Day Trading strategy

Day Trading is an investment technique that comes to us directly from the United States, but is becoming increasingly popular in Europe. The objective here is to make a long series of sales and purchases in one single day in such a way that all positions are closed before the end of the trading day.  

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Day Trading strategy

What exactly is Day Trading?

The Day Trading method therefore consists of making many small profits that are increased through the leverage effect and over a very short period of time. They are therefore based on the volatility level of the market. For this technique to function well, the profits are never large individually, generally offering around 1% on each transaction.

You must also accept that it may be necessary to sell at a loss if the markets are getting ready to close as you must not keep any positions open which may leave you vulnerable to extra risks. Here therefore, the objective is to make the maximum of profitable trades and a minimum of trades at a loss in order to end the day with a profit balance.

The Day Trading technique can appear profitable but it requires a certain amount of knowledge and a clear head to face the challenges as it is necessary to be available to pass orders in real time and resist stress and an overconfidence in yourself.


The conditions required to be successful in Day Trading:

Day Trading is a technique that requires a certain amount of preparation but also favourable market conditions. For example, it is only applicable to assets that have a high volatility and clear short term trends. The higher the volume traded on an asset, the stronger the volatility and therefore the better the Day Trading technique will work.

We therefore recommend that you opt for the more popular shares on the markets, those that have a large number of buyers and sellers.  Generally speaking, the shares quoted on the major stock market indices are choice assets for this technique. To maximise your chances, favour American indices that, as they are better known, offer a higher liquidity. Futures can also be interesting assets as they offer a high leverage effect which is ideal for Day Trading.


How much money should be invested in Day Trading?

In order for day trading to be a profitable method, it is necessary to have seed capital or to be able to manage the risks associated with the use of significant leverage. Even though, to minimise the risks incurred, try to avoid positioning yourself on too many assets at the same time and concentrate on just one or two.

Therefore you can only envisage a start in your Day Trading career if you have several thousand Euros in your investment account. Remember always to verify however that the spreads practised and other fees do not offset your profits.


Choosing the right broker to practise Day Trading:

To accomplish profits through Day Trading, it is important to carefully choose the broker you subscribe with. In fact, the various fees charged by certain brokers could interfere with your strategy by covering a too large part of your profits.  

You should therefore verify the spread levels used by the brokers before making your choice and always choose a broker that is inexpensive.  

Of course, the quality of the customer service and that of the platform itself should not be ignored. You will need an interface that is both efficient and rapid to ensure that your orders are processed at the exact right time. Ideally you should test your strategy using the demonstration accounts available with the majority of online brokers.


Some supplementary advice:

Here is some useful advice to apply for Day Trading: 

  • Isolate yourself as much as possible and avoid anything that could distract you.
  • Do not follow more than 4 assets at the same time.
  • Cut off your profits below 4%.
  • Cut your losses below 10%.
  • Take regular breaks to ensure you remain concentrated and do not give in to stress.
  • Do not trade for more than a few hours every day

In a general manner, it is best to practise and train first before placing all your money in Day Trading as although this method can prove highly efficient it requires a certain experience and great concentration, it is therefore not suitable for all traders.


Micro-trading: An intraday strategy

Micro-trading is a stock market investment method that is highly effective but a little unusual in that you need to understand and master it perfectly to speculate effectively on any of the financial markets.

Here therefore are some explanations that will enable you to learn more about this speculative strategy.


Definition and principle of micro-trading:

Micro-trading is a stock market investment method that entails using the first quotes of the trading session to make significant profits. It is therefore what is called an ‘intraday’ strategy that requires availability at specific times.

The first hours of quotations are in fact those where the volatility is generally highest, it is therefore the best time as the traders are very active.

To dedicate yourself to micro-trading you will therefore need to know the exact opening hours of the different markets.


The required basics for micro-trading:

As the micro-trading strategy is a little delicate it is particularly suitable for experienced investors that are used to speculating online and already know the stock markets well including their operation.

However this method is also particularly suitable for traders that are not able to spend a lot of time on the markets although it does require a daily consultation.


Practical micro-trading:

To effectively practise micro-trading it is best to choose technical indicators. The stochastic charts should be favoured here with a time unit of one minute; these are the most suitable for this speculative method.

Start therefore by displaying a 21 period stochastic chart in one minute units at the exact moment the market opens then wait until this indicator shows an overpurchase zone, that is one that displays over 80, or oversold which is less than 20. You can then take position on where the two lines of the stochastic chart cross over. You should of course take a buy position if the crossover is in a zone of oversale and a sell if the lines cross in an overpurchase zone.

But beware, once you have passed all these steps you must support your wins and limit any possible losses by judiciously placing stop orders, preferably on intermediate valleys or successive peaks.


The advantages and disadvantages of micro-trading:

Micro-trading offers advantages and disadvantages that you should know and master. Here are the major advantages:

  • A major saving in terms of time as here you only trade for an hour each day.
  • A high management simplicity as the chart indicators obtained enable easy position taking with a valley or a peak and a precise identification of the stop levels that are very close to the entry points.
  • An interesting opportunity to diversify your investment portfolio for traders that normally prefer long term trading.

Regarding the limits of micro-trading, these include:

  • The need to invest in a market exhibiting high liquidity such as the shares markets, futures or currencies.
  • A high stress level which requires the trader to possess great self control including their emotions.
  • A technique reserved for highly experienced traders and the most reactive with indicator analyses.


Some supplementary advice:

If you are a beginner it is not recommended you start speculating using micro-trading as you should first be able to master all the different associated technical indicators. 

When you engage in micro-trading ensure you remain completely alert during the hour you spend each day on the markets.

Finally, do not hesitate to test different strategies taking into account the macro-economic indicators that could influence the rate.


How to analyse the market for successful Day Trading?

The Day Trading method aims at speculating on micro-movements in the market, we therefore do not take into account the information resulting from fundamental analyses. On the contrary you should rely on the technical analyses of charts, with emphasis on the Japanese candlestick type charts.

There are numerous technical indicators that enable you to identify the best times to take position. These include the support and resistance levels, gaps and volatility analysis. 

You therefore need solid experience in this subject to rapidly become a profitable day trader.


Intraday trading using CFDs:

CFDs are the ideal trading instruments for practising intraday trading. Contracts for the Difference actually enable you to benefit from more profit opportunities and can offer a beneficial leverage effect for maximising your profits (but also the risk of losses) over a short term period with low rate variations.

CFDs offer the opportunity of taking position on the purchase or sale of a large variety of assets. Therefore, whether the rate is experiencing a rising or falling trend you can still complete profitable operations. The variety of assets offered by the CFD trading platforms is also highly diversified and therefore very appealing. You can speculate on numerous British and international share prices as well as other types of assets such as bonds, stock market indices, commodities and foreign exchange. More than enough assets to increase the chances of finding some every day that are highly volatile at that time.         

The leverage effect offered by CFDs is also an interesting tool although it is reserved for seasoned traders because it allows you to significantly increase your earnings in the event of winning positions and even on a small price differential. It also works the other way around and increases your risk of loss in losing positions. Concretely, the leverage effect multiplies your investment by a multiplier coefficient generally between 10 and 30. Your wins or losses are multiplied by the same multiplier and therefore a difference of only a few Euros can rapidly make you far more profits.  Of course the losses are also multiplied so you should be careful not to take too much risk. This is why we recommend you use a weak leverage effect unless your strategy is well honed and you have a very strong probability of winning. Placing a stop limit order at the right place also enables you to limit your risks.  

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76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.