The Various Day Trading Strategies Employed
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
There are several day trading techniques and strategies available to traders in order to help them generate a profit, but the basic strategies are as follows:
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, as the name suggests, is the technique of buying and selling securities based on news released by the company.
Rebate Trading is a trading strategy that uses ECN rebates as its primary source of income. This strategy usually involves purchasing low priced securities in large volumes.
Scalping on the other hand involves establishing and liquidating financial securities in a very short space of time. In fact, it is not uncommon for traders who follow this route to purchase and sell securities within minutes, or even seconds.
Trend following is the trading techniques, which is the opposite of contrarian investing. This strategy assumes that securities that have steadily risen will continue to rise and falling securities will continue to fall.
Other day trading strategies include short sells and range trading.
Finding the Right Strategy
Interestingly enough, statistics seem to suggest that approximately 80% of traders end up losing their available capital even before they’ve managed to learn about the various strategies. This is exactly why it’s so important to begin slowly, and to only take small risks in the beginning. Likewise, it’s of paramount importance to find the ideal strategy so that a profit can be made. Below are a few tips regarding how one should go about finding the right trading strategy.
Matching strategy with the trader – it is crucial to match a trader’s personality, strengths, and comfort level with a specific strategy. In other words, those who feel uncomfortable taking risks should focus on scalping, news playing, or rebate trading, while those who enjoy taking risks can go ahead and become involved with contrarian investing.
Starting mall and treading lightly – newcomers in particular should start out slowly by making small investments, as this will afford them an opportunity to learn about the different advantages and disadvantages regarding the different strategies.
Day traders can also benefit from using more than one strategy at a time. For example, a trader could consider investing the majority of there capital using a low risk strategy, while at the same time investing a small portion of their capital using one of the higher risk categories such as contrarian investing.
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