Day Trading

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Day trading is the process of purchasing and selling a stock within the same trading day. Day traders look to book profits by using huge quantities of capital to benefit from the marginal price fluctuations in extremely liquid stocks or indexes.

Some of the normal day-traded financial instruments are stocks, options, currencies, future contracts (equity index futures, interest rate futures, and commodity futures).

Day Trading Strategies

Identify supply and demand mismatches
The capital market is impacted by the law of supply and demand. If supply is collapsing and there are buyers willing to purchase, the price is expected to move upwards.
If supply is abundant and there are no buyers, the price would crash. Stock analysts must identify the changing points on a price chart.

Determine Price Targets
If an investor is purchasing a long position, it would be prudent to determine beforehand the acceptable profit level along with the stop-loss level if the trade turns against the investor.
This restricts the probable loss.

Risk-Reward Ratio
One of the critical lessons in stock trading is to finalize an efficient risk-reward ratio. This ensures the trader would “lose small and win big”.

Patience is the key
Efficient day traders do not trade on a daily basis. If they cannot perceive any opportunities that meet their expectations, they will not implement a trade that day. This strategy is advisable instead of an impatient decision.

Trading Integrity
The trader must establish a trading plan and follow it. A spontaneous behaviour is extremely dangerous.

Have the confidence to push the order button
Traders get enwrapped in monitoring the candles and the Level 2 columns on, thereby not being in a position to act expeditiously when an opportunity arises.

Trading with money
Always trade with money that you can afford to lose. It would be advisable to use the money for day trading, provided the trader is confident of positive results.

Risk Management
An efficient risk management strategy would be to spread the capital across various trades.

Diversify to other asset classes
Do not restrict to just stocks. Forex, futures and options are the three asset classes with potential.

During the day trading, positions are closed before the close of the trading day, bulletins and proceedings that impact the trading day’s opening process the next day do not impact the investor’s portfolio.

Day traders have an improved leverage on the trading capital due to lower margin needs since their trades are secured on the same market day.

The improved leverage could enhance profits. Day trading, as a strategy could be used during risky market environments.

The trades and their high-frequency trading strategies would book profits until the markets get unpredictable once more.

Stay up to date with financial trading news by following us on Twitter. To know more about how AcademyFT’s Trading Programmes has helped over 100,000 students across the world have a look at Academy of Financial Trading reviews.

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