Random Thoughts on Day Trading (for the uninitiated)
let's call is .....
"So you want to be a Day Trader"Questions
1.Do you have the time,capacity & mental agility to devote hours before the trading opens to prepare your list of potential opportunities and then the patience to idly sit all day in front of a PC until you buy and sell the stock (if an opportunity arises).
2. Do you have other responsibilities which would hinder this process.
3. Have you ever traded before.
4. Do you have a Trading Plan.
5, Do you have appropriate software to assist in this endeavour and are comfortable with the use thereof.
6. Are you competent in developing charts, entry points, stop losses and potential profit targets.
7. Have you, if you are in a relationship, talked about this venture with your partner and all are in a agreement.
8. Are you easily depressed and crave human interaction.
9. Have you set a ceiling on how much you are prepared lose on this journey.
Now the reality - if you did not answer yes to all 9 please do not day trade - there are better ways to give away money. Donate to a charity, as at least that way you will have a legitimate tax deduction and will be doing something beneficial.
Psychology- As in any form of trading psychology is paramount to your success.
- Day trading will give you a quick adrenalin attack when a trade works but can likewise be a brutal reality check when it fails - do you have the psyche to cope with failure?
- Do you have the capacity to wait for your entry point or are you prone to being impatient?
- It has been proven that young traders are less patient, more docused on getting rich quickly and gravitate to day trading.
- Prove that your methodology works by paper trading for a few months and keep a detailed analysis of each trade.
Risk Management- Never enter a trade without predetermining your stop loss and faithfully stick to that plan.
Types of Day Trading Strategies1.Scalping
Perhaps one of the most popular day trading strategy as it is easily automated and rarely set on higher than the H1 timeframe. Scalping can be used in trending and ranging markets, quickly getting in and out once there is a small hint the momentum is dying out. Scalping therefore often employs a momentum indicator that registers sudden shift as an entry signal. When you look at the chart it looks likepeaks and throughs are scalped during the trade.The idea of day scalping strategies is to capitalise on the strong momentum as the price is unlikely to resist it unless there is decreased liquidity in the market.When the market is trending, scalpers usually take only trades in the trend direction that gives them stronger pushing momentum.
2. Price Action Patterns
Price action patterns and levels identification is where your skill to read the charts comes into play.This method applies to any asset and any timeframe, so it can be used for day trading as well.However, Price Action requires morereliable points that are not overruled often because of the noise.If you are trying to make a strategy intolower timeframes, it may be wise to avoid 1M and 5M timeframes. 15M and higher are more reliable signals will be more reliable and many price action day traders consider the higher timeframes before confirming with an intra-day trading entry.Therefore, you will find fewer signals with this method than with any other day trading strategy.
3.Intra-day Range Trading
This is a kind of channel day trading when there are no established trends on a higher timeframe.Day traders like to employ this strategy when they face low volatility or volume in the market.To find out if a market is ranging they use volume or volatility indicators, yet some just read the candlesticks’ highs and lows.Certain day traders enjoy ranging periods in between trading sessions.Momentum and channel strategies create relevant Supply and Demand channels.
4. Trend Following
Day Trading strategies use this methodduring evident activity on the market.Trends could be caused by a news event or a fundamental long-term driver on a higher timeframe.
Look at the inexes charts that
@mirren posts and you will see consistent trends. This is a great time to employ a day trend-following strategy that generates profits as long the trend persists.Day traders using those trading strategies usually wait for the volume or volatility to pick up and then jump in.One of the basic rules of this strategy isnot to trade against the prevailing trend- assimply because the odds will be against you.
"The Trend is your Friend" is a greta line to remember.
5. News.
When news breaks on either a stock or a sector be prepared.It can be risky and I would not suggest until you are more adept.
IndicatorsDetermine what indicators you will use to frame your entries and exits
List includes MAs,RSIs, Stochastics,Bollinger Bands,
Develop your strategy and follow it religioulsy
Enjoy the journey young grashoppers
