A day trader tries to make a profit by
A. investing only in blue chip stocks.
B. speculating with borrowed money.
C. reducing risky investments.
D. taking advantage of minute-by-minute changes in stock prices.
D. taking advantage of minute-by-minute changes in stock prices.
I'll be glad to check your answer.
The correct answer is D. taking advantage of minute-by-minute changes in stock prices.
Day trading involves buying and selling stocks within a single trading day, with the goal of making a profit from short-term price fluctuations. Day traders typically focus on liquid stocks that exhibit high volatility, as this provides opportunities to capitalize on rapid price movements.
To get this answer, we can eliminate options A, B, and C by understanding their definitions and how they relate to day trading:
A. Investing only in blue chip stocks: Blue chip stocks are shares of well-established companies with a history of stable earnings and dividends. While blue chip stocks may provide long-term stability, day traders typically focus on smaller cap stocks with higher volatility.
B. Speculating with borrowed money: Speculating with borrowed money, often referred to as margin trading, involves using borrowed funds to make trades. Though margin trading is a strategy used by some traders, it is not specific to day trading.
C. Reducing risky investments: While risk management is an important aspect of any trading strategy, reducing risky investments does not align with the goal of day trading, which is to take advantage of short-term price movements and profit from them.
Therefore, option D, taking advantage of minute-by-minute changes in stock prices, is the most accurate description of a day trader's approach to making a profit. Day traders closely monitor the market, analyze technical indicators, and execute trades based on short-term price patterns and trends. Their goal is to profit from small, frequent price movements throughout the trading day.