"Day Trading Strategies for Beginners" explained by SAMT AG Wealth Management Company

What is Day Trading?

Day Trading can be defined as the process of purchasing and vending stocks or assets within the same day.

Investing money can be an aggressive and intimidate task for the beginners. Traders purchase and sell stocks within the same day with the trusts of capitalizing on small variances. It is one of the peril methods of placing your money into resources like foreign currency and shares.

Day Trading can be defined as the method of earning a quick profit with a higher risk.

The gratification of Day Trading is that the profit can be incomparably greater than the customary types of investments.

Day Trading started in UK in the year 1974. Day Trading can be a perilous task for those people who are new or have less experience in investment industry.

Day Trading can be transpired in any commercial center like foreign-exchange and stock market. They use modern methodologies and leverages in order to benefit on small price in marketplace.

Requisites for Day Trading:

Here are some essential requisite for Day Trading which are as follows:

  • Information and Knowledge of the Market:

    One should have sufficient Information and knowledge of the market. A person who endeavors to invest in Day Trading without understanding of market frequently results in losing cash.

  • Adequate Capital

    Risk capital has significant importance for Day Trading. Day Trading is mostly accomplished by using risk capital. Loss of risk capital can be bear by the investor.

  • A Great Strategy

    Day Trading requires a great strategy and a present mind. There are many unique techniques that informal investors can take advantage of like trading news, swing trading and arbitrage etc. Typically investors should be accomplished and well-subsidized. These methodologies are refined until they fabricate compatible financial benefits and restrain losses.

Division of Day Trader:

There are two divisions of day traders: one consists of those traders who work alone and other consists of those traders who work for some organization.

Day traders who work for large institution have access to various resources like leverage, capital and dealing desk. These Day traders can make benefit by using arbitrage opportunities. The assets to which they have access permit them to benefit from less perilous trades. Large organization traders manage dealing desk use technical analysis in order to produce high profit. The expectation of Day traders is to purchase stocks at low price and sell at high price.

Day Traders earn profit by effectively completing various deals around the same time. If someone purchases 100 shares and afterward observes that the cost of that stock has risen, he decides to offer its shares for sale. From the deal, the broker has the effect - whatever that might be – even small profit.

Attributes of Day Trader:

  • To be an effective Day trader, you must have the capacity to explore the market rapidly, and when a high rate presents, you should perform exchange of stocks with speed and certainty.

    Day Trading must have the capacity to deal trade and manage risk and reward accordingly. It can be more enthusiastic than different sorts of exchanging.

  • Day traders need to have certain characteristics and have ingress to specific resources, information and involvement in the business sectors.

    They must have an assimilation of market essentials.

  • Day Trading requires a business plan and a great strategy for success.

    Most business plans address short-and long haul objectives, capital reinvestment, matrices and reporting. Trader isolates themselves from their sentiments and never acts imprudently.

  • Day Trading requires electronic communication systems.

    neeItds high-speed networks and fast computers. Numerous informal investors utilize analytical software to look for stocks rates, execute exchanges and oversee accounts. Institutional trade work with different trader in substantial, PC loaded exchanging rooms. Singular informal investors work from their workplaces or house. Day Trading is a full-time job. Day Trading as a part time job is conceivable, yet it is a troublesome and risky task because one cannot update himself from the current market situation and rates.

Day Trading Strategies

Day Trading is one of the most challenging tasks which require perfect planning and trading methodology. Success in Day Trading demands mental focus, analysis and technical precision. The key points for making continuous success in Day Trading demand planning and continued analysis of graphs and charts.

Most of the time people try to follow many strategies which results in loss of money. Day Trading demands a colossal attention. Attempting to process huge pieces of data is strenuous, which will divert your attention from your methodology. Your strategy wouldn’t remain effective.

While you want to implement a Day Trading strategy that works for you, try to follow the same planning throughout the day without any amendments. Most of the time beginners lose money when they try to deviate their strategy.

Different types of Day Trading strategies are Fading, Daily Pivots, Analyzing, Tweaking Performance and Momentum Reversal Trading Strategy.

Scalping

Scalping is considered as one of the most standout approaches for gaining profit in Day Trading. In scalping trader sells its stocks or bonds instantly when its trade becomes beneficial.

Daily Pivots

Daily Pivots technique includes profiting from Day Trading volatility. Daily Pivots strategy can be accomplished by purchase stocks when the price is minimum and offers it for sale at the market when the price reaches to maximum. One can come to know the target price by analyzing graphs, tables and previous records.

Fading

Fading is another common strategy in Day Trading in which trader sorts stocks or bonds when the price increases.

This methodology can be beneficial for day traders but this strategy is based on some inferences which are as follows

  • Overbuy of shares in the market.
  • Early buyers that want to gain maximum profit.

Analyzing, Tweaking Performance

In the beginning, new Day trader thinks that he can make profit with insignificant efforts and strategies, but in reality Day Trading is very complex. By implementing a consistent and well-defined methodology they can increase the chance of success. In this strategy trader analyzes the profit and loss rates.

Evaluation of Tweaking Performance in Day Trading is quite challenging. Most informal investors apprehend the rates of profit and losses and draw their result on graph. By analyzing the graphs statistics they make their decisions about the market.

Momentum Reversal Trading Strategy

  • The methodology works by examining the combination of technical analysis and market fundamentals.
  • It requires a broker to examine traded currency in order to build up mid to long haul trend. This mechanism uses the information of price momentum and value of market reversals. The system permits trader to enter the market when the price is low and gives a substantial benefit potential through money management.
  • All exchanges are planned and decided in advance. The system functions admirably on all significant US Dollar crosses. It creates between 1-5 signals in each month. All exchanges are entered and held for several weeks. The Momentum Reversal Trading Strategy has been adopted for the last two years.
  • The methodology utilizes a couple of indicators which are as follows:

  • Fibonacci retracements
  • Stochastic Oscillator (multi-time span)

After building your predisposition and long haul drift through Commitments of Traders report, continue to check for trading day, charts, diagrams and search for price inversion stage.

In order to define the price, reversal status trader has to dissect the price on diagrams first and answer some straightforward questions like:

Is the price of market falling or not?

Is the graph showing overbought or oversold?

Heikin-Ashi Candles

Heikin-Ashi candles is somewhat an extraordinary method for reviewing the business sectors. Heikin-Ashi policy uses the concepts of candle in which the value of candle is ascertained by analyzing previous candle chart. The price of each candle is influenced by the previous candle value. This chart is somewhat slower as compared to candle outline chart.

On the diagram below; bullish candles are shown in green and bearish candles in red.

samt

Forex Trading Technique

This forex trading technique is popular among dealers for some specific reason. It's quite simple to perceive as dealer waits for candle to close. Once new candle has emerged, the previous one doesn't repaint.

Pros of Day Trading:

  • The significant advantage of Day Trading is that one can earn a large amount of money but the risk factor cannot be ignored.
  • One can make profit before the day over. For earning touted profit one has to comprehend the internal workings of the market. Have a well methodology trading capabilities can build profits through leverage.
  • Capital- It takes money to make profit. Utilizing a lot of capital to make smaller exchanges expands potential returns.

Cons of Day Trading

  • Day traders play a huge role in the commercial market. Day Trading has a high risk factor. There is never an assurance that you will make profit.
  • According to the U.S. Securities and Exchange Commission, Day traders normally endure great monetary loss in their initial months of trading.
  • Day Trading is costly. They require expensive software, tools and the related accurate PCs to recognize the price fluctuation and get the essential money related data.
  • Another negative side of Day Trading is that your profit is dependent on the present market condition.
  • At the point when the market is in an agitating period in which market is in balance position, no upward or downward fluctuation of money takes place, then the chances of loss money increases.
  • It is a high-weight, distressing task that takes training and experience.
  • The greatest disadvantage of Day Trading is that it requires minute to minute detail of market. One has to analyze the market and has to make decisions rapidly. It’s troublesome for a beginner, that’s why most informal investors lose cash. For the individual who does job amid market hours, Day Trading is difficult because their timetable doesn't permit it. It requires split-second planning. It doesn't oblige to those people who are moderate in settling on choices and commitments.
  • Day Trading can be exceptionally exhausting! When the rates of stacks are moving quickly, Day trader has to make quick choices. The greater part of their time is spent sitting and simply watching the market position doing nothing significant. One of the drastic facts about Day Trading is that you see your benefit and loss proclamation, fluctuating up or down rapidly, and have the oppression of the time impediments.

But not everybody is able to day trade and of those who lose money many stay in the game and not recognize that they are not able to win

Human life is full of experiences and learning from these experiences. Similarly, the investor tends to learn every day. However, the when it comes to investors, the main question is how they learn.

According to Bernhardt and Mahani (2007) different empirical regularities can be explained using the rational Bayesian learning, which includes small speculators outperformed by the large speculators, most of the speculators losing money, cross sectionally, subsequent intensity of traded affected by positive performance in the past, new traders losing money, cease speculation and persistence shown by performance.

Linnainmaa (2010) also developed a model of the rational learning. He used the data collected from Finland to find the investors who have poor performance are more into quitting early.

Manhani and Bernhardt (2007), experienced speculators earn profit while the new one continues to lose but the total performance must be positive. Moreover it is should also represent upper bound when it comes to return to the day trading.

To understand the logic of this assertion, let’s take an example. Suppose every year there are 21 or more new speculators. Out of those 21 speculators, only 1 is skilled which means 20 speculators are unskilled. The unskilled speculators work for almost a year and after losing $1 they decide to quit. On the other hand, the skilled speculators continue to trade for almost 10 years, making $1 every year and then quits. This makes the total profit of the speculators every year $-10 since the skilled ones traded in the market longer than the unskilled ones. The skilled speculators are responsible for the bigger fraction of the active speculators (10/30), while the unskilled ones have lower fraction (1/21). For the new speculator the profit for the expected lifetime is (1/20)$10+(20/21)(-$1)=-$0.476. It is important to note that the total annual profit when divided by total number of the new speculators every year is equal to the profits of expected lifetime.

Note that aggregate annual profits divided by the number of new speculators each year are equal to expected lifetime profits ( $10/21 =-$ 0.476). Also the total per annum profit divided by the total number of speculator in that year 10/30 = -$ 0.333) are same in sign but the magnitude is lower than the expected profit.

Tip from Professionals

If you want to try your luck in Day Trading (however, we do not recommend it because you will probably lose money) you should ensure that you trade products which you understand and are traded on real exchanges like NYSE, Xetra, CME, Globex, Comex, Eurex or Liffe. You should only products which you completely understand and products with established rules like Stocks, Bonds, Futures or Plain Vanilla Options. Special products which can only be traded with the party who has issued the product (and only traded for the price set by the issuing party) are not in favor to the trader.

On non-exchange regulated trading products (this is common for FX, Binary Options or CFD) the opposite party can make any price for the product, for example when the real Futures Gold Contract trades at 1399/1400 at the CME the opposite party in the non-regulated market will give a similar price but a so called "dealer" or "backend plugin" will change the price to any price against the favor of the trader. In a non-regulated environment the broker might change the Gold price to 1398 exactly in the second when you sell and to 1402 exactly in the second when you buy (against the 1399/1400 in our example). It will be hard for you to understand this because the price change fast and you would need a detailed analysis to understand this.

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