What is your favorite trading strategy you prefer since you began trading? How did you come to settle on that trading techniques? Generally a believe by expert is that one should come to terms with at least 5 methods of trading before settling on the most effective one. Lets have a look on Day trading method of trading.
What is Day trading?
Day trading is when a trader open one or multiple trades in financial instruments and close the trade same day.
How day trading work?
When using day trading, the trader will have to open a trade in the trade-room and either go long(buy) or go short(sell) a financial instrument offered in the market. Once the trade is opened the trader observe the market trend and wait when to exit or close the market to realize either profit, loss or canceled, balanced, equal(which is very rare to happen) depending on the market exit price within seconds, minutes or hours of the same day.
Since the day trading method involves a lot of technical analysis, it may be a suitable option for traders who like to analyze price charts and apply technical tools.
This might be time-consuming, especially when you are getting familiar with the trading platform and testing different instruments.
After you pick the most effective tools and learn to identify potential trades, you might spend less time in the trade-room.
Different analysis tools exist to help analyze prices and trends of financial instruments. Here are some of those instruments:
1. Candlestick patterns
2. Fibonacci retracements
3. The Moving Average (MA)
4. The Moving Average Convergence Divergence (MACD)
Is day trading profitable?
Depending on the market and the trade this can be profitable. However there are other benefits of day trading. Here are some of the advantages:
1. No overnight factors exposure.
What this has for the trader is price changes or volatility during overnight or weekends will not affect a trade in day trading since all trades will be closed within the same day.
2. Being in control of your time.
The the benefit of time flexibility where no time restrictions or control is over you since most trades will be done online. No request or permissions are required to enter in a trade, all responsibility lies on you.
3. Access to in-time free information.
Generally information is available in the internet. When it comes to day trading trends and news are available to help the trader enters the market on the right time to ensure the trade is profitable.
4. Control in Bad Market Volatility.
When trading on a financial instrument and you come across a bad condition that is going to affect the trade in the near future, what will you do? Yes, the answer you have it. Pull out or close the trade before it majorly affects your account status. May it prevent major loss or to keep already accumulated profits the decision may be made as soon as possible.
5. Major focus on technical Analysis on the financial instrument.
Since the focus is only the same day trade a trader will not be concerned on how the product may have performed in the past, years or months, (fundamental analysis) to open the trade. All the trader may focus on may be current trend of the product to enter on or open a trade.
However, there are also some down side associated with day trading. Here are some of this disadvantages:
What are Disadvantages of Day Trading?
1. Risk on invested funds.
Just like any other trade, day trading come with its' own risk on the invested capital. In this case one is warned to invest what is will and able to handle incase of making loss. Also Generally, observed a trader may consider using 1% - 5% of the portfolio value to prevent major losses and ensure manageable risks when investing in any financial instrument.
2. Time consuming.
When entering in day trading one has to spend lots of time in trade-room monitoring price change to estimate the right time to open and close the trade.
3. Faster decision making.
Since when day trading it will involve little time in a trade unlike swing trade, the trader will have to make a decision quickly based on the best judgement to maximize profits or minimize loses.
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