Here we will tell you what is behind the phrase “day trading”, what is associated with it, the advantages and disadvantages of such trading. Also, let’s look at some strategies suitable for this type of trading.
If you are not experienced enough, we do not recommend you to start with day trading.
What is Day Trading?
Judging from the name, it is logical to assume, that it is trading within one day with big volumes, such deals can be more than one within one day. This way carries a big risk, so carefully analyze your strategy before you start.
Intraday trading is based on: the use of indicators, chart analysis and some patterns for monitoring the volatility of the market.
With high volumes even small price changes can generate handsome profits.
Study the brokerage offers and choose a broker that offers favorable commissions and convenient tools for day trading.
What to Pay Attention to Before You Start
- Day trading brings a good income if you approach it consciously, having conducted research beforehand.
- Such trading is painstaking work, if you treat it as a game, it will not bring income.
- This type of trading on the market requires the analysis of a lot of different information which takes a lot of time.
Tips and tricks of day trading
Some of the techniques that are specific to day trading for the experienced investor are outlined below:
Any type of trading requires an investment. Decide at the beginning how much you want to start with without consequences to your budget in case of a loss.
- In the case of. If you do not have such experience, start with a couple of inexpensive stocks, then, as you gain experience in finding the right strategy, gradually increase the turnover.
- Do not look for the cheapest stocks, they are risky in themselves, and if you consider the risks associated with trading in one trading session, it can lead to losses.
- Decide on the stock you will be trading and observe the relationship between price and time over the course of a few days. This will help you choose the right timing for a particular asset.
Elements necessary for day trading
Both in the case of automatic trading inside for and in the case of custom trading on their own trade, the strategy must include the following components:
Liquidity of a trade position gives the possibility to choose a correct entry point, to close a deal as profitable as possible and to fix a profit. For example, gold, oil and gas are liquid.
Volatility is the fluctuation in expected profit or loss. If you are confident in your abilities and have good information, it will bring the expected profit. Examples of an asset with high volatility are cryptocurrencies, for example.
Trading volume is information about how many trades are made on a particular asset in a time frame of interest. By observing changes in daily trading volume, you can predict a big jump or fall in the price of an asset.
Explanation of Daily Trading Strategies
You collected the information, set the goal and chose the necessary tools. What’s next?
Here are some basic day trading strategies that can help.
Scalping is quite a popular trading method for investors. They trade with different volumes. Trader uses minimal difference between price of purchase and sale, such deals can be up to hundred per day. It is time consuming and profits from each such micro-trade are insignificant. It is mainly used in the currency pairs market. Be forewarned. That both profit and loss occur very quickly, and the snout is very dynamic.
It is an interesting strategy when a trader trades against the market, for example, he buys when the price is falling in expectation of market reversal. It is the same at rallies; in expectation of market correction and price decrease. It is used only by experienced market participants who have full knowledge of the market and track daily trends.
Impulse trading is trading on the news, it is the monitoring of news resources. New traders use this way because it does not require knowledge of technical analysis, but it requires constant study of news bulletins from different news resources. For example, if the news seems to be progressive – this is a direct signal to buy, it also works in the opposite direction. Usually, traders choose two or three companies to closely study and monitor.
Following the trend.
The simplest strategy. Basically, it’s like swimming with the current; if the market starts to rise, you open short positions on the rise in price. If the market falls, then the trader in this case becomes a participant in the «bear market».
Conclusions about day trading
This style of trading means opening short positions within one trading session (one day), the income is obtained due to small fluctuations. This type of trading is for experienced traders and requires full immersion into this business. Discipline and basic knowledge about the market structure is important here, as well as plenty of free time. Daytrading is hardly suitable for beginners.