Day trading is another short term trading style, but unlike scalping, you are typically only taking one trade a day and closing it out when the day is over. These traders like picking a side at the beginning of the day, acting on their bias, and then finishing the day with either a profit or a loss. They DON’T like holding their trades overnight.
Day traders are suited for those that have enough time throughout the day to analyze, execute and monitor a trade. If you think scalping is too fast but swing trading is a bit slow for your taste, then day trading might be for you.
You might be a day trader if:
- You like beginning and ending a trade within one day.
- You have time to analyze the markets at the beginning of the day and can monitor it throughout the day.
- You like to know whether or not you win or lose at the end of the day.
You might NOT be a day trader if:
- You like longer or shorter term trading.
- You don’t have time to analyze the markets and monitor it throughout the day.
- You have a day job.
Some things to consider if you decide to day trade:
Stay informed on the latest fundamentals events to help you choose a direction
You will want to keep yourself up-to-date on the latest economic news so that you can make your trading decisions at the beginning of the day.
Do you have time to monitor your trade?
If you have a full time job, consider how you will manage your time between your work and trading. Basically….don’t get fired from your job because you are always looking at your charts!
Types of Day Trading
Trend trading is when you look at a longer time frame chart and determine an overall trend. Once the overall trend is established, you move to a smaller time frame chart and look for trading opportunities in the direction of that trend. Using indicators on the shorter time frame chart will give you an idea of when to time your entries. For an example of this style of trading, visit Pip Surfer’s blog as he trades his world-renowned Cowabunga System.
First determine what the overall trend is by looking at a longer time frame. You can use indicators to help you confirm the trend.
Once you determine the overall trend, you can then move to a smaller timeframe and look for entries in the same direction. Remember this? It’s called Multi-time Frame Analysis!
Counter trend trading is similar to trend trading except that once you determine your overall trend, you look for trades in the opposite direction. The idea here is to find the end of a trend and get in early when the trend reverses. This is a little more risky but can have huge payoffs.
In this example we see that there was a long and exhausted downtrend on the 4hr chart. This gives us. an indication that the market may be ready for a reversal.
Since our thinking is “counter-trend”, we would look for trades in the opposite direction of the overall trend on a smaller timeframe such as a 15 minute chart.
Remember that going opposite of the trend is very risky, but if timed correctly, can have huge rewards!
Breakout trading is when you look at the range a pair has made during certain hours of the day and then placing trades on either side, hoping to catch a breakout in either direction. This is particularly effective when a pair has been a tight range because it is usually an indication that the pair is about to make a big move. Your goal here is to set yourself up so that when the move takes place you are ready to catch the wave!
In breakout trading, you determine a range where support and resistance have been holding strongly. Once you do, you can set entry points above and below your breakout levels. As a rule of thumb you want to target the same amount of pips that makes up your determined range. Make sure you check out our “Trading Breakouts” lesson so you get this down pat!