Day Trading 101 – Top 5 Day Trading Strategies

Day trading is dated back to the time when the internet started giving people access to the markets any time of the day. Since then, the ability to trade on a short-term basis was a privilege of those working for big trading firms or on trading floors. But now, all copy trading styles have become available to everyone. So, whichever your investment profile is, you natively fall into one trading style – position trading, swing trading, day trading & scalping.

For now, let’s focus on day trading. This style involves buying and selling a financial instrument within the same day or even multiple times during a day. Day trading can be potentially profitable, since you normally take advantage of small price movements. At the same time though, it can be quite dangerous, if you don’t follow a good strategy. Let’s now look into the 5 most used day trading strategies.

 

1. Breakout trading

Breakout strategies are based on the price of an asset rising above its former top resistance price. Traders following this strategy will go long after an asset breaks above resistance and will go short once it breaks below support. Once the asset’s price goes outside of the support and resistance levels, volatility is seen to increase.

 

2. Scalping

Undeniably, one of the most popular strategies. Particularly popular in the forex market and making its way through other asset classes, scalping is based on opening and closing trades within a few seconds, capitalising on small profits or closing with the minimum losses in case a trade isn’t going as planned. Scalpers need to be very confident, employed with razor-sharp discipline and stay focused on their trades.

 

3. Momentum trading

A rather popular day trading strategy for beginners, momentum trading is based on news sources and identifying trending moves with the support of high volumes. Momentum traders are seen to jump on an asset whose price is moving up and get out as soon as they see signs of reversal. This strategy is particularly popular when trading stocks and is normally triggered when a stock moves by 30-40%.

 

4. Reversal strategy

Reverse trading, or more commonly known as trend trading or pull back trading, is a very controversial strategy among the trading community, especially when it comes to beginners. This strategy goes against basic trading logic, since reverse traders aim to trade against the trend. With a good backup of experience and in-depth market knowledge, such traders identify potential pullbacks and predict their strength. The first step in reverse trading is to find an asset with an established trend and monitor its trend until you see a price decline. If the trend is upward, then the downward price movement is an entry point for traders to open a buy position.

 

5. News trading

It is a common fact that markets act fast to news events. By keeping an eye on business news and global financial events, traders can capitalise on these stories and shape their trading accordingly. Traders following this strategy will open a buy position when good news is announced and will sell when there’s bad news involving a market. The news fluctuations lead to higher volatility, which can lead to higher potential profits or losses.

As you have probably understood by now, day trading is not that easy to master. It takes time and requires a lot of time, skills and discipline on the traders’ behalf. With enough practice and by constantly evaluating your strategies, you have some good chances of beating the odds!

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.12% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.