Day trading strategy refers to trading in which traders buy and sell an instrument in one trading day to open and close trading positions.
Day trading strategy is considered a profitable strategy where traders will be able to make profits faster. However, the day trading strategy has also become a debate, where many have failed, especially novice traders.
One of the mistakes that are often encountered is that beginners tend to think that day is an easy way to get rich quickly. This kind of mindset should be avoided by all traders.
- 1 What is a day trading strategy?
- 2 Advantages disadvantage day trading strategy
- 3 How to develop a day trading strategy
- 4 What is the most accessible day trading strategy?
- 5 What day trading strategy works?
- 6 Budget day trading strategy
- 7 Is day trading effective?
- 8 What is the most profitable day trading strategy?
- 9 Final thought
What is a day trading strategy?
Day trading strategy is a trader purchasing and selling security in a single day. Here traders do not let their trading positions float until past the night.
Day trading is usually done by traders who have well knowledge and are well funded. They primarily trade on forex and the stock market.
Day trading tends to use high leverage to gain short-term profits in tight market conditions with high liquidity. They tend to take high risks to get big profits.
Day trading strategy tries to take advantage of the temporary momentum of the influence of news that has a high impact on the currency. Changes in interest rates, and scheduled economic news, often trigger a temporary movement of price into conditions favored by day traders.
Various kinds of day trading strategies
In day trading various strategies are used by traders, but the most popular include:
- Scalping. This is a short-term trade where the trader opens an order and closes it with only small target pips but can be with a large position size.
- Range day trading. This strategy adopts movement within the range of support and resistance for open and close positions.
- News trading. This strategy refers to news that has a short-term impact that causes high volatility.
- HFT (High-Frequency Trading). These strategies tend to use sophisticated algorithms for short-term trading.
Advantages disadvantage day trading strategy
Even though the day trading strategy tends to do day trading with all its advantages, behind it is also a hidden disadvantage that has become an open secret.
Becoming a day trader must have adequate knowledge if you do not want to fall into bankruptcy. because this is a speculation that requires special skills. Not everyone has the qualifications to become a profitable day trader.
The following is a summary of the advantages and disadvantages of a day trading strategy.
Advantage day trading strategy
- Day trading does not face any rollover interest caused by Swap fees. Brokers that still use Swap allow traders who hold orders overnight to be charged a Swap fee which is a calculated interest rate in a currency pair. Swap fee deducted from account balance when there is an overnight order.
- Skilled profitable day traders get a faster ROI (Return on Investment), they can compound profits and increase position size on previous trades.
- The day trading strategy allows for faster profit by simply opening a few trades in a day, for example opening an order in the morning and closing a position during the day. They have more time for other purposes.
- Control more time being your own boss. The day trading strategy is determined by the trader himself, who does his research, makes a trade decision, and bears the end result himself. There is no pressure from the boss and day traders have more control over their time.
The disadvantage of day trading strategy
- In certain trading strategies, day trading is not suitable, for example in carry trade strategies that take advantage of positive swaps in trading certain currency pairs. A positive swap is a calculation of the difference in the interest rate of a currency pair in which one currency has a higher interest rate than the interest rate of the other currency. Positive swaps will be added to the account balance overnight.
- Price volatility can make traders nervous. In very volatile market conditions, it can make you nervous and can lead to wrong decisions.
- High-risk high gain. It’s no secret that a day trading strategy can be a high-risk high gain investment. If the trader is using high leverage, it may be possible to take him to use a large position size in the hope of making large gains. But this can also lead to big losses as well.
- Higher trading frequency leads to higher transaction costs and this reduces profits. So day traders usually look for the lowest trading fee broker. For example, scalping trading can make orders more than 10 times a day, and the transaction fee is also 10 times.
How to develop a day trading strategy
Day trading strategy for traders may be a fun way of doing business in the financial markets either in the stock market or in the forex market, and now it is starting to mushroom into cryptocurrency trading.
However, reaching the level of profitable traders is not an easy step to achieve. Without intensive learning to do trial and error in an effort to find an optimization strategy with a high win rate, it is very difficult to achieve that goal.
Then how to become a successful day trader? Although it can’t guarantee someone’s success, by following some important tips for building a day trading strategy, you may find your own trading style suits you.
Measuring trading skills
Beginners mainly need the experience to get started. Utilizing a demo account is the first step to start measuring trading skills. Experienced traders sometimes forget the importance of a demo account after daring with a real account.
When you fail at trading, don’t be afraid to use a demo account to learn how to measure skills. They think the demo account does not provide psychological pressure. But that’s not the case, a demo account can be a training board on how to manage trades and increase probabilities.
Prepare your mental
As humans, all traders have emotions. How strong are you mentally to take risks in trading. Worries and fears, greed can be distractions that can be costly. Day traders must be mentally strong and stay away from distractions that can disrupt the strategy in the trading plan.
Manage trading risk
Differences in trading strategies have a significant effect on the total risk calculated from the account balance. Even extreme strategies like martingale can take a risk tolerance of up to 50%. This is not really a healthy way, most expert and professional traders suggest limiting risk to only 1% – 5% in one round trading plan.
Specify the target
This is important as a trading plan, irrational targets often lead to disappointment as a result of changing market trends. Targets must be realistic, expert traders will usually take potential trades at three times more likely profit than risk. To calculate this they use the risk-reward ratio.
Analyze the market
As a trader, you must understand the ins and outs of the market in which they will trade. Check any instrument you are trading and read news related to that instrument.
If you trade foreign currencies, check the economic news releases related to the currency. If you trade indices, check for any news related to that index. Traders will look for high probabilities rather than just gambling.
Some traders may like to speculate before the news release, but it’s best to wait for the news release to get definite information.
Preparing to trade
Once you get an overview of the market, then prepare to trade. The technical-based analysis is still needed, you determine a market entry strategy, whether with support and resistance as a signal reference, or other methods and make sure the signal can be seen clearly.
Create entry and exit rules
Entry rules become one of the main points in a trade transaction. Entry at the right price and time can provide maximum gain for the trader. Don’t get used to trading just because of fear of missing out or being well known as “FOMO”.
Many traders have used automated trading with computer programs because they do not involve emotions. If the criteria are met, the program will open buy or sell until the exit trade. Without anger like humans.
Exit rules, this is also an important point that determines the final outcome of the trade. It’s really not a matter of traders getting multiple losses if they keep the risk as low as possible. Even pro traders suffer a lot of losses, but they always get a profit that is far greater than the loss. This is because they are looking for the highest probability for stop loss, entry, and exit points.
Professional traders always record profit and loss trades. Aims to find out why you get a profit and why you get a loss. It will give a new thought to adjusting the trading strategy in the future.
Analyze trading performance
After each day record your profits and losses and the reasons why you can write them down in a journal. This will really help you get motivated when you fall. Day trading strategy is not an easy job, according to the journal Dary trading and learning from the University of Berkeley explained that 75% of day traders quit within two years.
What is the most accessible day trading strategy?
Numerous trading strategies but traders can learn the easiest way to day trading strategy by using support, and resistance, assisted by horizontal lines.
The support and resistance lines which will be the focus of the analysis, when the price approaches the line, is a possible reversal or breakout.
There are various ways to determine support and resistance, but the easiest way is to look at the peaks and valleys of price history recorded in charting. Traders can determine horizontal lines in the support and resistance zones.
What day trading strategy works?
Basically, any trading strategy will work. But what makes the difference is the end result of a trading strategy. Keep in mind that a trading strategy is not necessarily suitable for all traders even though it is profitable. Therefore it requires in-depth research in choosing a trading strategy.
Budget day trading strategy
Day trading strategy budgets may vary between traders. This condition becomes the plan of each trader in making a trading budget.
Beginner day trading traders, spend a budget only to the extent of the ability to risk. Some start with only $100, some start with $200, even $500. The budget was taken after measuring preparation and trading performance during the trial period.
While professional traders make bigger budgets above $ 1000 and even reach $ 10,000. A hedge fund company even has a budget of up to $100,000.
Beginner of day trading strategy, still trying to increase portfolio with low budget to gain experience. When they can grow capital to hundreds of percent, it will grow confidence for a business plan with good performance.
Is day trading effective?
Effective or ineffective day trading strategy is still a debate. It all depends on the performance of each trader whether the trade is effective or vice versa.
However, if you read statistical data of more than 75% of day trading quitters within two years, this indicates that being a day trader is not an easy job. Even statistical data released by a brokerage company indicates that 90% of traders experience losses in the forex market.
This means that only well-skilled and well-knowledgeable traders can survive to become profitable day traders.
What is the most profitable day trading strategy?
You will probably find a lot of information about the most profitable day trading strategy. But in practice, you find a lot of difficulties implementing it. Your curiosity is answered after trying it yourself.
Some literature states that the most profitable day trading strategy is scalping. There are also those who say that the most profitable are support and resistance, Parabolic SAR, etc.
Yes, it is possible, scalping is a short-term trading technique. Profitable or not depends on the trader’s strategy, market volatility, market trends, broker support, as well as trader skills.
Day trading strategy is not an easy get-rich-quick overnight strategy. Trading risk will remain there given the market dynamics that move wildly.
This is a strategy with speculation amidst market uncertainty. Where traders must be prepared for all possible risks of loss.
Note: this article is for informational purposes only. This is not investment advice or solicitation. CFD forex and crypto are risky. Each investor is responsible for their investment.
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