Being able to match a trader’s individual personality and strengths with a specific technique, is perhaps the best way to begin day trading, in that it can vastly increase a trader’s chances of success.
Day trading is the practice of buying and selling financial instruments, such as securities, within the same trading day. Traders who practice day trading are called active traders or day traders. This field used to reserve for financial firms, fund mangers, investment firms, and banks. With the advent of electronic and online day trading, however, it has become accessible to almost anybody interested in the practice.
Strategies Used In Day Trading
As you can well imagine, there are nowadays a variety of strategies and techniques being used by active traders in order to ensure they can benefit financially. These include:
Contrarian Investing, News Playing, Rebate Trading, Trend Following
Contrarian investing is the day trading strategy that follows the ideology that assumes that financial securities that have been steadily rising will later on reverse and fall. The opposite view is applied to already falling securities.
News playing is a technique which relies on buying and selling securities based entirely on news which has been released by the specific company.
Rebate trading is another popular strategy which uses ECN rebates as the main source of income. Generally speaking, traders who use this strategy will usually purchase low priced securities in vast quantities.
Scalping is a technique which involves buying securities and then selling them within minutes, or even seconds. As a result, traders who use this strategy aim to profit from the small price gaps which occur almost immediately after a purchase.
Trend following is basically the exact opposite of contrarian investing, in that traders who use this strategy will usually assume that rising securities will continue to rise, while falling securities will continue to fall.
Other well known day trading strategies include the likes of ‘short sells’ and ‘range-trading’.
Finding the Right Strategy
Alarmingly enough, it is said that approximately 80% of day traders end up losing all their available capital before they manage to learn about the various trading strategies, and this is why it’s imperative to start out slowly, and to limit yourself to taking small risks. Below are a few tips which can help you in determining what the right day trading strategy for you is.
Matching the right strategy with the right trader – one of the most important things to bear in mind is that it’s essential to match a trader’s individual personality, their strengths, and also their comfort level, with the correct strategy. In other words, those who feel uncomfortable taking risks should rather consider scalping or news playing, rather than becoming involved with contrarian investing, which for the most part is best suited to those who are willing to take risks.
Start Small and Try Things Out – Starting with small investments is a good way for a new day trader to learn the pros and cons of a specific strategy. It is also a low risk of figuring out how the business works.
A day trader may also benefit from using more than one strategy at a time. In example, the trader can invest a majority of the capital using low risk strategies such as scalping and rebate trading. At the same time, a portion of the capital may be used to high risk, high yield strategies like short
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