Day trading usually refers to the practice of purchasing and selling binary options within a single trading day. While it can occur in any marketplace, it is most common in the foreign exchange (forex) and stock markets. Day trading employs a wide variety of techniques and strategies to capitalize on perceived market inefficiencies. Day trading is often characterized by technical analysis and requires a high degree of self-discipline and objectivity.
Markets react to political economic news daily which can greatly benefit day traders. Scheduled announcements such as economic statistics, corporate earnings, or interest rates are subject to market expectations and market psychology. Day traders are attentive to short-term signals. For example, trading based on the news is a popular technique. Professional day traders follow a rigid framework that consists of the following rules:
Know Your Strategy
Day traders use numerous intraday strategies. These strategies include scalping, range trading, news-based trading, high-frequency trading (HFT). Traders should evaluate strengths and weaknesses before making a decision whether to make numerous small profits on small prices changes throughout the day or use support and resistance levels to determine buy and sell decisions, seize trading opportunities from the heightened volatility around news events or exploit small or short-term market inefficiencies.
Never Stop Learning
Individuals who attempt to day trade without an understanding of market fundamentals often lose money. Technical analysis and chart reading are both good skills for a day trader to have. But without a more in-depth understanding of the market you’re in and the assets that exist in that market, charts may be deceiving. Do your due diligence and understand the particular ins and outs of the products you trade.
Day traders are typically well-educated because trading requires an in-depth understanding of how the markets work and various strategies for profiting in the short term.
Trade with the Trend
While the success stories of those who struck it rich as a day trader often get a lot of media attention, remember this is not the case for most day traders: many will fizzle out and many will just barely stay afloat. Furthermore, don’t underestimate the role that luck and good timing play—while skill is certainly an element, a stroke of bad luck can sink even the most experienced day trader.
No Blind Luck, Only Calculated Risk
Day traders use only risk capital which they can afford to lose. Not only does this protect them from financial ruin, but it also helps eliminate emotion from their trading. A large amount of capital is often necessary to capitalize effectively on intraday price movements. Having access to a margin account is also key since volatile swings can incur margin calls on short notice.
Strategy and Discipline
A trader needs an edge over the rest of the market. There are several different strategies day traders use including swing trading and trading news. These strategies are refined until they produce consistent profits and effectively limit losses. A profitable strategy is useless without discipline. Many day traders end up losing a lot of money because they fail to make trades that meet their own criteria. As they say, “Plan the trade and trade the plan”. Success is impossible without discipline.
Although day trading has become somewhat of a controversial phenomenon, it can be a viable way to earn a profit. Day traders, both institutional and individual, play an important role in the marketplace by keeping the markets efficient and liquid. While day trading remains popular among inexperienced traders, it should be left primarily to those with the skills and resources needed to succeed.