Simply put, “day trading” is a phrase used to describe any trading strategy that does not involve taking overnight positions. That's the wiki definition...which is also the classic textbook definition of what Day trading is. The biggest advantage of day trading is that you avoid falling victim to unforeseen global events. By day trading you limit your exposure to unanticipated market movements that can take place in other markets overnight or if there is macro news that hits the wire before the markets you trade open. This lets you elevate unneeded stress which will allow you to get a good night’s sleep as you prepare to take on the market when it next opens. The bottom line advantage to day trading is it limits your exposure to macro/overnight events...for some, like me, that's huge!
Day traders generally seek to profit from small and frequent market moves... generally, but not always. Our team on the other hand hunts volatility with stocks and options. We are looking for pure Alpha!!! My discipline as a Day Trader is to consistently implement an efficient and effective day trading strategy that can use tools like price action and volume, with the help of technical indicators to forecast short-term market movements as accurately as possible. This is something that I personally do, on both the long and short side of the market. I have come to understand that I have an incredible edge when it comes to shorting...with that said, I'm always looking for a great short set up!
There are clearly a variety of trading strategies that can be lumped into the broad day trading category as long as they do not involve holding positions overnight.One of the more well known examples of day trading is mentioned below...As much as I like it, I tend to trade breakouts that lead into intraday momentum!
Scalping is a popular day trading strategy that aims to take numerous small profits on trading positions with very short durations. I have personally done some great scalping in the past but it's not part of my "bread and butter" approach. I personally love breakouts & breakdowns...as well and continuation plays. To be an efficient Scalper you must have ultra-fast reaction times and often enter and exit trades within seconds or minutes… to be good at scalping you must have faith in your strategy as well as have little to no thought process prior to entering a play! They also need to time their entry levels well, choose high probability trades in highly liquid and volatile assets, and quickly cut losses.
Side note: A lot of new participants practice scalping because you can practice scalping with a demo account. Participants will generally expand their knowledge base from there.
After years of trading I personally love trading Pattern Breakouts!
Day traders often watch price action on charts to identify patterns that have predictive moves. Some of the most common, well traded patterns are flags and triangles. Once the market breaks out of the pattern, it can set up an objective that suggests how far the market might continue to travel in the direction of the breakout.There are profit target taking tools that we use that determines the highest probability exists. Once a breakout occurs, day traders will typically set up a trade in the direction of the breakout and then aim to close the trade near the computed price objective...stops and time stops are also implemented.
Many day traders monitor various price charts for the assets (stocks, options, commodities, FX & Crypto) they actively trade. Side note, there is a ton of value having a scanner or a basket of stocks that you track) . Traders will draw trend and retracement lines on the charts to suggest target levels and determine where support or resistance points are likely to show up...these are areas of "structure". Areas of structure are areas where price action has the best chance of experiencing volatility...and that's what we need to trade!
Without a doubt every trader needs A trading platform. A good trading platform will generally incorporate technical analysis and charting functions, have order entry and position management abilities, and display a high-quality financial news feed that day traders often need to watch just in case any market-moving news breaks.
It's So Important To Keep A Trade Journal...it's a MUST!!!
Keeping an accurate record of your trades throughout the day can provide valuable insight into how your trading is going and where improvements need to be made. I personally promote tracking your trades in blocks of 20. It's tough to see where you're consistently committing errors if you're looking at a small sample set of trades. That's why I strongly suggest reviewing your trading log after every 20 trades.When journaling your trades, you should explain why, where and in what size you initiated a trade. It's important to document and track everything...the greater the tracking the better! You can also add the signals you used and what results you observed, including whether the trade was profitable and to what extent...those Metrix will allow you to theoretically future pace where you'll be moving forward.
A trade journal helps you review your day trading mistakes so you can hopefully avoid repeating them in the future. Some day traders keep a journal on paper or in a spreadsheet, while others might use a trade journal via their brokerage account. I personally write everything down. I have close to 10 years of trading journals.
When the trading day is over, your success as a day trader will depend on what strategy you operated and how disciplined you were in implementing it. Remember that complexity is often not advantageous when it comes to formulating a strategy. I follow and teach the KIS model. It's super important to me to keep things simple. If I can't successfully explain my strategy to a 5 year old and have them not understand it...it's too complicated! Bottomline: the easier your strategy is to implement in practice, the more likely you are to be able to profit from it during fast markets and over multiple assets.
In most cases, technical analysis plays a key part in your day trading strategy because of its notable success in forecasting short-term market moves. Technical analysis can even be used to validate potential trades.
Day trading for beginners involves patiently developing a strategy that works for you…
I have been actively trading and coaching for close to 10 years...my goal is to help as many people as possible. Please feel free to reach out anytime with any questions!