The Starter Guide To Day Trades: Best Day Trading Strategies, Pros & Cons

Since the majority of stocks and assets are volatile, traders could manage to make a profit not in a long term only - intraday deals allow people to earn, as well. However, this type of trading requires skills, knowledge and certain instruments. This article is designed to help readers decide whether intraday trading is suitable for them, and also includes strategies for efficient intraday deals.

What is Day Trading?

When we’re talking about long-term investing, everything is simple: people perform fundamental analysis and buy stocks in hope that they will grow in price after a few weeks, months or years. Long-term traders make money thanks to patience and substantial research of asset issuers (companies). They also receive dividend payouts.

Day traders, in their turn, perform deals within a day. They open a position when the asset is expected to grow or fall in value within a few minutes or hours. It is closed before the end of a trading session, so day traders don’t have to pay an overnight fee.

Hence, day trading is a sort of active investing when a trader tries to outperform the market moves and predict its sentiment.

Best Day Trading Strategies

Depending on the time frame, trading strategies differ in applicability. What works well for long-term investment may be completely useless for day trading. If you want to operate short-term deals, you should study certain strategies - some of them are listed below.

Note that day trading strategies are efficient in volatile markets, such as cryptocurrencies and oil. But none of them can be equally productive all the time. The whole point of intraday strategies is to help investors manage risks and reward ratios, and use failures in one trade for opening another, profitable one.

Momentum Trading Strategy

The above information is not an investment advice does not constitute any offer or solicitation to offer or recommendation of any investment product.

The Momentum trading strategy is based on the impulses arising from any events and news related to the asset. Stocks to trade are selected depending on the news flow, and the day trader’s role is to study such news before the stock market becomes available for investment.

Here, the main thing is to enter the position on time and close the position at the right moment. The predicted stock price move takes several minutes, hours, or even throughout the day.

At the same time, it’s not enough to track news - the momentum strategy relies on technical analysis. Traders should track stock price fluctuations to find buy-and-sell signals on the chart. Those can be patterns, trends, formations and other metrics. The momentum strategy works out when the asset price breaks out from a pattern to a new high or low.

Swing Trading Strategy

In this case, a trader looks for the moment when the price is expected to rebound from the support or resistance line. This financial strategy is great for beginners as it teaches them to make price predictions.

For example, they can find the highest high of the asset in the last couple of weeks and expect the price to touch this level in the short term. These levels would represent the moments when it’s a good time to sell the stock.

Swing trading strategy requires skills in technical analysis because traders need to work with tons of data and be able to identify patterns and metrics. You will need enough funds for mastering this trading style because it takes some time to find the tactics that will work for you.

Breakout Trading Strategy

With a breakout trade strategy, you look at the range of a currency pair occurring at certain times of the day in hope of catching a breakout in one direction or another. Such a strategy is especially effective if the range of movement of this currency pair is quite narrow, as this is an indicator that the pair is ready to make a big jump. In this case, your task is to be ready to catch the moment when this price movement occurs.

When using a breakout strategy, a trader needs to determine the range within which support and resistance were most frequently used. By defining this range, you can place entry points above and below breakout levels. Typically, traders want to get the number of pips that make up a certain early range.

Note that traders with high volume are more likely to make a profit at the new price highs than breakouts with low volumes. Breakouts with less volume can go below previous resistance levels making it harder to generate profit.

Real-Time News Trading

The above information is not an investment advice does not constitute any offer or solicitation to offer or recommendation of any investment product.

As its name suggests, this trading style is based on tracking news. Traders look for different events, product releases, reports, etc. to capitalize on price changes triggered by them. Those can be both rises and falls depending on the news emerging.

If negative news appears, traders can short the asset during the day by ‘borrowing’ shares of the issuer and selling them. If the asset price falls as expected, you can buy them back at a lower price and profit from the difference.

However, this trading style can be risky because it’s not enough to use news only - asset price may depend on a variety of other factors, including the established trend, technical indicators, and so on. It can be practiced by both beginners and successful traders, but make sure to invest money you can afford to lose.

EMA + MACD strategy

This strategy is based on the most popular indicators - EMA and MACD indicators. The whole point of this approach is to determine the trend using longer time frames. The strategy is usually applied for four-hour trading. Its main advantage is the possibility of making a higher profit.

Impulses can be around 45-55 points but sometimes their indicators approach the 100 level. Making a profit on such a movement is a dream of any professional trader, not to mention beginners.

Another benefit of this strategy is that usually, the market moves in one direction with no corrections. Accordingly, there are practically no drawdown risks, which significantly reduces the psychological burden when concluding a deal. However, sharp changes in momentum can lead to a complete loss of the deposit.

Day Trading Tips

Now that we have reviewed the right financial instrument, it’s time to discuss the basic rules of day trading that you need to know and follow in order to avoid typical mistakes. After all, in day trading you will have to pay for every wrong deal and can lose your budget quickly.

Choose 2 or 3 liquid instruments, no more

During day trading sessions, you need to track every move of stock almost constantly, so it’s hard to monitor multiple assets at once. Day traders usually invest large sums in 1-3 stocks and monitor their movements. Before entering another position, the current position is closed.

Form your strategy and stick to it

Every time you enter a trade, you need to make a clear trade plan. Determining entry and exit prices before trading is critical. This will allow you not to be distracted during trading and focus on making a profit.

Moreover, once a stock hits a target price level, traders are advised to close their position rather than being “greedy” and expecting higher returns. Without a formed strategy, you can forget about successful trading, and this applies not only to short-term periods.

Take profit when the target price is reached

Most intraday traders suffer from fear or greed. Hence, it’s equally important to be able to cut your losses and take profits after reaching the target price. If you believe that the stock has room for further price growth, the stop loss should be adjusted (moved higher) to meet this expectation. Anyway, you should always have adequate expectations from the market and be able to close a deal before it’s late.

Fix losses on time and without hesitation

Don’t work against the market: you should not open positions against the formed dominant trend. This rule is valid not only for day trading, but also for short-term and medium-term investments. After all, even experienced professionals with advanced trading tools cannot predict market movements.

Many tips from famous traders boil down to one simple rule: don’t be afraid of closing a failing deal. After fixing your loss, you will be able to open another one.

There are times when all technical indicators point to a price decline, but despite everything, the asset will continue to grow. These factors are indicative and do not provide any guarantees. If the market moves against your expectations, it is important to exit the position if it is open, and never open a position opposite to the movement in order to avoid huge losses.

Distinguish between sideways and trending markets

Obviously, the markets do not always move in a trendy way. 70% of the time, we observe a flat trend (sideways) - prices stay at the same levels without a prevailing trend movement, under which you need to adapt or completely change the trading strategy.

In such situations, intraday trends often change each other, and it is not possible to determine the prevailing direction. And in order to trade successfully, you need to make sure that intraday movements are large enough that the potential profit exceeds the risk.

Mind the market entry time

Experts often advise beginners to avoid trading within the first hour of market opening due to the high volatility and unpredictable news since the previous close. After 11:00-12:00 by local time, volumes and volatility are greatly reduced, and many traders stop trading. And in the last hours of the trading day, volume and volatility increase again.

It is also worth noting Friday trading is more volatile because market participants leave open positions for the weekend. Typically, the beginning and closing of a trading day may be suitable for experienced traders, while beginners should rather make deals in the middle of the trading day.

Always close open positions at the end of the day

Some traders may be tempted to leave their positions the next day if their price goals are not met. This is one of the biggest mistakes during day trading and it is very important to close all open positions, even if you have to take a loss. After all, no one knows what can happen during the closing of the exchanges, and the potential losses here may be greater than the lost profits.

Gaps demonstrate this especially clearly. On positive or negative news, they can be enormous, which will lead to serious losses. A stop loss will not help here.

Pros and cons of day trading

Is Day Trading For You?

Day trading is quite challenging because it requires a fast reaction to price changes, market sentiment and business news. It is suitable for people who are capable of managing stress and intensive tracking of an asset. As a rule, day traders are experienced market players who have been dealing with instruments for several years.

Day traders have to commit a lot of time to monitoring assets and managing positions. They should also possess enough discipline, stay cold-headed in case of unexpected price moves and be smart enough to perform market analysis and research.

Day trading strategies are the best for you if:

• You prefer to start and complete all trades within one day.
• You have enough time to constantly monitor and analyze market events during the trading day.
• You have enough starting budget and realize it may be lost if you are a total beginner. It takes some time to work out a strategy that will work for you.

You should not trade intraday if:

• You prefer mid- and long-term trades.
• You have a full-time job and do not have enough time to track and analyze market events throughout the trading day.
• You are prone to panicking and cannot control your emotions.