What is day trading? What are the strategies best for trading?
This guide will help you with the best trading strategies if you are a new trader. Here are some simple steps to get through.Here are some pros and cons of day trading.
What is day trading?
When a trader opens a trade and closes it on the same day, this technique is called day trading. You can still be a good trader and make money if you are consistent. It is more like making an ocean by collecting each drop of water. It is best for those who don’t know the long-term game but it has all the risks and needs careful watch and discipline.
Why day trading?
Even though day trading is a make-or-break still it entices many traders. But there are a lot of risks in it. Let’s have a closer look at it.
You can learn quickly
Since long-term trading spans over a long period of time so that one can get a better understanding of the choice for the specific period.
A good trader learns from his mistakes. A trader can know his trades on the same day whether right or wrong and can learn from his own mistakes. Sounds more like a crash course! Isn’t it?
Here are some of the rookie mistakes to avoid to save your account.
Low capital requirement
Brokers usually offer a high leverage since the trade lasts only for a day and is called intraday trading. If are from the US, you are supposed to maintain a minimum balance of $25000 for a day trade which is called the “pattern day rule”. But in forex trading, there is no such compulsion and one can start with even $50.
It’s an income, not returns
In intraday trading, you make a profit or loss on a daily basis and it is more like a second income for somebody and one can make a handsome amount of money if he is good at it. And like other businesses, it has a risk of going bankrupt too as it is in your hands and you are totally responsible for it.
If you are a beginner, here are some basic tips and tricks to do it better.
Prerequisites for day trading
To be a successful trader, certain things are required. The list is as under:
Ideal capital for day trading
Even though one can start with a $5 or $50 capital but still a handsome capital is still required and an ideal amount would be $500 if your lot size is 0.02 to 0.05. Punching above the weight is highly discouraged at this stage. Smaller lot size is encouraged at the beginning, and once you are confident enough you are good to go for bigger lot sizes.
Tools and indicators
Even though Metatrader has got all the necessary charts and indicators in forex trading, yet you need some specific tools for intraday trading.
You don’t need to toggle between tabs for the latest news. It can directly be added to the Metatrader terminal.
Know the session
Even though the market works from Monday to Friday, yet the trades are different as the traders and different trading institutions change every day which makes the market even more volatile and liquidity is at the maximum at certain times and it depends upon the asset as well. Hence, memorizing the time zone for different exchanges can be of great help.
Using generic indicators give you an edge as these indicators are also used by other trader around the world.
Pipbreaker= This indicator is very good for beginners and covers basic trading modes that is scaling, short-term and long-term trading.
Velocity finder= This indicator allows the user to compare multiple timeframes and can make 200+ algo calculations in milliseconds.
It can be dangerous when the market is volatile and a specific indicator is always good.
Like every business, cutting down on costs is very necessary and when you earn more you are supposed to pay the broker more. Hence, finding brokers with lower charges or commissions can be beneficial.
2 best day trading strategies
There are different types of day trading strategies. One is proprietary and the other is rudimentary and the market rewards the traders the same. So here are two trading strategies for help.
One should not speculate the direction once the market is inside the box as every asset goes through a contraction phase and can result in reverse. Wait for the cue to break out.
A box can be drawn to high and low of the sideways movement and the breaking of that box will lead to some significant action.
As the chart shows, USDJPY was stuck between 108.143-107.784 for two days. Once it is broken, it went down and the box provided significant resistance.
The enduing move would be bigger in case of a big box formation and it can’t be the case with the same asset. So one needs to take multiple assets to hop in especially when the breakout happens.
Note.1. The box formation can take place any day. It can be the previous day or any other day needed. But breakout indicates a significant intraday move and being a good trader you need to make the most of it. This can be the technique for every trading day.
Note.2. You must trade and expect a normal target if your box breaks on the same day.
It is a very effective strategy despite being tricky. Whenever market is high or low there is always a sentiment attached with it. For example, the US-China trade war over the past years has made investors aware of tricks. Hence, investors defied the technical and fundamentals and took the risk of gold and silver.
This type of sentiment gives a good opportunity for trade and spans over a longer period. Whenever the market goes up or down in intraday trading, you can make a rally. However, one should not overleverage the prevailing sentiment. Because even if the sentiment prevails, the traders tend to book profits and the pair may see a downfall for that day.
It takes time to get a grip over this strategy and if you are new don’t go for this strategy. But if you are a pro, this is highly profitable for you. As the chart shows above, gold gave 200+ pips profit for almost two days. So if you want to make sure, take a paper trade and check its accuracy with the live trade.
Always buy when the market is low and sell when it is high and never get attached with the same sentiment for more than 3 days.
Psychological warfare in day trading
The intraday trading is a sort of psychological warfare you are supposed to master. You are supposed to be patient enough and spontaneous while making your decision. Neither be greedy nor close your position early. You must create a plan for each day and stick to it strictly. Looking at the charts can be stressful so find the best time to trade in a day and be smart.
You are highly susceptible to losses but it all depends on how you cope with it. Never try to revenge the market even after a series of losses it will only flame the fire.
Don’t trade daily
When the market is decent you can make the trade. For example, when there is box breakout, it is a good opportunity to trade and only in these situations is a good move.
Most of people think intraday trading is a good idea for making money but it is always the quite opposite. Because you are supposed to control your emotions and stick to your strategy with all the careful attention to the risk management principles and you will be successful for sure.