Opening and closing positions during the trading day is what day trading entails.
It is a common trading method in which you purchase and sell throughout the course of a single trading day in order to profit from modest price swings.z
Day trading is another short-term trading method, but unlike scalping, you usually only take one transaction each day and close it out at the end of the day. These traders prefer to pick a side at the start of the day, act on their bias, and then complete the day with a profit or a loss.
They dislike holding trades overnight.
Day traders are forex traders that have enough time during the day to evaluate, execute, and monitor a trade. Day traders typically rely extensively on technical analysis to execute their deals.
Short-term price activity is used to determine the best entry and exit points.
If you think scalping is too rapid for you yet swing trading is too slow, day trading may be for you.
You Might be a Forex Day Trader if:
- You enjoy starting and finishing a trade in the same day.
- You have time to evaluate the markets in the morning and can keep an eye on them throughout the day.
- At the end of the day, you want to know if you won or lost.
You Might NOT be a Forex Day Trader if:
- You prefer trading in the long or short term.
- You don’t have time to examine and watch the markets throughout the day.
- You work during the day.
Things to Consider before jumping to Day Trading:
Keep up with the newest fundamentals happenings to help you decide which direction to choose.
You’ll want to be up to date on the newest economic news so you can make trading judgments at the start of the day.
Do you have time to keep an eye on your trade?
If you work full-time, determine how you will divide your time between employment and trading. Basically, don’t get fired because you’re continually gazing at your charts!
Types of Day Trading
Day traders seeking to maximize intraday gains frequently employ one or more of the day trading strategies listed below.
Trend trading is the process of determining an overall trend by looking at a longer time frame chart.
Once the main trend has been established, you may shift to a lower time frame chart and hunt for trade chances in the direction of that trend.
Using indicators on the shorter time frame chart can help you time your entries.
First, look at a broader time range to see what the overall pattern is.
Indicators can be used to help you confirm the trend.
Once you’ve determined the overall trend, you can narrow your focus to a smaller timeframe and hunt for entries that are moving in the same way.
Countertrend day trading is similar to trend trading in that you hunt for trades in the opposite direction after determining your general trend.
The goal here is to identify the end of a trend and enter early when it reverses. This is a little riskier, but the rewards can be enormous.
In this example, we see that there was a long and exhausted downtrend on the 4hr chart. This gives us. an indication that the market may be ready for a reversal.
Because our approach is “counter trend,” we would look for trades on a smaller timeframe, such as a 15-minute chart, in the opposite direction of the general trend.
Traders who employ this method must be fast to recognize the end of a trend in order to create a position at the best entry point. This technique goes against the trend and can sometimes work against traders.
Remember that going against the trend is extremely dangerous, but if done right, it can yield tremendous benefits!
Countertrend trading benefits individuals who understand recent market behavior and know when to bet against it.
Range trading, also known as channel trading, is a day trading method that begins with an awareness of recent price action.
A trader will examine chart patterns to identify common highs and lows during the day, as well as the disparity between these points.
For example, if the price has been rising or falling off a support or resistance level, a trader may decide to buy or sell depending on their view of the market’s direction. This is characterized as “trading in a range,” in which the price falls back to the low after hitting a high. And the other way around.
A day trader who employs this approach and wishes to go long will buy near the low price and sell near the high price.
A day trader following this method who wants to go short will sell near the high price and purchase near the low price. To keep their trading in line with what they perceive to be happening in the market, most range traders will use stop losses and limit orders.
A stop loss order specifies the point at which a position is automatically closed if the security’s price falls below the trader’s entry point.
A limit order is the automated closing of a position when the trader believes a profitable run is about to stop.
Range trading necessitates enough volatility to keep the price moving throughout the day, but not so much that the price breaks out of the range and begins a new trend.
However, if the price does break out, there is a mechanism in place to deal with it.
Breakout trading is when you look at a pair’s range during particular hours of the day and then place trades on each side, hoping for a breakout in either direction.
This is especially helpful when a pair has been trading in a narrow range because it usually indicates that the pair is poised to make a large move.
The idea here is to position yourself such that when the motion occurs, you are ready to grab the wave!
In breakout trading, you identify a range where support and resistance have been strongly held.
After that, you can define entry and exit points above and below your breakout levels.
As a general guideline, you should aim for the same number of pips as your established range.
Check out our “Trading Breakouts” course to ensure you understand this!
News trading is one of the most classic, short-term trading tactics employed by day traders.
News traders are less concerned with charts and technical analysis. They are waiting for information that they feel will drive prices in one direction or the other.
This could be a report providing economic data such as unemployment, interest rates, or inflation, or it could just be breaking news or random presidential tweets.
Day traders that do well with news trading typically have a strong awareness of the markets in which they trade. They produce insights to determine how the news will be received by the market in terms of how much its price will be affected.
They will be aware of multiple news sources at the same time and will know when to enter the market. The disadvantage of news trading is that significant price changes are usually rare.
Expectations of such events are frequently reflected into the price in the run-up to the announcement.