Day Trading Strategies, Tips and FAQs
What is Day Trading?
There are those who make a living from stock trading and shares trading and describe themselves as day traders. However, you're likely to be asking what day trading is exactly, and what do these day traders do? These traders are individuals who open and close positions in the financial markets during the same day, seeking to take advantage of price action in the market – both up and down. It’s a short-term trading strategy that differs from swing and position trading, which requires traders to be patient and wait for sizeable market moves over several days, weeks or even months.
It’s not quite as short-term as scalping trading, which sees traders place multiple trades throughout the day, attempting to secure multiple tiny profits from the market, all of which adds up to a tidy sum at the end of a week or month’s trading of shares.
Day traders will typically lean on technical and fundamental analysis to underpin their day trading strategies. The rapid advancements in technology, including high-speed connectivity and state-of-the-art trading platforms, have made day traders more able to react to market news and trends and open and close positions within minutes or hours of each other.
Day trading tips for beginners
If you are thinking of trying day trading for the first time, be sure to keep in mind the following three aspects which can make your life easier when placing short-term trades into the markets:
- Tight spreads: When you are placing short-term day trades into the financial markets, choosing a broker that offers tight spreads is vital. If a broker offers a two-point spread, this means the market must move two points in your favour just to break even. The smaller the spread, the more possible it is to make short-term profits.
- Volatility: There’s a saying in stock trading that “where there’s volatility, there’s opportunity”. Volatility is something that day traders require to be able to profit from market moves. Of course, volatility means that price action can go one of two ways, so it’s important that you deploy risk management strategies such as stop or trailing stop losses to limit losses when the market goes against you.
- Leverage: When day trading financial markets like forex, where the daily price moves are somewhat smaller than in any cryptocurrency or stock trade, day traders often take advantage of leverage offered by brokers. Be mindful that whilst leverage can amplify profits, it can have the same effect as losing trades too.
How to start day trading with a demo account
If you think you have the mental attributes to succeed as a day trader, it’s always a good idea to test your theory in a low-risk fashion first. That’s why we offer free demo trading accounts that allow you to place short-term trades into the markets using demo funds.
As a member of Skilling with a demo trading account, you’ll still get free access to all our video content and academy articles to hone your trading skills and knowledge. These should answer any questions you have regarding how to start day trading.
Just be mindful that the mentality of using demo accounts differs from real-money accounts as the risk factor must be taken into account when day trading with real money. However, providing you can maintain the same discipline from your demo account when activating a real-money Skilling account, this shouldn’t be an issue. Nevertheless, always respect your day trading bank and manage your money responsibly, with risk/reward ratios that are in your favour long-term.
Day trading strategies
The most common day trading strategies operate differently to long-term strategies as they are designed to maximise profit from short, sharp movements in the market, as opposed to ones that occur over weeks or even months. The following short-term strategies are often utilised by day traders:
- Trend-following Day traders like to keep their fingers on the pulse of trends that may arise in the markets throughout the day. Using a wealth of technical indicators, including Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), it’s possible to pinpoint momentum during the trading of shares.
- Mean reversion An asset’s value will typically have a ‘normal’ or average price point that it oscillates around. Although some assets will see volatile moves up and down away from that mean value, some day traders believe that an asset’s value will typically gravitate back towards that average price by the end of a day after extreme moves.
- Momentum trading Day traders that trade market momentum will keep a close eye on price action and movements instead of fundamental analysis. Momentum day traders will seek out assets with high liquidity to enable them to dip in and out of the market without incurring slippage.
Day trading FAQs
How do I manage day trading risks? Understanding how to execute risk management tools like limits and stops are key weapons in a day trader’s arsenal. Cutting losing trades quickly and letting winning trades run to maximise profits is just as important in day trading as any other form of shares trading. Which markets are best suited to day trading? Stock trading is particularly common among day traders, with positions closed for a profit or loss at the end of the day to avoid ‘gapping risks’ of the share price opening the next day much higher or lower than the previous day’s closing price. Indices and forex are equally popular due to the liquidity that these markets offer, with their ability to be traded using CFDs. Why are detailed day trading records important? Self-analysis is vital as a financial trader. When entering a particular day trade, note the reasons for opening your position as it can help you evaluate flaws in your trading strategy after the event in a bid to plug leaks in your profit & loss.
Do not stop learning about the financial markets
We’ve got a whole host of resources that are ready and waiting to educate newcomers to trading CFDs online, including:
- CFD trading account types
- Choose the trading account that suits your trading best
- CFD trading basics
- Learn the core principles of trading the financial markets using CFDs.
- CFD trading psychology
- Discover the five rules of thumb to mentally master the stock markets.
What is forex trading?Forex trading is the buying and selling of currencies on the foreign exchange market with the aim of making profit. Forex is the word's most-traded financial market, with transactions worth trillions of dollars taking place every day.
What are the benefits?
- Go long or short
- 24-hour trading
- High liquidity
- Constant opportunities
- Trade on leverage
- Wide range of FX pairs
How do I trade Forex?
- Decide how you'd like to trade Forex
- Learn how the forex market works
- Open a Skilling CFD trading account
- Build a trading plan
- Choose a trading platform
- Open, monitor and close your first position
The overarching goal of engaging in CFD trading based on the price action in the stock markets, is to achieve a net prof...
What is a CFD trading platform and how do you use one? Use our CFD trading platform comparison guide to find the right p...