The science of day trading

Education

A look at day trading and how to go about it

Day or intraday
trading is one of the trading styles. It implies that you hold a trade open for
a couple of hours on average and close it before the end of the day.

The general
approach to day trading is different from the shorter-term scalping and the
longer-term position trading. In particular, day trading is a good option for
you if you like market analysis and are willing to devote time to plan and
monitor your trade during the day. All in all, this style is rather balanced in
terms of the amounts of patience and emotional resilience you need to possess
to do the job well.

Let’s find out
what things you should pay special attention to when you do day trading. The
mere definition of this term leaves the door open for various approaches and
strategies
. Here are the options you have when you day trade:

  1. Trend trading. You can catch a rebound from support or a turn down
    from resistance in line with the overall trend thus increasing the probability
    of success. Get your hands on multi-time frame analysis (choose timeframes
    from D1 to M30), basic trend indicators and oscillators as well as some
    graphical tools like Fibonacci. Don’t forget to draw trendlines: this is
    the simplest step and yet it should definitely be there for you. The
    mentioned things will help you find the moment when the trend resumes and
    join in for a short ride on board.
  2. Counter trend trading. The price is not always in the pro-trend
    mode when you open your chart to day trade. As a result, apart from
    waiting for a trend setup, it’s possible to trade on a correction. Make
    sure you master reversal candlestick patterns, oscillators and different
    techniques that will help you find support/resistance levels and pick
    those of them that are really important.
  3. Breakout trading. If you pursue this approach, you focus on the
    most important levels of the price and initiate a trade when the price
    moves beyond them. The knowledge of s&r levels we mentioned in the
    previous paragraph will also come in at hand. In addition, you will need
    to know how to distinguish a real breakout from a false one. Finally, as
    intraday breakouts are often related to the news, you will need to stay
    aware of the fundamental picture and monitor economic calendar.
      

Notice that each
approach requires disciplined risk management with some differences in each
case. For example, breakout trading will require tighter stops and bigger
reward relative to risk.

There are many
technical indicators and tools that will turn out to be helpful during day
trading. ATR (Average True Range) will show the size of a typical price
movement on a timeframe and alert you to the increasing volatility.

Moving Averages
will offer indispensable dynamic support and resistance levels (apply 200-,
100- and 50-period SMA for that purpose). Pivot points and Fibonacci will help
you place the position of the price within a trend or relative to the previous
price swing.

Oscillators will
let you know when the market is overbought/oversold/diverges from an indicator
so that you could make a decision not to pursue the current move or trade
against it.

Here are some
further tips we can offer:

  1. Choose high-liquidity instruments. Major currency pairs often represents
    the best solution.
  2. Don’t rush into a trade or trade only for the sake of doing
    something. There will always be plenty of opportunities to make money, so
    don’t give in to the fear of missing out.
  3. Mind the fact that each day won’t be like the previous one.
    Remember that the market’s behavior may differ from usual on the day of a
    bank holiday. Friday evening isn’t a great time to start day trading
    either. Although trading sessions as such are not so visible on Forex,
    many currencies will still be more active during particular times when
    other markets of those regions are active.
  4. When the volatility is constantly low (the price doesn’t move more
    than 30 pips a day), consider choosing another asset for trading.
  5. Have realistic expectations. You won’t get a monthly profit for one
    day, so don’t even ponder at this thought.
  6. Define your strategy and create a trading plan. Manage the risks
    and never add to losing trades.
  7. Beware of news. Remember that it’s quite risky to place trades
    before or right after the important news releases as the market may behave
    in the unruly fashion. News trading requires experience and specific
    strategies.

To make a
conclusion, the majority of retail Forex traders practice day trading. This is
also probably the most natural trading style for beginners. Pick the strategy
you like most and bear in mind the recommendations of this article. We wish you
lots of profitable trades!

This article was submitted by FBS.
ForexLive

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