A trader that uses the “hourly chart” or even smaller time frames to trade and makes all of his trades within one day. Usually day traders buy and sell within minutes or hours and make several trades per day.
A day trader looks to capitalize of the price action in markets caused by certain inefficiencies or misinformation that cause anomalies in price action. A day trader typically does not hold any positions overnight and they may use leverage in order to magnify the potential profits generated by small movements in an asset price.
Day traders face difficulties in making profits due to commissions, the bid-ask spread, and their costs for real-time news feeds and technical analysis software. In order to be a successful day trader an individual requires a strong grasp of market dynamics, usually gained through years of experience. The profit potential in day trading is huge, but it is a difficult skill to master, and most who try day trading fail within their first year.
One popular day trading strategy is to trade the news, or make trades based on market moving news reports, usually economic releases such as GDP or unemployment, or corporate earnings. Another popular strategy is known as fading the hap, in which a trader will look for price gaps at the open and then trade in the opposite direction. The underlying principle for this trade is that most of these types of gaps are due to overreaction and the gaps get filled by subsequent price action.