Day Trading Strategies: Techniques for Profiting in the Short-Term

Day trading is a widely-known trading style that is characterized by the buying and selling of financial instruments within the same trading day. This is an approach that involves both the technical analysis, the market knowledge and the discipline to be successful. This article will discuss the main strategies and methods employed by day traders to make a profit in the short term.

Understanding Day Trading

Day trading is the process of using the likes of MetaTrader 4 to buy and sell financial instruments like stocks, currencies or futures contracts within the same trading day. In contrast to long-term investing where you have to hold the positions for weeks, months or even years, day traders try to use the short-term price movements to make quick profits.

How to Set Up Your Trading Station

To be a good day trader, you must have a trustworthy trading platform like MetaTrader 5 and a fast internet connection. Your trading station should have a computer or a laptop with multiple monitors to follow multiple charts and indicators at the same time. A chair that is both comfortable and ergonomic is also vital for long hours of trading.

Picking Out the Appropriate Markets to Trade

Day traders can trade different markets such as stocks, forex, futures and options. It is very important to select markets that are highly liquid and have narrow bid-ask spreads so that you can get in and out of your trades fast. Besides, you should also look at the markets that fit into your trading style and risk tolerance.

Fundamental Analysis for Day Traders

Although fundamental analysis is usually the field of long-term investors, day traders can also profit from grasping the factors that affect the market in the long run. The publication of economic data such as employment, GDP growth and inflation rates can greatly influence the market and the prices of assets. Just like individual financial statements, corporate earnings reports can be a source of useful information concerning a company's financial position and the future. The day traders will be more informed about the basic factors by which they can make trading decisions and anticipate the market trends better.

Common Day Trading Strategies

• Scalping: Scalping is a well-known day trading strategy that is based on making small profits on small price changes. Traders who apply this technique are usually in and out of the trades fast, sometimes in a matter of seconds or minutes. Scalping is based on the assumption that it is easier to predict small price movements than large ones and that these small movements can be used for profit.
• Momentum Trading: Momentum trading is a day trading strategy that is also popular and it means trading in the direction of the prevailing market trend. Traders who apply this strategy think that the assets that have been on the rise will continue to rise, while those that have been on the fall will also continue to fall. Momentum traders usually rely on technical indicators like moving averages and relative strength index (RSI) to detect strong trends and the points for entering the market.
• Fade Trading: The ever-fading trading, otherwise called contrarian trading, is a strategy that implies trading against the current market trend. Contrarian traders think that the markets usually overreact to news and events which cause short-term price movements that are not sustainable. The contrarian traders try to gain from the overreactions and predict the direction of the price change by fading the market.
• Breakout Trading: Breakout trading is a strategy of trading the first price movement after a period of consolidation or range-bound trading. The merchants who apply this method are in search of the main levels of support and resistance and when the price breaks out of this range, they place their trades. Breakout traders are those people who intend to use the momentum that usually comes after a breakout and ride the trend until it starts to show signs of reversal.

Risk Management in Day Trading

Risk management is the most important tool for day traders to preserve their capital and to cut losses. The main risk management techniques are the following: stop-loss orders, the size of your trades as a percentage of your account balance and the over-leveraging of your positions.

Psychological Aspects of Day Trading

Day trading is a very emotional activity because traders have to make decisions on the spot in a very fast environment. It is indispensable to have a disciplined attitude to trading and not to let emotions like fear and greed be the main factors of your decisions. The two things you should do to keep your mind off the emotional trading are mindfulness and positive thinking.

Reviewing and Improving Your Day Trading Strategy

The day trading strategy that you have to develop and constantly review and change is the key to long-term success. Maintain a trading journal to record your trades and to be able to analyze your results. Find the parts of your strategy that need to be improved and then make changes.

To sum up, day trading can be a source of a good income but at the same time, it is very risky. Through the comprehension of the main strategies and methods used by successful day traders, you can enhance the possibility of your success in this difficult but very rewarding trading style.