Day Trading Intro
Day trading is a trading process without transferring open positions to the next day. The duration of a day-trading trade can range from a few seconds (presented by the scalping or pipsing strategies) up to several hours.
Such trading will be profitable only if you quickly react to the received trading signals. Success will also depend on how psychologically you are and how well you can assess the market situation.
Trading professionals penetrate the market at a time with high profit potential with minimal risk of losing funds, sometimes waiting for this moment for hours.
Day trading implies the conclusion of several (and sometimes several dozen) transactions, as well as the fact that sometimes only a few seconds may elapse between the execution of a transaction and its closing.
Positions are opened and closed only within one day or a trading session. Intraday traders generate income by investing in
- Liquid stocks
- Indices, and
- Other instruments to be found with Metatrader 4.
Day trading takes place in two essential steps:
- First, potential instruments are selected, and then
- Their behavior is monitored in order to find a point to enter the market.
Observation can be performed either visually or using technical analysis tools: indicators and oscillators.
The day trader’s job is to look for points (or moments) in the market when there is an imbalance between buyers (bulls) and sellers (bears), with a clear preponderance of some. This almost always happens near support or resistance levels.
Experienced traders know that all strong price movements begin in two or three scenarios. The day trader will wait until he sees the beginning of such a scenario and only then will he enter the market.
What You Need for Day Trading
Of course, day trading requires a certain set of things a trader needs to possess. These are not only proper devices having enough power to update the charts in live mode and HQ Internet connection.
Much more vital is to stick to the special hints. We’ll showcase them below.
Being Aware of Trading Risks
While this may conflict with successful thinking, you need to decide in advance how much money you are willing to lose in a single day or trade. This helps remove much of the uncertainty.
Many beginners and even some experienced traders do not know their level of risk because they did not set a specific stop loss point before entering a trade.
Determining this point makes the trader understand that losses are indeed occurring, and one must be prepared for them.
Plan Your Trade in Advance
Have your trading setup planned in advance. You cannot predict how the market will behave, but you must know what you are going to do when the market moves.
Most day trading gurus and systems advertise the trend as your friend slogan (or variations of it) because it reflects a simple truth.
Regardless of the specific time period of the chart on which the trader seeks to make profitable trades, there is a certain trend. If they buy the market and make a profit of three ticks in five minutes, the market should have shown a three tick uptrend.
Use Panic in the Markets
Short-term trading is essentially a competition, betting a certain number of people against each other. With experience, traders learn to recognize market situations that are prompting newbies to make bad decisions due to panic or greed.
Lifestyle and Habits
Day trading involves work at a high pace. That’s why it is often associated with nervous tension, and, therefore, requires high endurance and self-control. The main goal, like many other strategies, is to choose the right moment to enter a trade.
So, a trader’s lifestyle and habits play a vital role in the success of the trading session.
In general, to build a proper lifestyle to be into day trading, a trader is supposed to stick to the following principles:
- The more transactions you need to complete per day, the more energy goes into work. And you can get a decent profit only with a large number of transactions.
- Day trading requires constant concentration, a trader must keep their finger on the pulse of the market, react to the slightest changes, and there is not much time to analyze the situation and the trader in this situation.
- A large number of transactions often result in high commission costs.
Similarly to any other business, success depends entirely on the qualities of a trader. It requires composure, concentration, high stress resistance, the ability to work at an extremely fast pace and not react to short-term setbacks.
Unlike many other strategies, day trading does not require patience, and for many traders who do not want to wait long for the results of their work, this can be a very tangible advantage.
In day trading, it is advisable to adhere to the following rules:
- Trade for a maximum of 2 hours a day.
- Intraday trading must be at the same time.
- Limit yourself in the number of trades per day.
- Set achievable goals.
- Stop trading in any unclear situation.
- Stop trading after several unsuccessful trades in a row.
- Set a loss limit for yourself for a certain time period (for example, for a day or for a week, maybe a month).
Certainly, each of the aspects requires a trader to set their lifestyle in a particular way.
Day trading is the most sensitive to all market changes. The emergence of any significant news, statistics or other information can be used immediately. By implementing your lifestyle and habits into the strategy allows you to save time and make a profit as soon as possible.
Traders use margin trading to increase the profitability of their trades. But it is usually accompanied by an increased risk. For intraday trades, the emphasis is on technical analysis rather than fundamental analysis of the stock market.
Moreover, it has been repeatedly emphasized that 95% of day traders go broke. However, those who stay become true professionals. Of course, it does not mean that they are guaranteed against losses or defeats, but they are able to effectively overcome them in a finite time.
Keeping an eye on the market can cause nervous strain, especially when it becomes necessary to conduct several transactions at the same time.
Best Strategies for Day Trading
The main thing in day trading is to close all positions by the end of the day. There are 2 main intraday trading strategies: scalping and intraday news trading.
Scalping is the simplest, but quite effective method. It consists in setting a certain threshold for closing a position.
For example, if a trader sets a plan to close 5×5 positions, then when the trend position changes by 5 points in plus or minus, the trader will in any case close the position. In the first situation, they make a profit, in the second, a loss.
To make the chances of making a profit outweigh the chances of the opposite result, the trader uses technical analysis methods.
And placing Stop Loss on the position as close as possible to the price allows you to get the maximum possible profit.
At the same time, it is important to observe the rule for losses—as soon as the trend movement is 5 points, the position is closed. Each trader sets the threshold that the position must reach, based on his own experience.
When scalping, it is important to choose the right moment to enter the market. This is usually done when the trend is moving forward with confidence. In this case, the position quickly reaches the required profit level and closes, or the trader places a Stop Loss and monitors the further progress of the trend, moving the Stop Loss if necessary. As soon as the trend changes direction, the position is closed.
Trading success requires dedication, patience and resilience. You need to acknowledge the fact that sometimes the market can take money away from you.
The good news for traders struggling to survive the grueling first months and years of trading with losses is that there will always be a new crop of novice traders who will make the same mistakes and give you the opportunity to make winning trades.
What are day trading advantages?
There are three main pros of day trading: small risks, short stops; absence of gaps, that is the price jumps that occur between sessions; and limited trading hours.
What are day trading shortcomings?
Preparation for trading sometimes begins 4–5 hours before the working day in order to select the necessary instruments and determine the likely direction of trade.
How to simplify your day trading process?
At present, many day traders use trading advisors or trading robots, as they greatly facilitate the trading routine and help control risks.
Should all of my trades be successful?
A strategy does not have to constantly win in order to be profitable. Many traders only win 50% to 60% of their trades. However, they earn more from their winners than they lose from losers. Make sure that the risk on each trade is limited to a specific percentage of the account, and that entry and exit methods are clearly defined and recorded.