Day trading is a popular trading strategy executed on a day-to-day basis. While the strategy offers more to gain and less to lose, the risk potential is high for unregulated and unplanned executors. The strategy is like a fast-paced horse that can quickly reach the finish line but, if untamed, can throw the rider off the track. That’s why you need to master day trading strategies first before stepping into the intricate market.
This is a comprehensive day trading guide to help you grasp the day trading concept by defining the strategy, explaining minute details, offering essential tips, and highlighting the advantages and disadvantages.
What is Day Trading?
Day trading means buying and selling assets within the same day, regardless of the market forecast. A trader executing this strategy doesn’t care whether the price will go further up or down, nor does he remain in the market after the day ends; his trades close with the day.
Day trading is a short-term trading strategy; hence, it is fast-paced, as traders can perform multiple intraday trades, and time-consuming, as traders monitor the market as long as they stay in it.
While analyzing the market, day traders don’t seek long-term opportunities. Instead, they devise plans and use a blend of analyses to find multiple ephemeral price changes. An expert day trader knows how to leverage those tiny changes and rinse profit out of it.
What does it take to Start Day Trading?
Once you decide to become a day trader, it’s time to plunge into the real business. The first few steps are the most crucial, as they will prepare the ground for your trading career and direct its future— whether it will sustain enough time to become a profitable profession or live short.
Here are a few practical advice to set you up for a good kick-off:
Be Knowledgeable: Remember this: Trading financial assets is never the quickest way to be rich, not even close. As for any area of human expertise, short and quick moves are the toughest to master. You have to put months into learning basic trading concepts: what an asset is, how it is traded, what units measure price changes, where you can trade, when you should enter the market, why you are paying your brokers, and so on.
Be Decisive: In day trading, results rely on a trader’s decisiveness, an ability that sprouts from attentive practice. A demo trading account is the best way to practice trading in real time. Be critical of every decision you make and question the reason behind it. Grow keen eyes to assess the yields of your decisions. Rigorous analysis and understanding of your thought process will quickly grow an intuitive trading sense in you. Before you reach that level, we recommend starting day trading.
Learn to use leverage: Leverages can multiply profits, making day trading an ideal profession, at least conceptually. To make it happen, traders must get familiar with the puzzling concept of leverage and margin and grow excellence on them by practising.
Anyone who masters these three aspects can expect a good return from the market; however, it’s much tougher than realized.
Crucial Day Trading Strategies
Many complicated guidelines are available online, teaching you complex terms and strategies pertaining to day trading, most of which beginners need not worry about. Here is everything an aspiring trader should be spending time learning:
Learning Different Day Trading Strategies
Day traders don’t confine themselves to using a single strategy. Every financial trading ground can be hacked and cracked in several ways, sometimes mixing multiple strategies, which only advanced traders can do. To reach that level, traders must be well aware of all the short-term trading variations, including:
Scalping: It is the most basic day trading form in which traders harvest small profits from nuanced price changes. Arbitrage trading is a good example of scalping. With this strategy, traders find an asset sold at different prices on different platforms. They buy the asset from where its price is low, transfer it to another platform that offers a higher price, and sell it there.
Swing trading: Also known as range trading, this strategy entails speculating on predetermined support and resistance levels. That means traders pre-mandate the exit points for their trades, reducing risks.
Fundamentals trading: Global events, news broadcasts, and economically influential opinions can create market volatility. Day traders keenly observe the impacts and exploit them to make money.
Familiarizing with Trading Platforms and Analyses
Rest aside, trading at its most basic level is all about knowing when to buy an asset and when to sell. To know these, traders must learn how to observe the trading market. The process is rather simple, consisting of only two basic steps: watching the price movement and knowing what moves the price.
Traders can monitor price movements through trading platforms, which brokers supply as a gateway to the market and a trading management system with integrated tools, such as charts, bars, and graphs, that traders can use to select their preferred assets and see their real-time price actions.
Factors that move an asset’s price are grouped into two categories: fundamental factors and technical factors. Fundamental analyses measure fundamental factors like an asset’s geopolitical background, global events, news, media, and influential personalities’ opinions that directly motivate that asset’s price changes. Technical analyses are methods and instruments to analyze patterns in a price action by tracing its movement within a specific timeline to get an idea of its next move. Trading analyses also come with trading platforms.
Trading Platforms
Trading platforms are to a trader what swords are to a samurai. From buying assets to analyzing the market, everything a trader does in a financial market is done through a trading platform. So it’s crucial to be picky while subscribing to one.
An ideal trading platform features advanced charting tools, real-time market data, and a quick trading execution process, all of which can dictate a trader’s success or failure. In the day trading world, where every second counts, failing to execute an order at the right moment can turn the table by producing the unexpected, affect the next buying or selling decision, and frustrate the trader. A good trading platform provides precise execution of operations with minimal latency.
Technical Analyses
None can or should trade successfully without using trading analyses, as they help traders with the most fundamental operation in trading– speculating on an asset’s price to predict its future movement. Technical analyses use historical price movements and complex algorithms to analyze current price action and conclude its imminent course.
Mindset Building for Day Traders
Financial markets are powerhouses of emotional turmoil. Regardless of your strategy, the market keeps testing your control over your mental state. It will put you into situations where it will be challenging to save yourself from being emotionally carried away. Often overwhelmed, you will make instant decisions only to regret moments later. So, learning about dangerous snares you can fall into at every step forward is crucial.
Elated Moves: A quick gain or a winning streak can overwhelm a trader with joy and lead him to make uncautious decisions risking their capital only to lose a large amount of money.
Retaliation Trading: Shortly after losing money, traders may feel an urge to place more orders in an attempt to recover the loss. Such trades mostly evoke more losses as they lack prior market research and a planned approach by the traders.
Overconfidence: It’s more like the elated moves but rooted in a trader’s overconfidence rather than joy. Overconfident buying without spending time understanding the price action is a sure way to fall prey to the unforgivable financial market.
Analysis Addiction: Some traders habitually overanalyze the market and wait past the most opportune moment to buy an asset. They may develop such habits out of their fear of losing money.
Maintaining a Stable Emotional State
The trading market is full of traps. Save yourself from the destructive impact of an imbalanced emotional state while trading. To overcome the challenge, you need to follow a few crucial steps:
- Watch your emotions. Find out what meddles with their stable condition and when you feel overwhelmed by them. Only by knowing the causes of irritation and dealing with them with awarness can you claim your control back.
- Fear and greed are the two most influencing emotional agents that drive traders to act irrationally. You should devise a strategy to detect and mitigate both by sticking to your plan.
- Build a trading plan through in-depth market research and experience and stick to it regardless of market conditions. Practice prioritizing your plan when feeling overwhelmed by emotions. Make sure to review the checkpoints, goals, and advice you have noted in your trading plan before entering the market.
- Trading long hours can lull down your cognitive enthusiasm and buy positions without minding essentials like risk management, analyses, etc.
Developing a Trader’s Mindset
A person’s mindset is the most important catalyst of his success and failure. To develop a winning mindset, traders must be attentive to their actions and disciplined during their trading sessions. Here are a few tips that help:
Active maintenance of emotions: Never act without knowing your why. Before entering or exiting a trade, ask yourself whether you have checked all the obligatory factors. Don’t lose your rational mind to emotions.
Take a middle ground while setting goals: Failing to reach short-term goals can be frustrating. On the contrary, easily reachable goals won’t sum up to a good income. The best ground is the middle, where traders can reach their goals by putting in substantial effort while earning a livelihood.
Retrospection: Experience never sprouts from unreviewed actions. To grow experience and learn from the market, you must cultivate a habit of putting your actions in retrospect. Keep a note or diary, write down all the decisions you make, the reasons behind them, and the results they yield, and analyze every step by dissecting them to their minute details. It will cement your way to becoming a wiser and more experienced trader.
Risks Involved in Day Trading
To manage risks efficiently, you must learn them first. Though day traders receive the least market risk exposure, they can still suffer great losses from blind navigation. Here are the major risk factors that lurk in different stages of a day trading strategy.
Initial Losses: Every trader is bound to endure losses during their initial trading periods, which teach them about the grave nature of the trading market, often by making them leave the market without making a single penny.
Psychological impacts: Day traders live one day at a time, mostly by observing the market behaviour, speculating on the next move, and monitoring their trades. Doing all these regularly is depleting and results in emotional burnout.
Margin and Leverage: To earn a good amount of money, day traders need to take leverage, which frequently causes great losses and mounts negative assets.
FAQ
Is Day Trading Hard?
Day trading is fast-paced and requires instant decision-making abilities. A trader usually navigates multiple trades at a time, being constantly attentive to transitory price movements. To succeed as a day trader, it takes incredible patience, perseverance, vigilance, decisiveness, and restraint, which are hard to habituate.
What is the Definitive Rule of Day Trading?
The one rule every day trader must follow is to close every day with no trade opened. Exit every trade before the day closes without analyzing whether it’s a win or loss.
What are the Best Technical Indicators for Day Trading?
Technical indicators are adept at forecasting an asset’s price projection by analyzing its historical records and using common price action patterns. Every day trader employs a specific set of technical indicators, including the Moving Average(MA), Relative Strength Index(RSI), Bollinger Bands, and Moving Average Convergence Divergence(MACD).
Conclusion
Day traders don’t wait for mounting big profits. They build plans, seek small gains, stick to their plan, and close trades at the day’s end. All these may sound simple but are difficult to pull off. Skills grow through persistence and patience that most market joiners fail to sustain; they rustle after quick gains, make bad decisions all the way along, lose capital, end trading, and blame the market eventually. To stand out, you must take a long approach that consists of learning as much as possible about day trading strategies and practising them rigorously in a simulated environment. The rest will fall into the right places with time.
