A significant contributor to this is the availability of real-time market data made possible by the widespread adoption of high-speed Internet and mobile phone connections. As a result, an increasing number of people are participating in the markets by engaging in “day trading,” or making numerous trades throughout the trading day in the hopes of profiting from the ups and downs of stock prices.
However, what methods are available? Should you utilize something straightforward, or try to go fancy?
How to use technical analysis for day trading?
A ‘clean’ trading technique is recommended by many day traders, who utilize technical analysis to make trading decisions by analyzing price charts like candlestick charts. These investors don’t like to use a plethora of indicators on their charts in an attempt to second-guess price movement. Price action trading is what they do instead. When trading in this manner, you can still use the past as a reliable guide for making informed decisions about the direction of your portfolio.
Some day traders use the previous day’s high and low as reference points when formulating a plan for the current trading day. It makes sense that the price would fall from its high of the previous day, which coincided with the return of selling pressure. Therefore, it was generally agreed upon that the price was excessive. The buyers voted with their wallets and bought again at the day’s low because they felt the market was undervalued. If these points become relevant again, they can form the basis of a profitable day trading strategy.
Day trading strategies
Day trading methods are distinct from those that are designed to capitalize on the market’s behavior over a longer period of time (say, many days or weeks). Day traders’ attention must be undivided because of the swiftness with which short-term market fluctuations can occur. Oil trading, a highly volatile market, lends itself well to short-term methods.
Examples of intraday tactics include:
- Trend-following strategy
- Mean reversion strategy
- Scalping strategy
- Momentum trading strategy
Even a basic day trading strategy can assist a trader try to identify low-risk, high-reward trades at key times during the trading day, even if no plan ever works perfectly. In addition, some investors would use a trade’s failure to initiate a new investment. If the level is broken, it may indicate the beginning of a new trend, providing traders with yet another chance to make money. If an investor makes enough money in a day trading session on a futures exchange to satisfy the exchange’s daily margin call, the exchange may deposit that amount into the investor’s day trading account.
How to day trade
- Make a deposit. If you sign up for a real-money account, you’ll also get access to a practice account where you can play around with fake money.
- Pick the product that best suits your needs. We provide access to derivative products such as spread betting and contract for difference trading. In the United Kingdom especially, spread betting is exempt from taxation*.
- Take a look at the various financial marketplaces we offer. More than 10,000 share, commodity, currency, treasury, and index-based financial products are available for trading on our platform.
- Make a choice: are you looking to purchase or sell? Think about whether the value of an asset will go up or down, and use that prediction to guide your entry and exit points.
- Read the news every day. Major news or economic events can have a short-term impact on financial markets, which can be exploited by day traders of stocks and currency.
- Use safeguards in place for managing risks. If the market turns against you, stop-loss orders can assist you get out of the trade before you lose too much money.
Day trading example: GBP/USD
The morning of April 22nd, a UK day trader may have checked the high and low of the day before in the widely traded GBP/USD currency pair. When the price dropped to the 1.4300 mark again the day before, buyers rushed in. Although it was impossible to determine what would happen on April 22nd, it seemed likely that the 1.4300 level would play a significant role in trading that day. Prior to the 1.4300 level, buyers are likely to re-enter the market.
Day trading: Support and Resistance
This is what transpired, as evidenced by the graph. Over the course of a few hours, the exchange rate between the British pound and the US dollar fell twice to 1.4320. Since there was demand here the day before, the day trader would think about making a purchase.
The crucial aspect of risk management is greatly improved by using absolute support and resistance levels like this while planning transactions. Even if the point of day trading is to generate a profit, it is crucial to protect capital in the event of a loss. If the pound to dollar exchange rate dropped below 1.4300, it would be evident that something had changed, and the day trade could be closed with a little loss.
Day trading tips
Follow your own rules
Discipline is a crucial quality shared by all successful traders. Always be on the lookout for ways to improve your poor habits, and try to do so as quickly as feasible. Disciplined trading occurs when an individual establishes and strictly adheres to a predetermined set of rules to guide their trades. If you find that you are repeatedly breaching your rules, it is time to take action. Due to the shorter time frame involved in day trading, it is recommended that you review your rules at the end of each month.
Manage your money
Day trading necessitates careful management of capital. It is, in fact, a crucial part of trading in any time frame. Without a doubt, you’ll need to implement effective money management tactics if you intend to engage in trading for a long period of time. You should take your time and read up on the topic until you find a strategy that works for you; there are entire books devoted to it. There needs to be a good risk-to-reward ratio. Keep in mind that it is irrelevant how often you win if your losses outweigh your victories. It’s crucial that your successes outweigh your failures.
Always use risk management
Stop-loss orders should always be used in conjunction with market entry orders for optimal risk management. This will serve as your policy. Before entering a trade, you must choose where your stop losses will be placed. Developing this practice will assist you avoid losing money on deals that don’t go your way. While price gaps can cause standard stop losses to move, guaranteed stop losses will always close out bets at the predetermined price.
