Day trading is a well-known type of trading where the investor buys and sells the financial instruments within a time frame of a day but aims at making a profit using the small price movements. But, that’s possible with the best broker, after you learn about online investments.
It is a short-term trading style. However, it is not like scalping because you only take one trade each day and then close it at the end of the day.
The traders also like to pick a side when the day begins, act on the bias, and finish the day getting profits or losses. Moreover, day traders will not hold their trades overnight. It, therefore, suits forex traders because they have enough time to analyze, monitor, and execute a trade.
For those who think scalping is fast and swing trade is slow, then they should embrace day trading.
Types of day trading
In day trading, the investors try to maximize intraday profits, and to do it, he or she will use one or multiple types of day trading strategies.
Here are the strategies to succeed with day trading:
- News Trading
News Trading strategy is a traditional predominantly trading strategy focusing on the short term. The strategy works perfectly for day trades.
Those using this news trading strategy will pay less attention to technical and chart analysis. So, they will wait until the information has been released and assume the information drives prices in either direction. For such information, it can be a report on economic data such as interest rates, unemployment, or inflation. Further, it could also be random presidential tweets or breaking news.
Day traders, for them to do well with this strategy, they should have a better understanding of markets they want to trade.
Besides, the investor should develop insights on how to receive the news depending on the market in terms of how the price will be affected. So, traders should get alerts from different news sources to let them know the right time to enter the market.
On the other hand, the disadvantage of this strategy is because of events causing substantial movements of prices but they are rare.
- Breakout Trading
Breakout trading strategy is where the trader looks at the range of pairs made during certain hours during the day. Knowing that you can place a trade on either side but hope for a breakout.
The strategy is effective if the pair is at the right range which indicates that the pair will make a big move. You aim at setting yourself up and after the move takes place, you can catch the wave!
With breakout trading, you also have to determine the range where resistance and support hold strongly. After doing it, set entry points either below or above the breakout levels.
You have to target a similar amount of pips that will make up the determined range.
- Range Trading
Range trading is also known as channel trading. It is a type of day trading strategy where you should first understand the recent price action. While using this strategy, you should inspect chart patterns and identify typical lows and highs on the day. Also, keep a close eye on things that differentiate the points.
If the price falls off a resistance level or rising off above the support level, you should opt to buy or sell depending on market direction. And that’s what it refers to as “trading in a range” because every time the price hits high, it will fall back to the low or vice versa.
So, if you choose this strategy, you should buy it during the low price and choose to sell when the price is high.
Many range traders use stop losses to limit orders for them to keep trading in line by perceiving what you expect to happen to the market. Therefore, a stop-loss order would be the point at which the position automatically closes out especially when the price of the instrument drops below your entry point.
However, range trading needs enough volatility because that helps keeps the price moving but not much volatile to break the price out of the range.
- Countertrend Trading
This is another essential type of day trade strategy. However, after you determine the overall trend, look for those trades that move in the opposite direction.
In this strategy, you should focus on getting early as the trend reverses. It looks riskier but you can reap huge payoffs.
Since the strategy is about “counter-trend” so you should look at the opposite direction for a shorter timeframe like a 15-minute chart. For those traders who want to use this strategy, they should quickly spot where the trend will end and help them open an optimal entry point position.
Moreover, for this trend, it fights against the trend and sometimes works against a trader. It is risky to go against the opposite of the trend, but if you time correctly, you will reap huge rewards. The strategy favors those aware of recent price action and knows the right time to be against it.
- Trend Trading
While considering the trend trading type, you have to look at an extended time frame chart. It helps you determine the overall trend.
After you establish an overall trend, then get a small time frame chart. With that, you can consider many available trading opportunities depending on the direction of trade.
If you use shorter time frame chart indicators, you will have an idea of the moment you should time your entries. The first thing is to determine the overall trend where you have to look at a long time frame. So, the indicators can help you when confirming the trend.
After determining the overall trend, then move to a shorter timeframe but look for entries having the same direction.
The Bottom Line
Recently, day trading has become a controversial phenomenon, but it’s a viable way for you to earn a profit. However, both individual and institution day traders play crucial roles in the marketplace. They are responsible to keep the market’s liquidity and efficiency.
Day trading is a popular form of online trading for inexperienced traders. It therefore should be left to people with skills and resources who want to succeed.