Unlike long-term investment, day trading involves buying and selling assets within a day. That’s why it requires proper attention and quick decision-making.
Day trading is exciting yet complex and daunting. To achieve success, you need a clear and well-defined strategy. Otherwise, you will soon end up disappointed, eroding your entire account balance.
In this article, we will discuss in detail what the common day trading strategies are and how you can choose the right one.
What are Common Day Trading Strategies for Beginners?
Some efficient strategies that can help you trade confidently in volatile financial markets include:
Scalping
It is a fast-paced strategy that aims to profit from many small price changes throughout the day. In scalping, you need a high win rate and strict discipline to cut losses quickly, as a single bad trade can erase all your small gains.
Using margin accounts in scalping can increase your gains. They allow you to leverage small price movements into larger potential profits through borrowed capital. But before you begin, it is wise to understand what is a margin account and how you can take advantage of it.
Range Trading
In this strategy, you buy a stock at the support level and sell it at the resistance level, aiming to earn profits.
Momentum Trading
Momentum trading involves trading securities that are showing significant movement in one direction. It is often due to news or high trading volume. In momentum trading, you enter a trade early in a trend and exit before it starts fading out.
Trend Trading
Trend trading is all about identifying and following the general direction of the market. You have to buy assets during an uptrend, when prices rise, and sell them during a downtrend.
Factors to Consider When Choosing Your Strategy
Are you a beginner day trader wondering how to choose the best strategy to get started? Consider the following factors to make an informed decision:
Available time
If you are interested in becoming a full-time trader, consider fast-paced strategies like scalping. On the other hand, those who have less time for trading should prefer slower styles, such as swing trading.
Risk tolerance
You must assess your comfort level with risk. No doubt, highly volatile strategies offer high reward potential, but they also carry significant risks.
Discipline and temperament
Day trading requires emotional control. If you struggle with impulsive decisions, you need a strategy with clear and predefined rules.
Market focus
It is essential to consider the type of market you want to trade. Some strategies, such as scalping, are best suited for highly liquid markets like Forex, while others are more effective for stocks.
Key Steps Before You Begin
You must follow these key steps before entering financial markets for day trading:
- Gain a solid understanding of market fundamentals, technical analysis, and risk management
- Create a detailed trading plan according to your goals andrisk tolerance
- Atthe start, you should use a small amount of your capital
- Do not forget to implement stop-loss orders to limit potential losses on each trade
