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Trading strategies
In these series of articles we’ll touch upon the subject of day trading, explain what is day trading, take a look at its main advantages and give tips on using this technique.
So, what is day trading?
Day trading is the purchase or sale of an asset within a single trading day. It’s a very common technique used by the traders in the foreign exchange and stock markets. Day traders use short-term trading strategies to profit from small price fluctuations and short-term market moves in highly liquid financial assets.
But is day trading a decent strategy? Can traders truly capitalize on it? Opinions on this subject among traders and analysts who study the behavior of the financial markets differ greatly. Let’s try to shed some light on this issue and see whether the game is worth the candle.
Some of the main advantages of day trading
Independence from global news affecting the market. When markets collapse, day traders close their position or open an opposite position, while long-term traders can count on a deeper correction and further continuation of the movement.
Low risks, providing that certain rules are observed. An important factor that can influence trading success is the use of a small deposit. Potential profit is achieved through a large number of trades.
Speaking of disadvantages, it’s worth mention the key one – day trading is very time-consuming. A trader has to watch the market closely and monitor all the price changes. Not everyone can handle this psychological pressure, and lack of skills leads to errors and loss of control.
Let’s try to understand fundamental truths that will help a day trader become more successful and take his trading to a new level.
One of the misconceptions is that psychology doesn’t play a key role in trading. Well, it does. And most traders underestimate the importance of psychological factors. Archimedes said: “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.” Somehow, this quote goes without saying and everyone agrees with it. In trading, they say: “Give me an entry point, and I will get rich!”. However, market participants refuse to accept that there’s simply no ideal entry point like there’s no lever big enough to actually move the world.
However, there are certain rules, that could help maximize your potential profit from day trading, if observed carefully.
Choose your time-frame wisely
Using the hourly charts would be the best choice for day trading. The H1 time-frame contains much less market noise regardless of your trading style and whether you watch support and resistance levels or follow other indicators. Also, trading on hourly time-frames helps to keep the trader’s emotions at bay. A trader doesn’t need to watch constantly changing prices minute by minute which leads to fewer errors and prevents a trader from making hasty decisions when opening and closing his trades.
That’s it for today. Let’s take a break to let the information sink in and get back to it tomorrow. Stay tuned for Part 2!
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