Day trading is the most commonly used trading strategy in financial markets. Traders can do day trading with stocks, forex, cryptocurrency and other financial instruments. The question arises here: What is day trading? In this article, we will succinctly describe the concept of day trading and types of day trading strategies for your understanding.
What is Day Trading?
In simple terms, day trading means entering the trade and exiting it on the same day. It is also known as intraday trading. The trader makes use of this strategy to benefit from small changes in asset price. Cryptocurrencies can have 20–40% change in price over a day. Hence the profit margin is high with day trading.
The word ‘day trading’ signifies that stock markets operate only on business/working days of the week. An intraday trader closes his position by the end of the day. Thus, takes advantage of price fluctuation happening during waking hours.
Day Trading Markets
Day trading markets vary in structure, characteristics and quality. Users can access them directly from their computers using the internet. However, the user’s understanding, resources and other financial matters can make the experience of intraday trade frustrating at times.
You should take into account the volatility, liquidity and availability of resources before getting your hands dirty in a market. Here are some of the common day trading markets:
Day traders are fond of the stock market. It is the most common and widely known. The trading in the stock market is pretty simple. You buy stocks of a company and wait for the price to go up and sell the stock. It gives you a chance to buy stocks of some famous companies like Google, Amazon and Tesla.
There are plenty of individual traders in the stock market. Therefore, its volatility is relatively high.
Forex or Foreign exchange market is also one of the growing trading market out there. Traders take profit from fluctuation in the exchange rate. Bet on currency rates and open positions based on them.
In the forex market, there are multiple currency pairs available. You can trade currency in pairs only. For-profit, you need to opt for pairs with high liquidity.
The cryptocurrency market is a comparatively recent addition in trading markets. Day traders can venture into it after some risk assessment.
Crypto markets are extremely volatile. This makes them ideal for intraday trade. Moreover, there are a variety of coins now available at different prices which you can trade. Some of the common ones are Litecoin, Ethereum, Bitcoin Cash and Dogecoin.
Best Day Trading Strategies
Now that we have looked at day trading markets, let’s discuss some strategies with which day traders can make money.
Day traders use scalping as a way to make profits from small price changes. It is the best intraday trading strategy. Traders buy and sell in a short time frame taking advantage of gaps in liquidity and other market inefficiencies.
Scalpers can also quadruple their gains with margin trading and futures contracts. It is a great way to amplify your returns as targeted profit is small in numbers.
Margin trading comes with its own set of risks. Though it multiplies profits, the losses get amplified as well. Therefore, you should manage risk by applying proper sizing when doing margin trade.
Order book analysis, volume assessment and technical indicators help scalpers in getting a hold of the things. The traders view the entry and exit points and execute trades at a fast pace to take advantage. Automated trading software are best for this strategy.
For this strategy, traders have to make use of the candlestick chart. Traders identify the ranges in market structure and exploit them for making a profit. Range traders buy the currency at support level price and sell at the resistance level. Moreover, they can also take a short position at a resistance level and exit the trade at the support level.
Support and resistance are like the edges of the range. The support pushes the price up. Whereas, resistance level tries to keep it down. The price remains within until the range breaks.
One key thing to remember about the range is that the more times it hits support/resistance level the more likely it is to break out of that. Therefore, range traders have to be prepared for a possible break in range. Day traders can use a stop loss at the point where the range breaking is confirmed.
Range trading is a simple strategy. It only requires the understanding of candlestick charts. Once you get a hold of support and resistance level then you can define ranges for yourself.
High-frequency trading is a strategy employed by quantitative traders also known as “ Quants “. The traders enter and exit positions as quickly as possible. The time frames are extremely small for these trades (close to milliseconds). As it is humanly impossible to trade at such a fast pace, traders often develop bots for this purpose.
High-frequency trading is an algorithmic trading strategy. It is a highly complex strategy. Building the right algorithms requires monitoring and backtesting. The trader has to tweak algorithms according to changing market environment in order to be successful.
Trading bots are useful in a multitude of ways. However, building your own high-frequency necessitates an understanding of market concepts, computer programming and mathematics.
News trading is another strategy uses by cryptocurrency day traders. it involves trading based on news announcements. Crypto market reacts quickly to big market news. For instance, Tesla invested $1.5 Billion in bitcoin on January 8th. Subsequently, the price of BTC increased by 20% within a day.
Day Trading Crypto: Where to Begin?
Day trading is a simple way of making profit through crypto trading. You can begin your journey by investing a small amount through a broker. There are plenty of brokers available in the crypto market. Here is our pick of best cryptocurrency trading exchanges.
While selecting a broker, go for one that provides a variety of options and simple interface.
The options of future contracts, perpetual futures contracts, margin trading and spot trading give you the freedom to trade your financial instruments on the spot price as well as amplify returns. You can open a position based on market conditions and exit with a profit.
Online day trading involves staring at the screen all day. The complex user interface of exchange will make the whole experience cumbersome. Therefore, exchanges like Binance are best for trading as they have easy navigation option for beginner traders.
Who can start?
Day trading requires quick decision making. You need to be on the constant lookout for opportunities. It consumes a lot of your time and energy. Day traders often get stressed out and abandon their journey altogether. Hence, it is not for everyone.
Day trading is for people who understand the risks attached to it. Crypto markets are volatile and can swing in unfortunate ways. Thus, you need to have a certain degree of emotional discipline and capability to assess the risk. Day trading isn’t for impatient folks.
Trading Bots Can be a Great Idea
Trading bots make it easier for you to trade with accuracy and efficiency. If you have little understanding of the market and don’t have enough time to learn everything then crypto trading bots can be saviours for you.
Trading bots come with pre-existing strategies. Moreover, you can also tweak strategies to suit your demands.
The best algorithmic trading bot available in the market at this stage is, digiebot. You can start crypto trading instantly with digiebot. It requires zero experience and nor monitoring at all. You can read about digie in detail, on this blog.
Day trade cryptocurrencies with the best trading strategies in 2021. The intraday strategies can be profitable both in the long term and short term. Moreover, you can use the automated trading bot to make the day trading experience smooth and rewarding.
Originally published at https://autotradingstrategies.com on February 9, 2021.