momentum. The stock will either perform well during that one day or the investor will find something more appealing to them and their financial goals.

What are the Advantages of Trend Trading?

The advantages of trend trading start with lower-than-average transaction fees, and individuals will follow their investments for a longer period which could increase their possible profits. As compared to day trading, the investor wouldn’t sell the financial instrument before the close of the day. Individuals who increase their knowledge of how trending stocks gain momentum could have a better chance of catching the trend at an earlier stage and spend less obtaining stocks or financial instruments. There isn’t an exact science to trend trading, and some stocks could fluctuate faster than others. The investor doesn’t have to watch the stocks every second of each day to make a decision faster. The trends flow over a longer period.

When following trends, the investor could cut their losses earlier and lower the full impact of a financial loss. They maintain control over how the financial instruments are managed, and if the investor wants to sell or dump the stocks, this is an easy process. Monitoring the performance of the financial instrument is the only way to determine if the stock has lost momentum and it is time to sell it.

Consumers who want to take the next step in investing in financial instruments must assess the different ways of trading in the stock market. It is never wise to take these steps blindly, as it is more likely to generate a loss. When reviewing their options, consumers determine if they want to follow strategies of day trading or trend trading. Each of these opportunities could present a return under favorable market conditions. However, educating themselves about the differences between the opportunities is paramount. Reviewing the key advantages of day trading and trend trading helps consumers invest wisely and follow the strategies that appeal to them the most.

Image Credits: Austin Distel

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