Day trading or daily trading is when the traders buy or sell holdings on the same trading day. Day traders day trade stocks. When it is said that they day trade stocks, it means that the traders are either selling or buying their stocks before the trading day ends. Day trading is also known as intraday trading.
Intraday is conducted by the traders who are trading every day. These traders are different from active traders. The active traders are the ones who trade not more than 10 times a month. There are some basic differences between intraday trading and trading itself.
While trading may indicate that the person involved is holding a share for a long time, looking for profits in the long term, intraday would mean that the involved person is selling his or her holdings the same day depending on the goals that they have in mind. Traders looking for profits in the long term are more inclined towards the facts like how good the stock is, how much it has grown in the past and some more things.
Day traders, on the other hand, look at events that may result in price fluctuations and make their trades accordingly.
There are different factors that affect the profit potential of a day trader and a trader, in general. Let us look at some of these factors.
The traders that are involved in daily trading are more prone to risks and hence, they have to look at different risk management tools. The most important being, being aware of the events that make the prices bounce. Apart from that, the day traders have to be acquainted with the things like Stop loss or take profits too. The day traders need to have an upper hand in technicalities of trading like reading charts and making out patterns within them.
The capital requirements for daily trading are different from investment or even active trading. The idea gets more diversified when the instrument of choice is clear. For example, if the trader wants to trade in the foreign exchange market, then the capital requirements can be a little higher. In the same situation if the trader wants to trade in forex, but has the option to trade it via CFDs or Futures, then the capital requirement falls down. The same is the case with any other asset.
Traditional trading takes a lot of capital out from the trader’s account because of the fact that “ greater the risk, greater the reward”
When the traders look at trading, they might look at the things with a different POV that has a different trajectory. Trading is not always looked upon as booking profits on the same trading day but making the money work for itself.
A brief guide for daily trading:
1. Trade Demo:
Daily trading is something that needs concentration, attention and knowledge. Concentration in terms of looking at the daily charts, attention in terms of what is happening and knowledge in terms of what should be done in the case of a certain event.
Daily trading for beginners should be done with a demo account. Everything in a demo account is real, except the money. The traders can use the demo account to trade over everything that there is. One thing that has to be kept in mind, is that the traders need to keep a check on the money they are investing via the demo account. It does not matter if they are trading demos, investing big amounts of money can lead to a habit of investing heavily.
While trading demo won’t have any effect on the trade, the habit that is developed can be catastrophic in the case of the real market.
2. Be Realistic:
Having realistic expectations in the market will bore better results than having unrealistic expectations that can destroy the person. Traders need to be real enough when it comes to predicting the profit or even the loss.
There can be times when the profit potential is high and it can overshadow the loss potential of the same stock. The traders need to be careful enough when they look at money-making. Money while trading is a slow process, but is faster than other traditional methods. But, just like every process. It takes time to build. People who think that trading is all about making fast money, get in a loop and never make out of it.
3. Have the right knowledge:
The correct knowledge of daily trading is not when to buy when to sell etc but, it is something that combines these two questions with some more. It is crucial that the traders understand what they have to learn and what they have to not look at. The right knowledge is about the things that run the market.
Also, it is not necessary that the trader tries to become an expert on the whole market. That would make him or her filled with information that might be of no use at all.
Pick a market, or pick a sector and become an expert in that specific area. Not everywhere. Learning about everything will land you in places where you don’t want to be.
4. Understand the market:
To understand the market is to figure out what is going up and what is going down and the reason behind the fluctuation. Understanding this is important, also because the same reason might result in the fluctuation of a different stock. Learn how the market moves and understand the directions well.
This information will help you in building a better trader out of yourself. The market is unpredictable and if you are playing with something that is fancy, there are more than probable chances that will take you towards loss than profit. Make sure that the knowledge you earn is sector-specific and the market that you are trying to tame is also something that you understand.
5. Begin smaller than you can.
Entering the market obviously needs capital. There is a 5% rule that says never risk more than 5% of your total capital in one single trade. But it applies to traders who have been in the market for a decent amount of time. If you are a beginner, cut the 5% rule to 2%.
By abiding by this rule, you will risk less and also find it harder to make trades since there will be fewer opportunities due to self-restrictions.
Fewer opportunities will make you go for better results. Since you won’t be able to trade much, you will want to book profits each time you trade. Beginning small will also result in better management of the capital.
Diversifying the portfolio is not always meant to be good for investors but also day traders. Playing around one single stock always gets monotonous. So it is better that you look for different stocks everyday. This does not mean that you begin trading on them right away, first, learn about them and then watch them for a while. Each stock has a different pattern that it follows each day. Learn how the stock is moving, why is it moving the way it is and what is the event or news that makes it move that way.
7. Look for the right stock.
Each stock or sector that you want to trade on, requires three things. Liquidity, volume and volatility. The stable stock can be good enough for investing but they are never good for booking profits on a daily basis. A stock can sometimes be less liquid or hold lesser money than you expect it to hold. Look for liquid stocks or if at all, more liquid assets. Forex is one of the most liquid markets in the world with more than 6 trillion dollars traded in one single day.
These were some of the tips that you would need to day trade. Now, let us look at some of the best daily trading strategies.
1. Momentum trading:
In momentum trading, the traders can ride the wave of the price movement and book their profits accordingly. The stock might go up, it might go down. The traders, in any case, can make money. Momentum trading requires extensive research in terms of charts and technical analysis. Charts are the best friends of day traders. The way a stock is about to move or the path it is following, is clearly depicted by charts. Charts can be used to understand the facts that fundamentals won’t tell.
2. Swing trading:
The prices of a stock tend to bounce back where they were after a short rise or a fall. The swing traders scrap out their profits from here. They make trades that are big in number but the profit potential for each trade is low. Since that is the case, the profit builds up at the end of the trading day. Swing trading can be less profitable in the case of a broker that charges commission per trade. Look for brokers that don’t have such practices.
3. Breakout trading:
Breakout is when the price has breached a certain level and is now expected to reverse its pattern. Uptrend may turn into a downtrend, the downtrend may turn into an uptrend. The traders can enter a long position when the price goes further from the resistance and the short position can be taken if the price breaks the support.
Always make sure that the breakout point that you are looking at, is the correct breakout point. There can be instances where the breakout can be a false breakout. In such cases, the price might break the resistance and the support both but the reversal might still not happen, so be on the lookout for that.
Scalping is making money out of price movements, no matter how small they are. Scalpers are more interested in minute charts rather than hourly charts. Just like swing trading, scalping also requires a lot of knowledge about the charts and the correct timeliness to place the trades with a lot of trades that need to be put correctly. The profit rate per trade here is low but when all the trades add up, the profit builds up in a better sense.
How to begin daily trading?
Day trading needs a brokerage account, first and foremost. You don’t have to worry about looking for a broker that can cater your trading needs because we bring you the leading online broker HFTrading. The broker has been in the game for a decent time and operates in the regions of New Zealand and Australia. With HFTrading, traders can trade on more than 200 CFD tradable assets With three different trading accounts.
The trading accounts are handcrafted while keping the level of expertise a trader might hold in the market.
The broker is a trading name of CTRL investments Pvt Ltd. The parent firm is regulated by CySEC. Traders can trade the assets of their choice with the MT4 trading platform.The platform is one of the best trading platforms ever made.
HFTrading is the best choice for beginners and trading CFDs is safe with this provider.
Daily trading is something that requires practice and patience. There is so much out there that can be researched upon and looked at. Traders jumo into the market without poern research and understanding of the market. That is when the problems happen. Always research as much as you can. Because, only research can take you to places you never imagined. The key to book profits in daily trading is to stop looking for them and keep learning.
Never try to learn everything too. That would lead you to a sea of information and nothing of notable effect. Try and learn what is needed. For example, learn about one pattern and try to look for it everywhere you can in every chart. Last but not the least, always trade with the money that you can afford to lose.