Trading Education

Brief Guide on How to Understand Day Trading

There are many trading strategies on the market, and each trader eventually finds the best one for himself, taking into account his own goals and preferences. In the previous article, we have discussed Swing Trading and identified its benefits. Today we would like to look at the Day Trading, also known as an Intraday Trading on the exchange.

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What is Day Trading?

Day trading is a style of trading in financial markets where one aims to enter/exit multiple trades per day. This activity is based on the almost constant presence of a trader at the terminal. Due to its versatility, such an approach is applicable in any market, taking into account its characteristics.

Intraday trading relies on faster and more active trading activity instead of waiting for longer-term trading opportunities. Thus, day traders profit faster than swing traders. However, day traders also rely on the same charting patterns, technical analysis indicators, and price action as other types of traders. They just use these tools on shorter time frames. As with any trading strategy, risk management is essential for success in day trading.

Strategies Used

The main goal in the day trading is to close all positions by the end of the day. There are 2 main intraday trading strategies: scalping and news trading:

  • Scalping is a simple and quite effective method. It consists of setting a certain threshold for closing a position. For example, if a trader sets to close 5x5 positions, then when the trend position changes by 5 points up (profit) or down (loss), the trader will close the position anyway.

To make the chances of making a profit outweigh the chances of the opposite result, the trader uses technical analysis methods. Placing a Stop Loss on the position as close as possible to the price, allows traders to get the maximum possible profit. It is important to follow the rule for losses - as soon as the trend moves 5 points, the position closes. Each trader sets the threshold that the position must reach, based on his own experience.

When scalping, it is important to choose the right moment to enter the market. This is usually done when the trend is confidently moving forward. In this case, the position quickly reaches the required profit level and closes, or the trader places a Stop Loss and monitors the further advance of the trend, moving the Stop Loss if necessary. As soon as the trend changes direction, the position closes.

One must note that assets in intraday trading should be highly liquid. If an investor can afford to invest in calm stocks with a 20% annual increase, then a Day trader should choose the most volatile assets like cryptocurrencies to make the most of the fluctuations during the day. The higher the fluctuations are, the higher the potential profit is.

  • News trading requires closely monitoring all financial and economic news that may trigger a trend advance, especially positive. This approach requires the development of individual skills. A huge number of assets are sensitive to the news background and can quickly react with price movements to certain events or statements by key figures.

Main Features

  • The psychological aspect. During intraday trading, profit during trades is seen much more often. Thereby, It is easier to follow a clear strategy and fix losses where necessary.
  • By closing all transactions within one day, one can immediately summarize and see a specific result. Using other strategies that are more extended in time, a trader can be in a state of uncertainty for months.
  • For short-term transactions, smaller amounts are used, which means that the losses will be small in case of a “bad day”.
  • Day trading does not depend on global news. Long-term traders expect a correction and continuation of the movement when the market collapses. At this time, those who trade within the day, close positions, and open opposite ones.

Closing Line

As in any other business, success depends entirely on the qualities of a trader. It requires composure, concentration, high-stress resistance, the ability to work at an extremely fast pace, and a calm perception of short-term failures. Unlike many other strategies, intraday trading does not require patience, and for many traders who do not want to wait long for results, this style can be a very tangible advantage.

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