Day trading – what is it
Day trad – what is it
Updated 18.02.2022

When trading on an exchange, there are strategies literally for anyone – for newbies and pros, for too careful and risky players. But one of the most popular and well-known to everybody remains the strategy of day trading. Let’s find out what it is about, why it is special, and how successful the strategy is.

How should we deal with day trading?

Day trading is available almost on any platform or exchange: Forex, securities market, cryptocurrency trading platforms. We should point out right away that this strategy cannot be recommended to everyone; however, we will try to provide advice on how to use it properly. In this strategy, you open and close all the positions within one working day. I.e. you receive all the income from instant price fluctuations on tools that you’re using. The term originates from stock exchange trading where all the positions tend to be closed before the night comes: that is because trading is open within particular hours there. But today day trading is applied when trading cryptocurrency too when there are no limitations to the working time.

How can people earn using day trading?

Of course, to make money on instant price fluctuations one should possess some experience, intuition, and a sound analytical mind. In their actions, day traders usually rely on a technical market analysis. To define the right moment to open or close a position, they need to be able to compare prices, technical indicators, chart patterns of price behavior, and many more. And it’s vital for day traders particularly to manage the risks the proper way. This approach (when we close all the positions within one day) doesn’t imply some fundamental analysis or long-term predictions. Decisions must be made quickly, and often are based on some hype that will surely influence the market. You may search for a tremendous amount of assets and work with them now when they are relevant because tomorrow no one will need them. But if you quit in time, you’ll get a pretty good income. Two main indicators in such trading are, surely, market volatility and its liquidity. Day traders always seek quick, effective deals having minimal risk of ‘slippage’ – as in such operations harmful consequences of it derive. To avoid this, liquid market pairs are used: for example, the currency ones. It’s possible to work with only one pair like that or pick several of them and alternate with each other within a week.

Behavior options in day trading

There are many of them, and each one has got its pros and cons. However, we would like to distinguish three behavior strategies that can be used by newbies:

  1. Scalping – that is a ‘careful’ strategy in day trading when you use small fluctuations of prices within a short period. Actually, the name tells itself. These may be either a Bid-Ask Spread, liquidity gaps, or some other less common peculiarities of the market. Traders choosing this option often work with futures and margin, increasing the income by ‘leverage’. But bear in mind that small fluctuations of prices don’t mean safe earnings: risk management in this strategy is a significant part of the process.

How are entry and exit points in scalping defined? They are defined by various tools, and one of them is, for example, the order book analysis. But remember the main rule: decisions in scalping must be made very quickly and in a balanced manner; it’s best for experienced traders. New players may lose the whole capital due to a wrong analysis of a situation.

  1. Trading in a range. A simpler and clearer behavior for a day trader when you focus on studying candlestick charts. What is important here is to find the right support and resistance levels and to understand when market reversal to one or another side takes place. By capturing the right moment, you may, for instance, short the position by going into it at a resistance level, and after that, leave it at a support level.

The main catch here is that to realize the assets, you need to work in a specific range; however, the market may break it any time! And that will result in serious losses for you. That’s why two things are to be done: firstly, to define long-term ranges, secondly, to insure yourself with stop-losses, understanding the market could change any moment. So, on one hand, this strategy will definitely do for newbies (although they must understand the range limits and candlestick charts), on the other hand, it does require specific preparation (RSI and MACD knowledge).

  1. High-frequency trading (or NFT). It may be called ‘quantum trading’ since the speed and frequency of the work with positions are defining here. Numerous trading bots working on special algorithms quickly open and close plenty of positions trying to get income in just milliseconds of the price fluctuation. The person here is responsible for initial algorithm adjustment and its possible debugging in the future.

It might seem like an attractive option: here it is – the gold mine. You have set the bots to trade and now can have some rest and drink lemonade in Haiti. But in fact, it doesn’t work like that. To make the right adjustments to the bots for NFT trading, you need to analyze the market, easily understand the monitoring algorithms as well as fine-tune them. And what if the market suddenly changes? Will the robot continue working like before, losing capital, or will it adapt to the changes and receive income? All the possible options must be foreseen.  In addition to that, two problems come up – the need to find information for analysis and a proven, efficient algorithm. Hedge funds that usually deal with NFT trading aren’t eager to reveal their cards to mere mortals. The situation with the bot is even funnier: you need to understand whether the seller tries to trick you or not; as who would have sold a good algorithm instead of trading with it yourself? That’s why, although high-frequency trading may seem easy, it will suit only experienced market participants.

How profitable is day trading for a newbie?

This strategy may be extremely profitable even for newbies…but as always, there are nuances. Will you be able to cope with nervous tension from day trading? Because you’ll have to quickly make responsible decisions that directly affect the amount of your assets. You will need to spend hours in front of a monitor, analyze, and risk – and even not every experienced trader may handle that. Readiness is what matters here: although it may sound like a paradox: to lose your assets, learn lessons, and keep moving. Because everyone makes mistakes in the beginning: and even the luckiest newbies do. Day trading is a perfect option for cryptocurrency trading since that is a market with high volatility. If you’re ready to take risks and learn lessons from your mistakes – start trading, and we hope this article was useful for your first steps.