Opening and closing positions within the same session, holding nothing overnight.
Day traders avoid overnight gap risk and use intraday tools such as vwap, opening-range, and relative-volume. The cost is that every day must produce its own opportunities, and trading more often means more spread paid and more overtrading risk.
US stock day traders with under $25,000 are limited by the pattern-day-trader-rule; futures and forex have no equivalent rule.
Example: a day trader takes three trades on average, risks 0.5% each, and finishes flat by 3:55 p.m. every day. Her results depend on the expectancy of those setups over hundreds of sessions.
Original diagrams for the ideas on this page. Illustrative, not real market data.
VWAP and its standard-deviation bands. VWAP is the day's average price weighted by how much volume traded at each price, so it shows where the bulk of the day's business was done. The bands sit one standard deviation either side, and price here swings between them all session.Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.
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