Day trading is a practice of frequently buying and selling stocks throughout the day, thus making profits thanks to the price fluctuation during the high volatility state of financial markets. This process is carried out in a short period that the day trader holds that stock, which is usually only a few minutes or even seconds.
Day traders are investors who seek higher profits in exchange for much higher risk of loss. These investors believe that by employing the proper day trading strategies, small daily gains will compound into large long-term profits.
As a result, choosing not one but many optimal day trading strategies in response to the movements of the market will ensure high portability. Let’s dive deeper into the best strategies for your day trading system.
What is a Trading Strategy?
A trading strategy is a predetermined plan that is intended to generate a profit, for example by going short in the day trading market. Well-researched trading strategies will back your trading plans up and pave the way for your trades to reach maximum profitability.
Day trading strategies that work are often based on both fundamental and technical analysis. Common and popular trading strategies have been widely verified by backtesting in a simulated trading environment while following certain scientific methods.
In modern days, the term trading strategy is used to refer to any technical or non-technical plan when trading a financial instrument, however, its popularity is more well-known in computer-assisted trading. Such a process involves the implementation of a computer program for technical analysis and trade automation.
When it comes to day trading, strategies are sometimes considered speculative and initiated in different approaches than the long-term ones. Below are some of the most popular simple day trading strategies, both technical and non-technical:
- Pivot Points
- Trading the news
- Trading Signals
- Social trading
This popular trading strategy for beginners revolves around acting on news sources and identifying significant trending moves with the help of high volume. There is always at least one stock that moves 20-30% per day, so there is plenty of opportunities. Simply hold your position until you see signs of reversal, then exit.
Alternatively, you can gradually reduce the price. Your price target will be reached once the volume begins to decline. If used correctly, this strategy is simple and effective. However, you must stay informed about upcoming news and earnings announcements. Just a few seconds on each trade can make or break your end-of-day profits.
Also known as trend trading, this strategy somewhat defies common sense as you aim for trading against the trend. To make successful trades, you must be able to accurately identify potential pullbacks as well as predict their strength. Such a process requires traders to have extensive market knowledge and experience.
A pivot point is defined as a rotational point. The pivot point is calculated using the previous day’s high and low prices, as well as the security’s closing price. It is important to note that when calculating a pivot point using price data from a short time frame, accuracy is frequently reduced.
The daily pivot points strategy is often viewed as a unique example of reverse trading. A day trading pivot point strategy can be extremely useful for identifying and acting on critical support and/or resistance levels.
The scalping strategy is based on the idea that small wins can add up to a lot of money at the end of the day. It is a great day-trading strategy for traders who are confident enough to make quick decisions striving for small profits without worrying too much about other unnecessary signals.
It is not uncommon for several trades to be completed in a matter of seconds with Scalping. As it is a quick strategy, traders must always keep their eyes on any potential signs of losses. To minimize losses during the strategy, its users must have the discipline to sell immediately if they notice a price decline.
Scalping is without argument one of the beginner-friendly strategies and can be mastered with the help of professional traders like in the following course:
Breakout strategies revolve around the price clearing a specific level on your chart with increased volume whereas volatility will start to rise. In such conditions, the prices are more likely to trend towards the direction of the breakout.
Traders usually enter a long position after the asset or security breaks above the resistance level. However, it is more common in day trading that they enter a short position when the asset falls below the support level.
Besides the aforementioned technical strategies, day traders may also implement the following non-technical ones for the best outcomes:
- Trading the news: hot and impactful news are best friends to day traders, helping you make significant profits should you proceed to make your trades just in time of the emergence of the events.
- Trading signals: in modern days, there are plenty of private and exclusive communities of professional traders who can offer you their trading services and signals of potentially
- profitable trades. Execute or not? The rest is up to you.
- Social trading: Social trading is a type of investing that allows investors to observe their peers and expert traders’ trading behavior. The primary goal is to replicate their investment strategies through copy trading or mirror trading.
What else to look for?
Strategies are indeed crucial besides actually understanding how to do day trading, still, they are not something that will be executed flawlessly on their own. Day Trader should pay attention to the following aspects as they get their strategies ready for initiating a trade:
- Small start: stick to a manageable number of assets and keep your portfolios under sound control with stop-losses. It is best to focus on a handful that makes average profits rather than too many that make none.
- Time management: make sure that every second spent in trading counts. Time is money and you do not want your cost to wastefully increase.
- Money management: before you begin, decide how much you’re willing to risk. If you want to be around and successful in the long run, you must be willing to spend some for trade initiation and accept some losses.
- Education: keep yourself well-informed and well-updated on any changes in financial markets. Learn to distinguish between signals and gibberish.
- Consistency: good things take time. As in ‘day trading’, it requires ‘day’ to achieve the desired profits. So, be consistent and keep on moving forward.
- Timing: volatility is more likely to strike right upon the opening of the markets each day. If you are not a seasoned professional who can immediately deduct insights from patterns and make your trades right on the spot, just bide your time. You still have hours ahead for more careful consideration.
The importance of complicated technology strategies to the success of day trading is nothing but a myth. So before you get drowned down with involving puzzling indicators or high-level technical analysis, remember to concentrate on the more straightforward strategies and the rest will soon reveal themselves.