Instead of being an abstract concept, Day Trading is a specific approach to the financial markets. Scalping, Day Trading, Swing Trading, and Position Trading are the four most common trading strategies in foreign exchange. Since the beginning of the market, every investor has followed a strategy that best fits his or her own preferences and temperament. While settling on and sticking to a particular trading strategy might be challenging, success in the market depends on your ability to identify and capitalize on opportunities.
Are you having trouble differentiating between trading styles and strategies in forex?
Many market participants choose for day trading, which involves making many, small trades over the course of a single day. There are benefits to this approach, but there are also drawbacks. Day Trading and the tactics best suited to it will be discussed in detail below.
“Day Trading” What is?
Day trading is not a trading method but rather a classification of trading based on the length of time a position is maintained. Investors that use this strategy often place orders once per day and hold them for many hours, making the order frequency lower than that of scalpers.
Depending on one’s profit objectives, the amount invested and the frequency of placing orders in the day trading style may be larger than in the long term trading styles, since the day trader seeks to capitalize on modest movements in the short term.
Traders that master the Day Trading strategy stand to make substantial gains, but novice traders may find it difficult to adapt to the increased analytical and judicious decision-making required by this approach. agiler, particularly in terms of the ability to create a definite and unambiguous approach. For this reason, inexperienced traders often avoid this trading technique in favor of the more conservative medium- to long-term approach. Day trading, on the other hand, is best left to seasoned traders with plenty of time on their hands.
Daily trading has several characteristics
Day traders often use 15-minute, 30-minute, and 1-hour periods in their trades.
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Currency pairs, equities, indices, and cryptocurrencies are just some of the assets that might benefit from this trading strategy. Nonetheless, Day Traders would often just trade one or two products, allowing them to have a deeper understanding of the nuances of the assets they focus on most. As a result, the market’s activity improves and traders may make more informed choices. Due to their enormous liquidity, major forex pairs are the go-to for day traders.
High order volume incurred high transaction costs. As we do not keep holdings overnight, there is no swap cost.
Several other trading methods, including trend trading, countertrend trading, and mixed-analysis trading, may be used successfully in the Day Trading style.
Day traders spend most of their working hours glued to the screens of their computers, waiting for the market to shift so they can capitalize on it.
Day traders often have a trading time selection strategy that involves not trading at all hours of the day. As the London and New York trading sessions overlap, the optimal time for Day Traders to trade currency pairings involving the Euro and the US Dollar, notably the Euro/US Dollar pair, is from 14:00 to 03:00 Vietnam Time, or from Monday through Friday. Day traders often stay away from the markets on Mondays since volume is usually low on that day, making it difficult to make enough money off of even moderate price fluctuations to justify the time spent trading. In addition, Monday is a day with little liquidity, making it simple to trigger large, sudden, high-risk swings.
The characteristics of a Day Trader and how to spot them
You need to be someone who can think on their feet, is OK with ambiguity, enjoys short game sessions with immediate feedback on your success or failure.
The next step is to determine whether or not you are a good fit for this style by examining the following three criteria.
- One, desired levels of profit. Tell me about your financial goals in trading foreign currency. If you want to make some additional cash on the side by trading forex every day, Day Trading is a great strategy since it allows you to see your daily profit or loss as soon as the trading day ends. In addition, Day Trading allows you to increase your monthly income, which can be used for things like paying for basic necessities or saving for the future, with a daily profit objective of a few tens of dollars to several hundred dollars. in the next 6-12 months…
- Second, how much time is invested in foreign exchange. If you’re a salaried professional looking to supplement your income with Forex trading but can only devote a few hours each day to it, swing trading or position trading may be more suited to your lifestyle. and I am with you. If, on the other hand, you’re serious about trading and your earnings from trading are your primary source of income, then Day Trading is the method for you. This approach necessitates that you constantly monitor the market, requiring you to spend long periods of time in front of the computer from the time an order is placed until it is closed. When the order is processing, you may take a break and have some cake and water if you want; this is far more convenient than the scalping method, which requires you to be glued to the computer at all times. quick and easy financial ruin.
- The third step is to evaluate one’s comfort with risk. If you want security, don’t enter the currency market; instead, put your money in the bank or buy bonds. There is a high potential for long-term profit with a large capital investment and a high risk tolerance, but day trading is the riskiest trading strategy.
Day trading strategy, as a type of trading
Success or failure in this market will ultimately come down to the trading plan you settle on and use once you’ve defined your trading style.
Most trading methods work well for day trading.
Method for Trading in Trends
Swing and position traders rely heavily on a trend trading method that may also be used for Day Trading.
If you like trading for the medium to long term, you’ll need to anticipate the market’s general direction in the near future and then time your order entries accordingly to maximize your gains throughout the course of the trading session. prolonged pattern.
The same holds true for trend trading in the Day Trading approach, except that you will capitalize on each short-term positive wave rather of riding the trend for an extended period of time.
The plan is carried out as follows:
- Analyze price charts over extended time periods (H4, D1) to determine the overarching long-term trend.
- Choose the best timing to enter the market based on price indications that confirm the prevailing trend on shorter time frames (M15, M30).
- Get out of the trade when you see signs that the trend is changing, the wave is ending, or both.
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Example: Trend Trading Strategy on EUR/USD
The following display shows the H4 price chart for the EUR/USD currency pair. The market eventually settles into a downward trend and stays there for quite some time. This currency pair started showing a reversal signal around the end of March, the start of April 2021.
As the Tweezer Bottom reversal candlestick pattern occurred, the price began making higher highs and higher lows, a strong indication that the market was commencing an uptrend. In order to maximize today’s potential gains, we might search for trend-trading chances on shorter timeframes.
You should search for purchase signals on shorter time frames.
Market consolidation and a lengthy accumulation period on the M15 time frame chart suggest that after an official break in either direction, prices are likely to fluctuate wildly.
The long-body green candle broke the accumulation area in the upward direction, waiting for the green candle to end, you can enter a Buy order. Close the order when the target profit is attained or may take profit as soon as the reversal signal comes. After the appearance of the Tweezer Top reversal candlestick pattern, as shown above, the trade should be closed.
In this situation, the order is kept for around 9 hours.
Trend trading strategy
Day trading is a high-risk trading strategy with substantial reward potential.
Technical analysis techniques, including as technical indicators and patterns, may be used to spot reversal signs, allowing traders to benefit from the countertrend trading strategy by riding out corrections in the main trend. Turnaround candle. Using this strategy, day traders need good technical analysis skills and quick judgment.
The plan is carried out as follows:
Observe price charts on large timeframes (H4, D1) to pick out the overarching long-term pattern.
On smaller timeframes like M15 or M30, use technical indicators or reversal candlestick patterns, support and resistance levels, etc. to identify reversal and entry signals.
When a resumption of the main trend can be seen in the market, which is the indicator of the conclusion of the correction, the position should be closed.
Example: countertrend trading strategy on EUR/USD
Continuing the example above, after only about 3 days, you can continue to use the countertrend trading strategy to find profits during the day.
In an uptrend, as seen on the H4 period in the preceding example, you want to search for sell signals on the M15 timeframe.
You can enter Sell orders now because the market has entered a bearish Tweezer Top reversal pattern after an uptrend. When the predetermined profit level is achieved or a reversal signal arrives, the order is closed. In this situation, the Sao Mai candlestick pattern appears, you can close the order as soon as this pattern completes.
In this situation, the order is kept for around 6 hours.
News trading strategy with technical analysis
The release of major news may have an immediate impact on prices, leading to huge changes that day traders might capitalize on. For this reason, many Day Traders use the news trading approach, in which they capitalize on the sharp price swings that occur following major announcements that lead investors to react aggressively and make snap decisions. These swings, however, occur for relatively short periods of the day, and the market gradually readjusts thereafter.
The news trading technique paired with technical analysis is done as follows:
Keep an ear out throughout the day for announcements of major developments.
Analyze and identify the impact of that news on prices in the market
As soon as the news is out, apply technical analysis methodologies to find probable entry opportunities.
When the predetermined profit threshold is reached or the reversal signal appears, the order is closed.
Limitations of the Day Trading style
- Always under pressure
Maintaining orders for only a few hours puts Day Traders under more pressure than long-term traders. Traders’ stress levels will rise as they stare at the screen, ready to close the order at any moment due to the fluctuating prices.
- Capital investment is crucial for day traders.
Due to the limited magnitude of day-to-day price fluctuations, day traders must open a high number of orders in order to accomplish their profit objective and must have a sufficient margin balance in their trading account to prevent margin calls.
This is also one of the reasons why novice traders frequently do not choose to follow this approach, since no one dares to start with a huge amount of cash without having a lot of trading experience. Most Vietnamese businesspeople enter the market with a modest sum of money, and only a select few can afford a sizable initial investment.
- Extreme danger
First, there is an inherent risk in trading a large volume of orders.
Second, high levels of leverage are frequently employed by Day Trading style strategies to achieve profit targets on relatively modest fluctuations. And with high leverage comes enormous danger.
Qualities of a Day Trader
- Discipline
Is the most crucial attribute of a day trading style. If strategy or planning accounts for 90% of a trade’s success, then discipline is equally important and, without it, ineffective.
High-frequency traders face the peril of letting their emotions get the best of them and trading more frequently than they should.
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- Trading planning skills
After establishing an appropriate trading technique, Day Traders will begin to plan their transactions. A clear and detailed trading plan must include all elements such as trading tools, time frames, analytical tools, determining trading volume, time to enter and exit orders, etc. This factor is as specific as possible, the trader will easily control when trading.
With the feature of opening many orders in a day, Day Traders need to have the skills to set up a plan quickly but must be complete and specific.
- Excellent analytical method, rapid judgment ability
Day Trading style always requires traders to constantly monitor the market to look for potential entry opportunities, so good analytical technique is an indispensable quality of a Day Trader.
In a day, the price is constantly moving non-stop, and there are often large fluctuations due to news, if you do not judge quickly and react in time, your order will be scanned mercilessly.
- Deep understanding of the market
This quality sounds academic but is extremely important for Day Traders. The Day Trading style mainly uses technical analysis tools to predict price trends and place orders, but traders are often deceived by the tools themselves. It is important that you have a certain understanding of the instrument you are trading and the market overview to be able to recognize what is a fake signal and what is real.
- Capital management skills
It is a necessary quality of all trading styles, but it is even more important for Day Trading or Scalping. The Day Trading technique demands you to have strong capital management abilities, particularly in planning to divide the money for many different orders, to guarantee that the capital in the account is always adequate so that you don’t have to miss the most crucial transactions. potential trading opportunities as well as avoiding margin calls.
Conclude
Determining your market persona is crucial to developing a successful trading strategy. Then choose a trading strategy that suits your style and stick to it to the end. Discipline must always go hand in hand throughout the process of setting up a trading plan, and at the same time eliminating stubbornness to achieve the highest efficiency. If you find the Day Trading style suitable for your trading personality, you can pursue it. Let’s start by learning more about this style, choosing the right trading strategy, gaining more knowledge and practicing more in the market.
GOOD LUCK.
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