Best Day Trading Strategies for Beginners.
Day trading strategies are crucial when you are trying to make profits from frequent, small volatile price movements. Good consistent and effective strategies depends on deep technical analysis, using charts, indicators and chart patterns to predict stock price movements. This article will give you a clear understanding and knowledge about Trading Strategies for Beginners, as well as for experienced traders.
It will also covers about some regional differences to be aware of while trading. To be a successful trader you need to find a day trading strategy that fits your unique trading style and capital requirement.
Day trading strategies
Before you get lost in a complicated world of typical technical indicators, concentrate on the basics of a day trading strategy, many traders will be in a false assumption of thinking that, one needs to adapt a highly complicated trading strategy to get succeed in day trading, but the fact is often the more simple strategy, the more effective and profitable.
The basics of trading strategies:
- Money Management: The first thing one needs to do is to decide how much money you are willing to risk in trading. Keep in mind, most successful traders will not trade with more than 2 to 5% of their capital per each trade. You need to be prepare yourself to take some losses , in the process to make some consistent profits, and become a successful trader.
- Time Management: You cannot expect to make huge profits consistently, if you are allocating only an hour or two in a day trading. To become a successful day trader, you need to monitor the markets constantly to make use of all the trading opportunities.
- Education: Understanding complexity of the market alone is not enough, you need to be keep yourself informed all the time. You should make sure to be up to date with global events, economic policy, market news, and political news, which can impact your investments. You can get all the information through online business and financial resources to stay informed about markets all the time.
- Start Small: As a beginner in trading, you better to stick to a maximum of 3 stocks, which are not too much volatile in a single day. Then slowly you can understand how each stock behaves during a day in different situations, and take trades accordingly.
- Controlling your emotions: It is so hard to keep your emotions in control, when you are staring at a market watch screen for hours. You should not let your fear, greed or nerves, to control or decide your trades, you should always think logically and implement your trading strategies without any emotions.
- Timing your trade: The market will be volatile, each day when it opens, and while experienced traders will be able to quickly readthe chart patterns and make some profits, but as a beginner you should just watch the market for first 15 to 30 minutes to get settled, then trade as per your strategies.
Major elements every strategy needs
Every trader, from a beginner to an experienced trader, needs to keep in mind three major elements – Volume, Liquidity, and Volume. If you want to make money on small and volatile price movements, picking the right stock is essential, following three elements will help you to a great extent in making the right decision.
- Liquidity: Liquidity makes you to quickly enter and exit trades, with quick profits. In stocks with high liquidity there will be more participation of traders.
- Volatility: Volatility in a stock or any financial instrument enables you to either make good profit or a bad loss quickly. Day traders always concentrate and trade in high volatile stocks, in order to make money intraday. The cryptocurrency market is a good example for high volatility.
- Volume: The volume indicates that, the number of trades executed in a particular stock or financial instrument, within a given period of time. For a day trader, an average daily trading volume is an important factor. High volume indicates that there is a remarkable interest in that particular stock or financial instrument. An increase in volume suggests that a heavy price movement either upside or downside, very soon.
Top 5 Day Trading Strategies
1. Breakout Strategy
A Breakout can be defined as a stock price moving outside of a particular support or resistance level with an increased volume. In breakout strategy, a trader enters a long position when a stock or a financial instrument price breaks above the resistance level, and a trader enters into a short position, when a stock price breaks below the support level.
When a stock or financial instrument trades beyond a specified price range, generally volatility increases, and stock prices will usually trend in the breakout direction. As a trader you need to find the suitable instrument to trade breakouts, and you need to identify the stock’s support and resistance levels properly.
For more information about Breakout trading strategies, please check this article – “Making Profits from Breakouts”
2. Scalping Strategy
Scalping trading is one of the most profitable and popular trading strategy among day traders. The scalping is especially popular in Forex market, in this strategy trader looks to capitalize on tiny price changes. The trading quantity is a major driving force in scalping strategy, a trader will be reading to square-off the trading position, as soon as small profit or loss occurs.
Scalping requires a trader to have a strict exit plan, because one big loss could erase the many small profits the trader obtained before.
Momentum trading is a strategy in which traders buy or sell according to the power of recent stock price trends. Momentum traders gamble that a stock or financial instrument price that is moving vigorously in a particular direction will continue to move in the same direction till the price trend loses the strength or momentum.
Momentum trading is so popular amongst the trading strategies for beginners, as this strategy is so simple and effective, if execute properly. However, a trader should be aware of upcoming news, earning reports announcements.
4. Reversal Trading Strategy
Reversal trading generally refers to a large price movements or changes, where the price trend changes the direction. Tiny countermoves against the trend are termed as pullbacks or consolidations. Although most debated and probably dangerous, when used by beginners, Reversal trading strategy is used and so popular around the world.
5. Pivot Point Trading Strategy
Pivot points are support and resistance levels, which are calculated by using the previous trading day’s Open, High, Low, and Closing price of a stock or financial instrument. Pivot point trading strategy is a best day trading strategy, which is used more often by Forex and commodity traders.
How to Calculate Pivot points:
A pivot point can be derived as a point of rotation. To calculate the pivot point, you need to use the prices of the previous trading day’s Open, High, Low, and Closing price of a stock or an asset.
So, how to calculate a pivot point?
- Central Pivot Point(P) = (High+ Low + Close) / 3
You need to calculate support and resistance levels by using the Pivot point(P). First and second level of support and resistances are calculated as follows.
- First Resistance(R1) = (2 x P) – Low
- First Support(S1) = (2 x P) – High
- Second Resistance(R2) = P+(R1-S1)
- Second Support(S2) = P-(R1-S1)
Forex Trading Strategies
A Forex trading strategy is a set of analysis, which a Forex trader uses to find out whether to buy or sell a particular currency pair at any given time. A Forex trading strategy can be either automated or manual methods, for producing trading signals.
Forex trading strategies that works well for day trading – Buy at support, sell at resistance, trade pullbacks, trade breakouts, trading with the help of the moving average.