Basic Principle of Day Trading Strategy
Table of contents
The day trading strategy is one of the most popular trading strategies in Forex. It generally involves opening multiple positions and closing all of them before the end of the trading day.
This approach does have several advantages. The fact of the matter is that with day trading, the market participants do not have to worry about swap payments to the brokers. This is because the brokerage companies only charge those fees to those traders who keep positions open overnight. In addition to that, successful day traders can earn a significant amount of returns over a relatively short period of time.
Despite all of its benefits, this trading style does have its downsides. Executing a large number of trades in a single day can be very stressful for many market participants. In addition to that, traders do need to always keep an eye on the economic calendar, since if they ignore this, they can end up with a significant amount of losses.
Consequently, before starting opening positions day traders should take a look at the economic calendar and analyze the pairs which will be most likely to be affected by those announcements. In addition to that, it is important for day traders to analyze charts with different time frames in order for them to get some idea about the latest trends in the Forex market.
Finally, it is worth mentioning that those traders who find day trading very stressful or have a hard time controlling their emotions, might consider switching to swing or long term trading. Those trading styles have much larger timeframes and might not require the same degree of stress as day trading. It is also worth noting that with long term trading, traders can also use fundamental indicators with greater effectiveness as well.
What is a Day Trading Strategy?
As we have already said, the day trading strategy represents one of the most popular and most used trading strategies around the world. It has the power to become a very successful tool for Forex traders, and if used in the right way, it can be very rewarding for any Forex traders around the world. However, as with any other strategy, it does not work the same way for everyone. So, because you start using this strategy, it is very important to understand what it really is about.
In a sense, one could say that day trading strategy has some similarities with scalping trading strategy. Although they are fundamentally different, they have some things in common, for example, by using these two strategies, you will be able to avoid overnight risks, also, most of the trading takes place during the day and they are known to be short-term trading strategies.
To make it as easy as possible, we will give an example of day trading. So, imagine a situation where you open up a position at 10 am. The trade will only be considered a day trade if you close it during the same day before the market closes. So, the trade from 10 am to 4 pm is a day trade, but trade from 10 am to the next day can not be considered a day trade.
In this guide of the Forex day trading strategy, we are going to talk about everything about it and offer you a detailed insight into everything that investors should know about using day trading strategy. With the help of a day trading strategy, investors have the ability to take an advantage of even the smallest price changes on the market. Although some might think that it is too much of a work, it can prove to be very rewarding for investors who want to have a stable and trustworthy trading strategy.
This does not mean that there are no risks with this strategy, of course, no matter what you do in the world of Forex trading, there will always be some risks, but if you manage to be focused and take into account every change that happens on the market, you will be able to overcome the risks.
However, you should always keep in mind that the only way to make profits by using this strategy is to make sure that you focus a lot on the information that you have and do research. In the world of trading, the more information you have, the easier it is to make decisions, and it is especially true for strategies like day trading.
For most of the investors using day trading strategy, it is a job, and not a hobby. Remember that you will have to dedicate most of your time to this strategy and the Forex trading market to make sure that everything goes well. Many people have reported that it is much like a regular 9 to 5 job and if you are not focused enough, you will end up having to face a lot of challenges.
This is not something that can work for everyone, and you need to understand that it will take a lot of time to get used to it. There are many people who are getting very emotional and can make logical decisions after getting too excited, and if you are one of those, this strategy is not something that you should use.
Research is of Utmost Importance
As we have already said, every investor using a day trading strategy should make sure to do very detailed research for a successful outcome. In general, the trading market around the world is constantly changing, and if you are not staying up-to-date with the changes, you will be having a lot of problems.
The more you know in the world of Forex, the safer you can be, but this is the most important while using day trading strategy. While talking about knowledge that investors should have, we do not mean basic trading procedures. Day traders will need to know much more than that, and most importantly, it is the market news and analysis that they have to follow very closely. There are many events that affect the price movements around the world, and understanding these events will help you a lot.
Long story short, you will have to do your homework as well as you can. This is why so many people think that day trading strategy is very much like a 9 to 5 job. Keep yourself informed, look for trustworthy information, and make sure to always use reliable financial news providers to make sure that you are staying as safe as possible.
A great thing to do while working on your research is to have multiple sources for information. There are many ways you can get updates about the trading market, and to be 100 percent sure that you are using the correct source of information, it is a great thing to trust multiple sources. With the help of this, you can be sure that you are getting accurate information and you can make your decisions more confidently.
While using day trading strategy, you are not picking any assets simply, you are doing so with a lot of care. It is very important to understand what is worth your time and your funds. A well-experienced day trader will spend a lot of time choosing the assets to trade, and not for the wrong reason.
All-in-all, before you start using this strategy, make sure that you have enough knowledge and information about the market and you are using every available technical analysis on the market, also, all of your moves should be backed by official data and tested and proven profitable multiple times.
Understanding Day Trading Strategy
To better understand how to utilize a day trading strategy, you will need to understand details about it. In the chart shown above, you can see the price changes of the USD/CAD currency pairs from June 2 to October 2. While using this strategy, it is a very good idea to look at past trends and see how the market was changing, when it was changing, and what were some possible influences on the market.
As we can see, the market is influenced by many things. Recently, USD/CAD went down, experts have said that one of the main reasons for it was the first presidential debate in the United States, between the President of the country, Donald Trump, and former vice president, Joe Biden. Also, recently, the President announced that he and the First Lady were tested positive for Covid-19. As can be seen, any little detail can have a huge effect on the market. It is very important to keep yourself updated on any changes that happen on the market, to make sure that you are always doing the right thing.
Following the information provided by charts is very important for any strategy, but depending on which strategy you are using, you will need different types of charts. For day trading strategy, daily charts are very useful, because they show differences from every day. They also have very detailed information, which makes it very easy to understand what it is exactly that affects the market, and how it affects it.
Biggest Advantages of Using Day Trading Strategy
Day trading strategy is one of the most popular trading strategies around the world, and not for the wrong reason. There are many people who use this strategy for a number of reasons, one of them being the fact that it can offer investors many opportunities. The thing is, while using this strategy if you make sure that you do everything right, the benefits of it can very easily exceed the risks.
Day trading requires discipline and very good time management skills. You might ask, why would anyone dedicate such a long time to something that can lead to a lot of risks? Well, the thing is, for many traders, it works like wonders. That said, it is not for everyone.
The best thing that many people enjoy about this strategy is that it actually offers people the ability to make a living by using this strategy. As we have already said, it is very much like 9 to 5 jobs, but not only because of the time that you spent on it, but also because it can offer a lot of income to investors as well.
Unlike other strategies, like, long term trading strategy, for example, with day trading, you will have to dedicate most of your time to the world of trading. You will spend a lot of time in front of your computer, so, make sure that it really is something that can work for you.
Many people use this strategy because they can be in control of everything, this means that you are your own boss and you make decisions on your own terms. That said, you are also responsible for any type of risk that might come with the decisions that you make, so always make sure to think about your decisions very well. This trading offers a lot of freedom to people, and as long as you are ready to work on your discipline and educate yourself, it can be a very smart choice for you.
Avoid Overnight Risks with this Strategy
One thing that really draws people to the day trading strategy is the fact that it offers them the ability to avoid the risks that come with overnight trading. With the day trading strategy, you will have to close your positions at or before the end of the trading day, which means that you will not have to worry about the things that might happen during the night and that can make a huge difference on the outcome of the trade. The risks that might come with holding a position overnight are completely gone while using this strategy, which is a huge advantage for many people.
In many cases, what happens to traditional traders who use swaps overnight is that they simply lose all of their positions out of nowhere. It happens a lot on the market, and it is a very scary thing to do. Especially if something very serious happens overnight, it could cost you a lot of money, while following day trading strategy, you will not have to worry about anything at all and you can sleep well at night without much to think and panic about.
While using the day trading strategy, you are making sure that your funds stay safe by closing your positions before the end of the trading day. Also, as the night goes by, if there was something very serious happening, you can even use that information for your own advantage, and while others using other strategies lose their money, you can end up profiting a lot.
Disadvantages of Day Trading Strategy
Just like anything else on the trading market, day trading also has some disadvantages. One of the biggest advantages that come to mind is the fact that it is too demanding. There are some traders on the market who simply do not have enough time to sit in front of their computer and trade the whole day. Many of them simply want to open a position and wait for the outcome, and for those people who can not dedicate such a long time of their day to trading, it is much recommended to use other strategies.
The biggest problem when it comes to day trading is that it can get very boring. While using this strategy, you will have to sit at your computer all day, which is not something that everyone can enjoy. Many traders are looking for opportunities that can diversify their day, and by using this strategy, they are getting very bored.
Also, for many people, investments are additional income, and using all of their time for it is not logical at all. Many people have also said that emotions are getting to them, which makes it very hard to trade. After sitting in front of the screen for the whole day, they simply can not control what they do, which leads to a lot of problems.
Day trading strategy should only be used by those who can dedicate all of their time to doing this. If you start doing anything else while trading with this strategy, it will become very hard for you to make further decisions and everything can go very bad. So, if you are not sure that you can control your emotions and take your time while trading, do not use this strategy. There are many other trading strategies, like swing trading strategy, for example, which can work better for those who are very emotional.
It Can Get Boring
The thing is, if you are not 100% ready to trade all day long, this strategy has a huge probability of becoming very boring for investors. As we have already told you, if you want to use this strategy, you will have to sit in front of your computer for a very long time, those who use it are dedicating all of their time and energy to this market.
More than that, you will have to be alert all the time. As much beneficial as this strategy can be, for some people, it simply does not work. This is especially true for those who are looking for a diverse experience. The thing about this strategy is that every day is more all less the same, meaning that investors will have a very hard time staying focused on the same thing over a long period of time.
If you use this strategy, you must be sure that it is something that you can do without any problems. Remember that it will not work for you if you are not willing to dedicate all of your time to this strategy. There are a lot of people in the world of trading who just can’t do it, and it is normal, this market has something to offer to any type of trader.
This strategy is also known to be very emotional, especially compared to other types of trading strategies. The thing is, when you see how your profits are actually changing in real-time, you have a lot more pressure on you. So, before you start using this strategy, make sure to work on your nerves and emotions, because if you do not follow your brain and make emotional decisions, everything can end really bad.
Another very important thing is that it requires investors to be able to make decisions very fast. If you are able to make important decisions during a time of crisis in a logical manner, this strategy will work very well for you. However, if you are more like those traders who get emotional and lose the sense of reality during the hardships, it’s better to avoid using day strategy and look for something else. To be a successful day trader, you will have to be able to analyze huge amounts of information in a matter of seconds, otherwise, you simply will not be able to make good decisions and this can make your trading a very bad experience for you.
How to Find a Perfect Place for a Day Trading Strategy?
To be able to successfully trade with this strategy, you will have to find a trustworthy and reputable Forex broker. The thing is, not all of the brokers are suitable for such a high volume of trades made by traders every day. Still, there are some companies designed so that day traders can use them successfully. The thing is, you will need to focus on the broker that you use a lot.
There are many companies on the market that offer trading services to investors, but it does not mean that all of them can be trusted and used. There are many very dangerous companies on the market that are working very hard to lie to people and steal their money legally, which can be a very dangerous thing.
So, make sure to do your research about the broker that you are going to use before starting trading. Check out if they are licensed, and see what people are saying about the broker. If you come up with something that concerns you, try to find another company. There are hundreds of brokers on the market, and it simply does not make any sense to use a broker that offers shady services.
Who Can Use This Trading Strategy?
Day trading strategy is a perfect choice for those who are ready to dedicate most of their time to trading. If you are someone who is ready to go that extra mile in researching, and if you can manage your time well, then this strategy can be something that will work very well for you.
While using this trading strategy, you will have to spend several hours every day doing research and looking at the same screen. But because this strategy is so rewarding, many people choose to use it. It actually has enough power to make your trading a very successful experience, so, if you are ready to take your time and control your emotions, then you have nothing to worry about.
Using Charts While Trading
The chart that is shown above is a great example of how quickly and drastically can market change during the day. Day traders are known to be opening and closing one position per day, which gives them the ability to avoid overnight risks and swaps. However, this does come with some costs, such as being concentrated all day long.
You will have to be very much involved and informed of the changes that happen on the market, and this can get very hard. However, using different types of indicators can make your job a lot easier. One of the greatest things that you can use are charts, and especially the Heiken Ashi chart. This chart will offer a quick and detailed insight into the changes that are happening on the market, and you can use this chart to come up with ways to continue trading.
The chart that is shown above indicates that for the whole day on October 12, the price of currency pair EUR/AUD was going up, until it hit the resistance level at around 4:00. After this, the price dropped significantly and went near the support level. This can be used by investors to look for bounces and make decisions according to them.
But, does not mean in any way that you should make decisions according to one tool only. There are many things that influence the changes of prices on the market, and following these changes and understanding them in greater detail can help you a lot in the future. So, make sure that you are following news analytics on the market and are staying up-to-date with the changes that are happening on the market.
Charts are giving day traders the ability to quickly understand how the market is changing, but understanding the reasons behind these changes is whole another thing. If you use Heiken Ashi charts with other trading tools, you will be able to make more confident decisions and you will be able to benefit from the changes that are happening on the market.
Day trading is one of those trading strategies that need a lot of dedication from investors. If you want to be successful using this trading strategy, you will have to sit in front of your computer most of the day, making sure that everything is going smoothly. So, if you are not sure that you can dedicate all of your time to the Forex trading market, then this strategy might not be the right choice for you.
Day Trading – Risk Management
No matter what you are doing while trading Forex, there always are some risks involved. However, the best part of this trading strategy is that it gives investors the ability to get the best out of trading without having to face huge risks. But, this does not mean that you will not be faced with any challenges along the way.
The best thing to do while using this strategy is to focus as much as you can on your plan. Make sure that the plan that you are using is something that both works well for your needs, and meets the ongoing events on the market as well. You need to think about this strategy as your main thing that you will do during the day, because of which, you need to be very focused. You will need to have a clear idea of how and what it is that you want to do while trading, this plan will change depending on the market movements, but it is important that you know what it is that you will need to do to make sure that you are staying safe and secure.
Day Trading Strategy – The Summary
- Day trading is a very popular strategy around the world, giving investors the ability to become very successful in the world of trading. It takes a lot of time from investors, but, if used correctly, it also has a huge chance of being a very helpful tool for many investors
- The best thing about day trading is that it is less risky when compared to other trading strategies, it gives investors the ability to avoid overnight risks. While using this strategy, you will be opening the position during the day and closing it before the end of the day, which makes you safe from overnight risks
- All of this said this is not something that everyone can use successfully. This strategy is very much like a regular 9 to 5 job, which means that investors using it will have to dedicate all of their time to this. If you are someone who can not control their emotions, it is much better to avoid using this strategy. Also, you will be most likely sitting at your computer all day long, looking into the changes on the market and trying to understand the things that are happening in greater detail, which can be something that not everyone enjoys
- Also, you must always remember that in the world of trading, a lot depends on the broker that you are using. If you are someone who is new to the market, it is especially important for you to go that extra mile for safety. Do your research, find a trustworthy broker, and always try to trade with companies that are authorized and regulated by official regulatory bodies