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Now, let’s back to the main topic of today’s lesson as we discuss Day Trading!
So what is Day Trading?
Forex Day Trading is much more than a simple strategy! We believe that it is best described as a trading style! A style that focuses on short-term trades that are ALWAYS closed at the end of each trading day. Whether in profit or at a loss! Some traders would even limit their trading activities to a single session only. Remember, the key to Day Trading is not to hold any positions overnight and avoid rollover fees and sudden moves!
Traders are looking to capitalise on small (but frequent) price movements throughout the day. Trades can vary from minutes to a couple of hours, depending on the actual trading strategy used by the trader. The analysis used will also depend on the strategy followed. It is common for day traders to involve some form of both technical and fundamental analysis when trading.
Some would argue that Day Trading is one of the most time-consuming trading styles out there! Most Day Traders will always have to stay on top of the scheduled news, be alert to any unscheduled economic data releases, monitor their trades, etc.
To put it very simply, Day Traders watch the markets throughout the day, whether to find their entry, manage their open trade or react to the latest news!
As a Day Trader, you can use most of the trading strategies out there, subject to always closing your positions at the end of the trading day and appropriate risk management in place! Most Day Traders may use different strategies depending on the current market conditions, volatility of the markets or even an asset traded!
Day Traders will often use some of the most popular technical indicators to help them trade. These include Moving Averages (both simple and exponential), Bollinger Bands, Relative Strength Index, Stochastic Oscillators and Fibonacci Retracements.
We will now briefly introduce some of the most popular strategies used by Day Traders!
As you can expect, trading with a trend is very popular amongst day traders. Traders would analyse a higher timeframe to identify a strong trend and then would execute their trade in line with a trend on a lower timeframe.
This is also very popular and similar to the trend trading concept introduced above. A trader would identify a trend on a higher timeframe but would be looking to find entries in the opposite direction expecting the trend reversal shortly.
Day Traders are looking for a strong price movement paired with a high volume of trading in the same direction. Momentum trading requires a good understanding of the upcoming news, the ability to quickly identify strong moves with the support of high volume. Traders need to patiently wait for the next set-up and be disciplined enough not to enter too late if they missed their opportunity.
Some traders will try to profit from ranging markets and trade within the range they identified. As the entry levels are identified around support/resistance levels, traders are quite simply looking to buy low and sell high.
A very fast-paced and short-term trading strategy that can be used by day traders too. With this strategy traders aim to take small but frequent profits. They focus on high volume and volatility assets usually trading on smaller timeframes, such as M1 or M5.
Day Traders have to always be aware of the up to date news releases as all their trading results will be affected by the short term price fluctuations caused by major news releases, including inflation, unemployment, economic policies, etc. Some more experienced traders can use this impact news to profit shortly after the release.
Both News and/or Range Traders may also focus on breakout trading. With this strategy, traders expect prices to break through some major support or resistance levels shortly. It can be due to news releases generating enough momentum to start a new trend or because the asset was trading in a tight range for quite some time. Increasing volume within tight ranges is also seen as an indication of a future breakout.
Today, we have briefly discussed Day Trading! Becoming a Day Trading is a dream for many new and aspiring traders! However, it is a lifestyle choice and has to be considered a right fit for each individual! As a Day Trader, you will spend a considerable amount of time in front of the charts analysing the data daily - both to find the best entries and to monitor your trades throughout the day. You will need to gain enough experience to better understand the impact of any upcoming news! Ideally, as a Day Trader, you can also use various trading strategies, enabling you to trade in all market conditions!
We hope you now have a better understanding of what Day Trading is about! Join us next week as we will discuss yet another trading strategy!