TOP 3 trading strategies for day trading
The process of trading financial assets in order to make a profit within one day is called intraday trading. In this article, we will look at three of the most popular day trading strategies in the Forex market.
What makes intraday traders different from other OTC speculators? Day traders try to take advantage of small fluctuations in the prices of certain currencies to make a profit. Unlike long-term investors, day traders do not allow transactions to remain open for more than 24 hours.
Thus, intraday trading is a Forex trading style that is limited to a specific trading day and does not go beyond it. Day traders close their positions on the same day that they opened them. They can also make multiple transactions for the same asset during the day, or for several different assets. That is, they close all trades until the end of the trading day and do not hold open positions overnight. The volatility of the selected trading assets and the average daily range are two key factors that affect the trading performance of day traders. They are experts in entering and exiting trades quickly and efficiently, enabling them to generate profits from their trading activities.
Day trading can be very profitable if done correctly. However, this trading method can also lead to significant losses due to impulsive trading decisions. While there are many reasons why most aspiring traders fail, greed is at the top of the list as well as lack of proper preparation. The lack of a reliable trading strategy leads to the fact that a large number of inexperienced traders lose their capital in a matter of days.
Successful day traders have practiced for years to understand what the OTC financial market is and to understand the risks involved. However, good trading strategies are one of the reasons why most of them are still in business.
If you are considering day trading, then below are some of the best day trading strategies that are easy to master even for a novice trader.
Scalping is literally the oldest and most popular strategy used in day trading. This simple strategy includes technical analysis of the financial asset you want to trade. Once you have decided on a clear direction for the price of an asset, you should open a position and close it in a few minutes.
For example, when the price of an asset moves up, scalpers can enter a buy position. Immediately after the price begins to adjust, they exit the transaction and enter the position to sell the asset. The buying and selling process continues many times until the scalper's target is reached.
Scalping is an ideal trading strategy during periods of low volatility. When volatility is low, assets tend to trade sideways, providing solid entry and exit positions.
Professional scalpers open and close dozens of positions within one day. Thus, they generate a small profit from each trade in a matter of minutes. The chance to make a profit on every small price movement is the ultimate goal of this strategy. One of the advantages of a scalping strategy is that it limits your exposure to significant risks while entering and exiting a trade quickly.
Scalping also stands out from other intraday trading strategies as it does not require a lot of factual knowledge about the asset being traded. The only thing you need to understand clearly is the direction in which the asset price can move.
However, you should always approach scalping with great care. For example, you should never open positions just before the release of important economic data. Markets tend to be extremely volatile when significant economic data is released.
Although not all brokers accept this strategy, many still allow their clients to use it. The low spreads offered by some brokers allow traders to enter and exit trades without significant financial costs, which is very important when using an intraday trading strategy.
An algorithm trading strategy is a relatively new type of strategy that includes complex mathematical algorithms. This strategy may not be ideal for novice traders who prefer intraday trading, but it can be a great choice if you have trading experience, as well as experience in math and computer science.
Traders use their computers and complex mathematics to develop algorithms that generate trading signals. For those looking to improve on this strategy, there are online programs that allow traders to create trading algorithms.
However, no algorithm is perfect given that financial markets are constantly evolving and changing. Such algorithms are only good for those who develop them. Testing the algorithms on demo accounts is a must before using them when trading with a real deposit. Tweaking the algorithms from time to time is also important to keep them up to date.
Breakout and false breakout
The ability to identify breakouts and false breaks provides an easy way for the day trader to make a profit. However, when applying this strategy, it is necessary to have a clear understanding of some technical indicators. The list of indicators that are used with this strategy includes Bollinger Bands, Double Moving Averages, as well as RSI and MACD indicators.
During the day, an asset can trade within a given range, within a specific indicator, say, Bollinger Bands. However, over the course of the day, the asset may try to go beyond the range, that is, upward or downward. In these cases, the asset may try to get out in the overbought or oversold area.
If an asset tries to break up in the Bollinger Bands, it is said that the asset is in the overbought area. The day trader can use this opportunity to sell the asset back into the range. If the same financial asset tries to get out of the trading range, oversold conditions occur. When this happens, traders see it on the lower side of the Bollinger Bands. The day trader can use this opportunity to open a buy position. This is because the price in most cases tries to get back to the range in the event of a false breakout.
To be able to use trading breakouts and false breakouts, traders must have a solid understanding of the fundamental analysis of the asset being traded. This includes an understanding of the economic and financial data that drive the price of an asset. Many forex brokers provide traders with an economic calendar that can be used to keep abreast of various economic events that can affect the price movement of various financial assets.
Day trading takes time, skill, and discipline, but it is definitely on the list of strategies for traders who plan to succeed and make significant profits. Remember, there is no perfect strategy. Be prepared to change, improve and combine different approaches to get the most promising results. Day trading is a great opportunity to make significant profits in forex trading if you properly manage your risks and stick to a strategy. Be sure to check your percentage of profitable trades and keep it above 50%, and also choose the leverage in accordance with the strategy used, and day trading will bring you 5-15% profit per month.