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Day trading is the process of buying and selling stocks within the same day. It involves meticulous analysis, a correct strategy, and a certain level of expertise. Choosing the right way to go is the key to becoming a successful day trader in the stock market.
“Never, ever argue with your trading system” - Michael Covel
Day trading is the process of selling or buying equities within the same day. Its concept follows a simple rule, which is that traders must incorporate short-term strategies to achieve results within the same day. It’s probably one of the most complicated trading styles, as it includes a fair share of analysis.
To be more precise, day traders have to examine the patterns while the shares are fluctuating. Think of it as watching the live broadcasting of a soccer game and making the bets at the same time. Even though day trading is way more complicated compared to a match, it shares the same concept.
Before implementing good day trading strategies, professional brokers and amateurs have to also analyze the related events. Major announcements, political shifts, and varying financial circumstances affect the markets a great deal. Predicting and identifying market reactions quickly is a vital part of day trading.
By definition, strategies in day trading dictate the direction of the trade. Some of them focus on price dips, while others monitor the increase in trading volume. Each strategy has a different entry and exit point. The key is to close the deal before the end of the trading day.
For advanced stock traders, testing professional day trading strategies is more of a way of life. Day trading continues from dawn to dark and resembles a full-time job. As it concentrates on profiting from smaller price changes, it requires undisturbed attention.
Day trading for professional stock traders also means greater risk. Beginners might take careful steps when they are starting out, however, advanced traders don’t have that luxury. They have to make quick decisions about several stocks, resulting in increased chances of failure.
Though not steady, day trading in stocks is a source of income for professional traders. Regardless of having the required expertise, they’re still under a lot of stress. They have to close their positions at the perfect moment to ensure successful trade profits.
Nevertheless, stock day trading is still one of the leading strategies for professionals.
Getting started with day trading isn’t an easy task, yet it’s not impossible either. You can begin your journey if you follow a couple of basic steps.
When it comes to day trading in stocks and choosing a correct strategy, there’s no such thing as too much knowledge. Not only is it crucial to understand the basics of the equity market, but it’s also essential to always be in the know.
It’s not advisable to start day trading before determining the budget for each trade. You won’t be able to find rules regarding the optimal spending amount per purchase. In fact, different day trading strategies might force you to shift your budget, making it important to know how much you need to start day trading.
However, shrewd traders never exceed 2% of their capital for each trade.
Purchasing every possible stock at once isn’t a good strategy. For beginners, it’s better to take small steps and choose only a couple of equities. Concentrating on one or two stocks will leave more room for analysis and useful observations.
Professional stock day traders know which strategy works better because they have tested several. Reading about the advantages and uses of each strategy isn’t enough. It’s better to see for yourself what each of the day trading strategies can do for your goals.
Most advanced traders will have a different opinion about the winning strategies for stock day trading. Numerous alternatives are available, but not all of them are viable for every single trader. However, depending on experience, it’s possible to list the most successful strategies.
The reversal strategy is one of the most difficult day trading strategies to implement. It involves identifying the trend (whether the price of a stock has an upward or downward movement) and investing against it.
Traders rely on the fact that a stock will eventually go against the trend, i.e. it will pull back. And when that happens, they will earn a fair profit.
Even though reversal is among the best day trading strategies, it’s extremely difficult to master. It requires in-depth analysis, perfect timing, and correct stock picks. Consequently, only advanced traders dare to adopt it as a strategy. It’s best for beginners to steer away from the reversal strategy.
Momentum is one of the easiest strategies for stock day trading as it’s based on the news. Be it a financial or political occurrence, global events will affect the prices of shares. Therefore, traders track upcoming news, examine how it will affect the trends, and invest accordingly.
Naturally, an essential part of the momentum strategy is figuring out which stocks will be affected and how. It’s also important to identify the signs of an upward/downward shift and enter or exit the trade accordingly.
Momentum incurs its share of difficulties, yet it’s one of the most successful day trading beginner strategies.
Scalping relies on fast decisions and quick reactions to price movements. It uses the tiny opportunities that are created by fluctuations. As a rule, traders will set limits for buying and selling to make sure they don’t miss the moment.
Day traders, who use the scalping strategy for stocks, never wait for long-term results. If the price is dropping, they will sell immediately, and vice versa. A scalping strategy doesn’t yield huge profits right away and is only beneficial in the long run.
The moving average crossover strategy is one of the most popular stock market strategies for day trading, as it utilizes specific averages to trigger the execution of the trade. When the fast-moving average (one set at 20 periods) crosses the slow-moving average (one set at 60 periods), it’s an indicator for the trader to make a purchase. When the opposite happens, it signals the sale of the stock.
There’s one more important average here, namely, one set at 100 periods. If the prices of the shares fluctuate over and under this average, then the traders can identify the trend.
Similar to the reversal strategy, Breakout is also more suitable for advanced traders as it requires excellent timing. As one of the most successful day trading strategies, it’s quite popular on the stock market.
This strategy combines long (bullish) and short (bearish) positions. It triggers the trade when the price crosses a certain threshold. Upward movements trigger long positions, while downward shifts force traders to take short positions.
It’s essential to track the trade volume to execute the breakout strategy successfully. High trade volumes indicate that the price movements will maintain a steady upward trend. On the contrary, low trade volumes mean that the price will drop below the initial threshold and result in more serious losses.
Day trading strategies are important for traders as they help them understand the process of trading slightly better. They create a guideline of some sort, making it easier to figure out what should be done.
For example, if a trader uses a momentum strategy, they know that it’s important to track the news all the time. They also reckon that they should plan the upcoming trade, depending on the events that are about to occur. Consequently, they’ll know how the market will react in advance, saving them time during the actual trade.
Naturally, strategies don’t include all the answers. Traders draw a lot of conclusions from actual trading experiences. Even the best strategy for intraday stock trading won’t teach you how to identify the patterns. Neither will it dictate the reactions of the stock market. Traders have to do their homework if they want to succeed in day trading.
However, strategies show traders the winning moves. They create room for analysis and research. They force traders to ask essential questions:
Consequently, traders start viewing trends with a critical eye and predicting the movements more accurately.
Starting day trading blindfolded isn’t the wisest decision a trader can make. Even though it’s not easy to pick out a specific strategy, nailing at least one of them is extremely beneficial. It’s natural to be unsure about the effectiveness of day trading strategies in stocks. Hopefully, taking a look at the most important features will help you make up your mind.
The top day trading strategies for stocks that we mentioned earlier allow traders to buy or sell stocks successfully and quickly. They don’t have to make an investment today and wait for fluctuations in the future. In fact, day trading creates quick opportunities that can yield great results by the end of the trading day.
More importantly, strategies guide the way for traders who are just getting started. They resemble a walking stick that improves your ability to find the way. However, strategies still leave a lot of room for flexibility, allowing advanced traders to navigate the stock market freely.
On top of that, strategies teach day traders how to make accurate decisions in little to no time. After some practice, even beginners are able to successfully end the trading day.
Ultimately, strategies for day trading stocks are based on past experiences. They use previous successes and failures which might work in the future. Therefore, they make it easier for a trader to implement the best practices.
Day trading and its strategies aren’t suitable for everyone. They are risky and require a certain level of knowledge. Yet they are effective for stock trading.
Day trading involves opening and closing the positions within a single trading day. It relies on short-term price fluctuations, rather than placing bets on future movements. Though it can result in significant losses at the beginning, it can still yield profits eventually.
Strategies accelerate the chances of success. However, some of them aren’t suitable for beginners. Reversal is a better match for advanced traders, while momentum strategies are a perfect choice for rookies.
At the end of the day, it’s better to test strong day trading strategies against each other and figure out which one is more successful accordingly. Most advanced day trading platforms include this feature, making it easier to select a particular strategy.
Momentum and scalping are the best strategies for day trading in stocks, especially for beginners. They are easy to master and can essentially deliver great results.
While using the momentum strategy, traders explore the upcoming news and analyze the market reaction. Based on those insights, they decide whether the prices of a stock will increase or drop, and execute the trade accordingly.
Scalping uses small opportunities that are created in between the price movements. It instructs the traders to sell or buy as soon as the prices drop or increase, respectively.
You should choose the day trading strategy depending on your skill level. If you’re a beginner, it’s better to go for the momentum strategy. If you’re a professional trader, then you can consider more advanced strategies, such as breakout and reversal.
For an in-depth analysis, you should test each strategy and examine which of them is more effective for your goals.
The risks of day trading in stocks include significant losses, high chances of failure, inability to identify trends correctly, and getting addicted. Even though the chances of succeeding in day trading are close to that of gambling, it also invokes adrenaline. Subsequently, there’s a high probability of getting addicted to day trading and making irrational decisions about the trades.