Day traders are the ones who would buy and sell Stocks the same day. They would usually square off their trades the same day and would not carry it forward to the next day. They typically want to generate substantial profits from small price fluctuations. This is why they are required to involve a large capital for the same. Day trading is usually popular with indexes and stocks which are very liquid. Fortunately, there are useful trading strategies to help the trader’s cause.
They mainly look for volatility in the price of what they trade along with liquidity. The reason is that the higher the volatility the higher the price range within which it moves the same day and offers plenty of scope for making high profits. With liquidity, the day trader can close the trade at any suitable point. The entry and exit points are of critical importance. To achieve this, he usually employs various trading tools like candlesticks, new briefings, ECN, etc.
Candle Stick Analysis
Finding the entry point is essential in this strategy. Several factors are involved when it comes to candlestick and technical analysis. One popular strategy to determine the entry point is called” Doji” reversal pattern. Here the day trader lookout for sudden volume spikes. With this, they get to know the support price levels. Another important factor which demands attention is the Day Highs and Day Lows. Lastly, the Level II predicament for all order sizes and open orders are essential. By following these, you could observe sudden turnarounds necessary for day trading.
Margin trading often becomes susceptible to the sudden and rapid movement of prices of stocks. For your safeguard, you need to keep a strict stop loss for every trade you enter into. You have to keep the physical stop loss based on your risk appetite as a day trader.
Popular Day Trading Strategies used by day traders
Out of the many trading strategies, one very popular used by day traders is that of Momentum Trading. This is based on the momentum in the price of the stocks to be traded. It could make use of news reports. So you can buy a stock based on positive reports. Here the main target of day traders is to buy a desired amount of stocks at lower rates and sell the same at high rates. Here trades are generated on the basis of based on daily trading pivots.
This is a very popular day trading mentor used by many in this regard is known as scalping. Here the moment the trader usually closes trading positions as soon as it is profitable. The target prices set keeping in view immediate profit once it is reached and the trade is closed.
Fading the Market- Trading Strategy
This is another popular day trading strategy used by some day traders. This is based on the contrarian view of the market. Here the traders buy when the price starts to fall and after that sells when the market and the stock bought begins to rally. These are usually high-risk trades, but at the same time, they also offer a high reward when it clicks.
Day Trading and Money Management
You would note that the successful traders are the ones who have all mastered the art of money management. This is all the more true in case of a strategy based approach to trading on which the day trades are set up. Money management is very important in case of day trading. It also involves personal preferences, as well. As a successful day trader, you need to consider the risk-reward ratio for each trade you enter into. What is important is how much more your wins are against the potential losses against the trade involved.
In terms of better money management, you need to have an unemotional approach to investing. To be successful with your money management, you need to be much disciplined with your trading decisions. This pertains to all trades which includes when and what is to be traded.
When it comes to trading discipline, the extreme importance of stop losses can hardly be overstated. This is what provides security to the trade you enter into. They offer excellent downside protection. As a part of the discipline, it is essential that you do not easily get influenced by traders. Once you have decided on a trade, you must follow the strategy and not get swayed away from it. You need to be independent of them at all times and have your trading strategy in place.
Flexibility is also another key and necessary element. This is more so when the conditions are changing. Other skills would include is not to get overstressed with what is happening. It is seen that often some traders get over concerned about decreased profits after they enter their trades. However, at the same time, you need to note that giving decreased profits is always preferable to losses. So even with minimum profits, one should be happy. Here in such cases, a possibility of reentry into the trade must always be considered.
Last but not least it is important that you must always have a detailed record of all the trades you enter into and in case you decide to reopen them a reason regarding reopening them.