What is Day Trading? Effective Day Trading strategies

What is Day Trading? Effective Day Trading strategies

In Forex, there are 4 common trading styles including Scalping, Day Trading, Swing Trading, and Position Trading. New traders will choose a trading style that suits their tastes and personality. Usually, this selection process will take a long time to know which playstyle is best for you.

To help you reduce that period, I will first share all about Day trading. If you want to pursue this style of trading, then do not skip this article.

What is Day trading?

Day trading is a short-term Forex trading method. Almost all orders are closed for the day and not held overnight. This method takes place in a short time but you can still get a large profit. Day trading is a trading method suitable for new investors because they do not have much experience to prepare clear long-term trading strategies.

What is Day trading?
What is Day trading?

Features of Day Trading

Day trading has its own features but there are also some characteristics similar to Scalping. Therefore, investors should pay attention to distinguishing these two trading styles to build the most effective investment strategy.

Features of Day Trading
Features of Day Trading

Day trading is based on short waves so traders often identify trends in small time frames.
Traders need to spend almost all day sitting and observing and analyzing graphs to find reasonable entry opportunities. This is very similar to Scalping.

The number of orders when trading during the day is usually quite a lot. However, depending on the level of profitability and the individual strategy of each trader, the number of trading orders of each person will be different. Typically, it’s between 5 and 30 trades a day.

Day trading is a widely used method in the Forex market. If you are a new trader entering the market, your advice is to choose the currency pairs EUR/USD, USD/JPY, etc. Because they are popular forex pairs that are traded by many people with high volume. There should be high liquidity and the trend of price movements is often noticeable.

Advantages of Day Trading

Bringing fast profits

Due to the nature of Day trading, it is a short-term profitable transaction. So at the end of the day, traders can calculate exactly how much profit they have earned. This is suitable for investors who do not want to wait long but need regular cash flows for personal purposes.

Reduce anxiety for a long time

Financial markets are constantly fluctuating every minute of every day. Therefore, the price of currency pairs is very volatile when an important event is announced, making investors always in a nervous mood before news instability. Day trading is a useful method to help traders reduce stress since all orders are completed in one day.

Disadvantages of Day Trading

Must spend a lot of time studying and analyzing graphs. For almost a day, you will only focus on day trading and don’t have much free time for other things.

The first limitation is also the cause of the second one. Regularly monitoring price movements to find reasonable entry opportunities will make you tired and stressed after a long day of execution. many orders with such high frequency and high pressure.

Finally, if they want to “many a little makes a mickle”, day traders need a decent amount of capital. Because in essence, day trading is about earning many small profits from many orders in the day. Therefore, to have an attractive return, your capital must also be relatively large.

Through the advantages and disadvantages presented above, it cannot be concluded that day trading is the wrong trading method because there are more limitations than advantages. There is no right or wrong trading style. The point here is the circumstances and goals of each trader. If you have a large capital and want to make quick money during the day and don’t mind watching the chart for many hours, then day trading is the best way to trade.

How do you know if you’re suitable for this strategy?

There are 3 following factors to consider whether you are suitable for this style or not.

How do you know if you're suitable for this strategy?
How do you know if you’re suitable for this strategy?

One is profit expectations. What is your financial purpose when entering the Forex market? The day trading style helps you to know immediately the profit/loss that you have made in a day. With the goal of profit every day to cover daily expenses, day trading will help you do that.

Two is the time that you spend on Forex. If you have a lot of time to trade, then day trading might be for you. In case you are working as an office worker or have another job that cannot focus on observing the screen, you should not pursue the day trading style.

Third, determine the level of risk tolerance. If you already choose the Forex market, you must be a risk taker. The Day trading style requires you to have a higher level of risk tolerance than other long-term trading styles.

Trading strategies suitable for the Day trading style

Having a clear and reasonable strategy will be an important advantage to help investors achieve success in the market. Specifically, Day trading has a lot of different strategies. Traders can choose for themselves a suitable strategy or combine several strategies as long as large profits are achieved and the risk is significantly reduced.

Trend trading strategy

The trend trading strategy is the core strategy of Swing traders and Position traders. However, you can also apply it to the Day trading style.

For medium and long-term trading styles, it is important that you determine the general trend of the market in the near future. Then find the right entry time to bring profits on a long trend.

The same goes for trend trading in the Day Trading style. But you will take advantage of each short-term forward wave instead of an entire long trend line.

The strategy is implemented as follows:

Trend trading strategy
Trend trading strategy

Identify the general long-term trend by observing the price chart on large timeframes such as H4, and D1.

Observe smaller timeframes like M15, M30, and H1… to identify price signals that are following the main trend and find the appropriate entry time.

Close the position when there is a signal of the end of the wave (the beginning of the trend reversal).

Countertrend trading strategy

It is a rather risky trading strategy but offers great profit potential for Day Traders.

The countertrend trading strategy takes advantage of corrective waves in the main trend. Reversal signals are often detected by powerful technical analysis tools such as indicators, and reversal candlestick patterns. Using this strategy, day traders need good technical analysis skills and quick judgment.

The strategy is implemented as follows:

Countertrend trading strategy
Countertrend trading strategy

Identify the general long-term trend by observing price charts on large timeframes such as H4, and D1.

On smaller timeframes like M15 or M30, use technical indicators or reversal candlestick patterns, support, and resistance levels… to identify reversal signals and enter orders.

Close the position when the signal of the end of the correction appears.

News trading strategy

Important news often affects prices as soon as it is published. It often causes large fluctuations and is an opportunity for Day Traders to find profits. The news trading strategy is often preferred because the market often tends to tilt to one side after the news is announced. Investors will react more strongly and drastically, causing big fluctuations. However, these fluctuations only take place for a short time during the day. Right after that, the market will adjust slowly.

The news trading strategy combined with technical analysis is implemented as follows:

News trading strategy
News trading strategy

Stay tuned for important news to be announced during the day

Analyze and identify the impact of that news on prices in the market
As soon as the news is published, use technical analysis methods to identify potential entry points.

Close the order when the target profit has been reached or when the reversal signal appears.

Conclusion

Day trading is a trading style that helps investors gain a lot of profit. If you feel that this is the right trading method for you, then persistently pursue it. Success will surely come to you. But you should know that forex trading is a money-making environment that requires you to have real knowledge and experience. It’s absolutely not the path for those who want to get rich quickly. Good luck!

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What is Day Trading? Effective Day Trading strategies
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