Day trading is a strategy for playing the stock market, where 'playing' means trying to make money. A day trade is defined as opening and closing a position (buying and selling shares in the same company) within a trading day. The idea behind day trading is to take advantage of the fluctuations in stock prices that occur within a day to take profits, often by buying and selling the same security several times during a day. Intra-day price volatility is hay-making sunshine for the day trader.
Strict day traders generally do not hold positions overnight to avoid possibly large losses in the after-hours market. This differs from the strategies of short-, medium- and long-term players, who seek profits in price fluctuations that extend over days, weeks, months or years, and are assumed to be upward trends. This strategy rests on the general idea that the longer the term, the more stable (predictable) the trend. The term 'investor' might best fit medium-term and long-term players, who are attracted to stable long-term growth or dependable dividends and reduce risk by spreading their money over different types of stock. Day traders care nothing about dividends or the long-term health of a company.
Day trading can be very speculative and extremely risky. The risk is particularly high when the trader buys heavily on margin. Buying on margin means borrowing money at interest from your broker to buy more stock, with the stock itself as collateral. It amplifies the risk and the potential gain. It also makes it possible to lose more money than you began with. Day traders often buy single stocks on margin for additional leverage, because buying larger numbers of shares makes it possible to take profits on smaller stock movements. Most of the here-today-gone-tomorrow day traders lose it all by trading on emotion and overextending themselves in margin trading. It is possible to make a lot of money, but it is also possible to lose a lot of money. Realizing your profits and losses in hours or minutes makes day trading similar to gambling, but it's still not the same, not necessarily, at least. A competent day trader is like a competent poker player, as opposed to a roulette player who believes in the 'gambler's fallacy'.
Day traders must have a large starting capital, know the 'personality' of several stocks intimately, follow news closely, understand general market dynamics very well, and most of all, must be highly disciplined and rational. Even so, it takes a lot of stressful time to do day trading, and unless one is both very good at it and rather lucky as well, day trading may not put one much ahead of sound medium-term or long-term buy-and-hold strategies.
www.daytradingworld.com/day_trading_rules.html
www.sec.gov/investor/pubs/daytips.htm