7 Day Trading Strategies Explained

Day trading is defined as a type of share dealing where an individual buys and sells shares on the Internet, within a one-day time frame.

Day traders seek to capitalize on the price fluctuations of various stocks. The price fluctuations are generally small and occur within highly liquid markets. Day traders must act quickly and plan disciplined strategies to succeed. When you’re starting out, it’s vital to learn as much as you can about trading, to ensure that you’re set up for maximum success. 

It’s important to set yourself price targets for the closing of each of your stocks. It’s only appropriate to increase your set profit goals within a very strong market. Traders must balance wins and profits, determine position size, and seek to trade during the most appropriate times of the day. The most appropriate times will depend upon whether your strategies involve seeking or avoiding volatility. As a day-trader, there are many different strategies you can use to earn a profit. The strategies that you adopt will depend on your experience, confidence, and goals. Below are seven possible options for day trading strategies.

1 . Momentum Trading

Momentum trading relies on a technical analysis of recent price fluctuations. Traders look at formations, trends, and patterns along with other purchase-and-sell signals. Individuals wait for stock to break the pattern, and emerge into new territory. The idea is to earn money on this short-momentum. Traders are not usually concerned with buying or closing at certain highs or lows. The idea is to buy moving stock, and sell it on before the inflection point.

Momentum selling works on the assumption that if a price trend is reliable and consistent, it is likely to continue with the same pattern. Assets gain attention when they reach higher prices. Traders are looking to gauge the strength behind the trend, and then close when the trend begins to lose its value. In the world of finance, Momentum is based on time frame, volatility, and volume. 

In terms of time frame, Momentum strategies focus their energy on short-term movements within the market. Momentum traders are looking for volatile markets specifically; this trading is designed to capitalize on that volatility. With this in mind, it is essential to set adequate limits and stops to protect yourself from negative movements. Volume refers to how many assets are traded within a set time frame. Momentum traders must be able to enter and exit their market positions fast. To do so, markets must be liquid- meaning they have lots of sellers and buyers.

2. Market Neutral 

The trader aims to hedge the trade by obtaining a short position and a long position with two associated stocks. This method aims to use the performance of the stocks against each other, to gain capital. Market-neutral methods make bets determined by pricing discrepancies. The overall goal is to obtain a zero beta against a specific market index. Doing so ensures that systematic risk is eliminated. Traders might use a combination of fundamental analysis and algorithms to deploy this strategy. Starting off with market neutral methods is great advice for novice traders. This is because such methods are low risk.

3. High-Frequency Trading 

High-frequency trading uses software programs to deploy a huge number of orders. The software can execute these orders in a mere second. HFT uses advanced algorithms to analyze several markets simultaneously, completing orders based on the data it obtains.

The idea behind HFT relies upon speed and being the first to make right the moves. With HFT, a fraction of a second is the difference between a profitable trade and a loss. To stay in the game, traders seek to use the most advanced equipment. HFT is all about learning about slight variables and then exploiting these, with second-by-second switches.

When using HFT, you may come across strategies such as news-based trading, arbitrage, and colocation. Depending on the conditions and market, different opportunities are available within High-Frequency Trading. For example, colocation means positioning a trade server as near to the exchange’s data center as you can. The idea is to achieve the minimum amount of delay when market data is transmitted. As you can imagine, traders may not be able to achieve this under many circumstances.

4. Swing Trading

Swing trading refers to analyzing markets for short-term patterns. It’s a strategy that looks out for indicators that point to downward or upward trends. Traders will make a decision based on the assumption that such trends will continue. A trader might pay attention to the level at which a stock peaks over a period of weeks. They then use the peak level to make predictions, and decide the perfect time to sell. When using a swing trading method, individuals are not typically concerned with long-term stock value. The concept is to cash in on either downward or upward swings. The idea is to build up plenty of small wins, which combine to make a nice return. Daily charts are used to determine the most profitable entry and exit positions.

When using swing trading methods, traders will typically use the T-line on a trading chart, to determine the ideal entry and exit points. If the security is above the T-line when it closes, this means that the price has the potential to keep rising. However, closing below means that the price is likely to keep falling. Traders can also make use of  Fibonacci retracement to gauge levels of resistance. This is a useful way to find opportunities for market reversal. Japanese candlestick charts are also often used to find trading opportunities and define trends.

5. Scalping

The scalping method means that stocks are sold near immediately after they have been purchased. Your efforts should focus on quantity rather than the proposed long-term quality of a stock. Scalping traders aim to acquire stocks with price fluctuations that are below 1 percent (and then sell quickly). Large orders are commonplace when it comes to the scalping technique. Traders put strict stop orders in place, and exit abruptly as soon as that stock begins to fall To use scalping techniques, you’ll need access to stock charts and live trading data.

Scalping gets its results by upping the number of wins, yet sacrificing the size of those wins. To achieve success with the scalping technique, you’ll need to have a significantly higher number of winning trades than losing. Your profits need to be slightly bigger (or at least equal) to losses.

The scalping method's fundamental premise is limiting risk by lessening exposure. This method is also concerned with the ease of smaller moves, and the frequency of smaller moves. In terms of decreasing exposure, your chances of coming up against a negative event are reduced when you are briefly exposed to the market. No matter which market you are in, smaller moves occur more frequently than larger ones. These small moves are useful in scalping.

6. Reversal

The reversal day trading strategy is frequently under debate; many believe that the method is too risky, especially for novice traders. Sometimes you might hear this strategy called ‘pull back trending’ or ‘trend trading.’ The concept is to make decisions based on the opposite of the trend. To do so you’ll need to identify potential pullbacks. Traders will also need to make predictions based on the strength of these pullbacks and general trends. It’s vital to have expertise and market-knowledge to adopt the reversal strategy.

7. Breakout Strategies

These strategies are based on the point at which the price meets a certain level on the chart, including increased volume. Traders must acquire a long-term position when the asset is above the resistance and breaks. To use this strategy, you could also adopt a short position. From here, you wait until the stock breaks just below the support. Once an asset trades out of the price barrier, the volatility will increase. If the price is predicted to be above the resistance level when it closes, you should adopt a bearish position. However, if the price is predicted to be below the support level, adopt a bullish position. You should calculate the average price swings that have recently occurred to set yourself a good target.

Trading Platform 

The most important aspects of trading are choosing the right broker and the right trading platform. You can compare brokers, to ensure you are making a well informed choice. A trading platform is a type of software that is used to trade, open, close, and manage your market positions. A trading platform operates through an online broker or another financial intermediary. These platforms often arrive with features such as premium research, news, charting tools, and real-time data. If you are trading within a certain market, you may be able to find a trading platform catered to this specifically. There are two different types; a commercial platform or a prop platform. Prop platforms are designed by large brokerages to reflect their set requirements and methods. Commercial platforms are designed for retail investors or day traders. Above all, learn as much as you can about trading to improve your chances of future success.