The term “day trading” or “Intraday trading” is used to describe a process of buying and selling a stock in the stock market or currencies in the Forex market within one day. The day traders aim to get profit using a large amount of capital and small movements of the highly liquid currency prices, stocks or indexes. In this article, I will consider the most popular and profitable strategy of the day trading.
Some stocks or currencies are considered as ideal candidates for Intraday trading. The trader must look for two things: liquidity and volatility. Liquidity allows you to enter and to leave the market at the best price, thanks to tight spreads and low slippage. Volatility is a measure of the expected price change during the day, this is the range in which the trader works. Large volatility means a large profit or loss.
After you have chosen stocks and currencies for trading, you need to identify possible entry points. For this purpose, you have to be able analyzing charts, to distinguish patterns, to use the technical analysis (trend lines), volume indicators.
Finding a Target
Determination of your day trading target depends on your trading style. Here are some strategies which are successfully applied for Intraday trading:
Scalping is one of the most popular strategies of Intraday trading and involves closing the transaction immediately after it becomes profitable. It is obvious that the purpose of such strategy is profitability achievement.
Fading is the strategy based on selling immediately after the price starts to move sharply up. It is based on the assumption of an overbought market. Though risky, this strategy can be very profitable.
Involves profiting from the daily volatility of stocks or currency pairs. Assumes buying at the low points and selling at the high points.
Assumes trading immediately after the news release or on a strong trend which is supported at the expense of large volume. Using such trading style the trader waits bearish candles to appear, which show volume reduction, and then closes the position.
All these strategies are used not only in day trading, but also in regular trading. The distinction is how this strategy is applied to exit from the market, and similarity – application for market entry.
Stop-Loss in Day Trading
When you trade on margin, you are much more vulnerable to sharp market movements, than other traders. Therefore, stop-loss use has crucial importance in day trading. One strategy for Intraday trading is to set two stop losses:
1. A physical stop-loss is set at the certain price level, which corresponds to your admissible risk level. Essentially, this level means a maximum which you are ready and you are able to afford to lose.
2. A mental stop-loss is set at a point where your trading strategy is violated. It means that if the market makes an unexpected turn, you will immediately leave your position.
Professional Intraday traders apply one more rule. They determine for themselves the maximum point of a loss for all day, but not only for one transaction as soon the price reaches this point, they leave the market, and do not trade this day anymore. “Fresh” traders, as a rule, try to compensate losses too fast and, as a result, often lose even more.
Many people come to day trading with hope to treble the income in a short period and with the minimum efforts. Actually about 80% of all day traders lose the money. All these people with the same success could play a roulette! However, using accurate strategy, your chances for a successful trading increase many times over.
Most of the traders estimate the efficiency of the trade not only as a percentage a profit or loss, but also that, how accurately they adhere to the strategy. Actually, it is always much more important to strictly follow your trading rules than blindly trying to get profit, risking and making rash actions.