5 Day Trading Strategies That Every Beginner Must Try
Day trading, also known as intraday trading, is the process of actively buying and selling stocks, NFTs, and assets within a day to take the benefit of small lucrative moves. It is the job of highly skilled traders, who have thoroughly done market research and make diligent decisions.
There are different day trading strategies, some are simple while others are complex and involve inspection of market cap, fundamental analysis, technical indicators, growth and value factor, risk tolerance, leverage, and much more.
Table of Contents
Basic Things To Consider When Starting With Day Trading
Knowledge is Power
As they say; “Knowledge is Power.” Knowledge of the latest stock market events and news is essential for a day trader. Before buying and investing in stocks, you have to do your own research and create a list of the stocks you would like to buy and trade. Keeping an eye on the latest news and trends can benefit you a lot.
Before getting into the details, the important thing for a new trader is to start small. When starting, focus on one or only two stocks and find opportunities in only that. Tracking a few stocks is easy when you are a beginner. You can even go with trading fractional shares, where you can purchase a fractional share with smaller dollars.
Keep Funds Aside
When starting out, you have to set aside a surplus amount of funds that you are willing to trade and lose as well. Always access the capital you are willing to risk in any trade. This way you can minimize your loss and avoid getting broke. Do not invest from your hard-earned money or savings. Only try to invest in stocks from the extra amount you have to play with.
Trading Demands Time
Day trading requires time from your daily hours. If you have a limited amount of time then day trading is not for you as it requires keeping an eye on trends and news. Allocating certain hours of your day for trading might not help as many beneficial trading opportunities can arise at any time of the day.
Go With Penny Stocks if You Have Done Your Research
The popularity of penny stocks has skyrocketed over the past few years as many people gain interest in it. Any stocks trading under $5 are termed as penny stocks according to the Securities Exchange Commission. As the low investment has allured many traders to buy penny stocks but mostly end up losing money because of volatility involved with them.
Many stocks are tradable only in the over-the-counter market as they are delisted from major stock exchange markets. It is better to avoid such stocks and go with stocks listed on the NYSE and NASDAQ.
While seeing the profit opportunities and dreaming of becoming a millionaire, you have to do thorough research and go with stocks that have the highest probability of making a big move and a strong run.
Go With Limit Orders Instead of Market Orders
To enter and exit the trade, there are two types of orders – one guarantees the price while the other guarantees execution. A market order gives the best price available at the time when you are trading. In a limit order, you trade with the price you set, and it helps you trade with more precision. It is not guaranteed that the order will be executed, as the market might not come to that limit.
You Have to Be Realistic About the Profits
Many day traders win only 50-60% of their trades as the followed strategies do not have to be profitable all the time. Before investing, make sure that the risk is limited to a specific percentage on each trade.
Stay Calm and Cool
Let me tell you one thing; the stock market is likely to test your nerves. Things you need to stay away from are greed, fear, and hope. Your decisions should be based on logic and not emotions.
Stick To Your Plan
Do not always chase profits. Successful traders have developed trading strategies and have stuck to them instead of being propelled by their emotions. A famous mantra among day traders is;
“Plan your trade and trade your plan.”
So, develop your own plan and stick with it.
Common Day Trading Strategies That You Can Follow
There are many day trading strategies that one can follow, and we are listing some of them.
1. Scalping Strategy
Scaling is the most famous and best trading strategy among traders. The philosophy behind this strategy is that by the end of the day small wins add up to a lot of money. It is the fastest way to achieve something and only a game of confident and quick decision-making traders. The traders are quick to make decisions and sell stocks whenever they witness a decline to minimize the loss. If you lack the ability to make quick decisions, then this strategy is not for you.
Drawbacks of Scalping
While there are many advantages of the scalping strategy, some drawbacks are that it requires discipline, and creates a tense environment for the traders.
2. Fading Strategy
Fading is a strategy that involves shorting stocks, as it moves upward. It is a sort of risky strategy but quite profitable as well.
3. Momentum Strategy
In this strategy, the investor buys the stock when the price is really moving up. Such stocks are very rare to find. You can look for certain qualities in stock if you are planning to follow a momentum strategy.
- A major positive shift in the price of the stock or news of a larger firm acquiring a small company.
- 30 to 40% stocks movement.
- Using tools to check the trends of stocks
4. News Trading Strategy
Stocks react quickly to the latest business news. Thus a good day trader keeps an eye on the business news to fully capitalize on it. When the news is good, you can buy the stock outright, and when the price rises you can sell the purchased shares. Investors short sell when they hear bad news. This technique can lead to high volatility and increased changes in profits and losses as well. You can even capitalize on marketing expectations and reactions when news is released.
5. Contrarian Investing Strategy
In this strategy, the investor buys a stock during the fall, and short sells it during the updip. If you are just starting out, you have to be laser-focused to do this strategy as it needs constant updates of the market.
The riskiest form of trading is day trading. Not only do you have to bear any financial losses, as a wholesome amount of money can be lost in the trading but it also requires time and skills.
Day trading patterns and charts can also help you to get an idea of which stock to buy and when to buy it.
Some Other Day Trading Strategies
- Trend Trading Strategy
- Position Trading Strategy
- Swing Trading Strategy
While we have listed some of the day trading strategies, you might have some questions. We are trying to answer some common queries that are likely to pop into your head.
Which is The Easiest Trading Strategy For a Beginner?
We are not only going to tell you the easiest strategy but also the tricky one as well. As a beginner, you should go with following the trend strategy as “the trend is your friend.” Whatever you can interpret from the trend, implement it. However, the tricky and difficult strategy for the beginner has to be following the contrarian strategy. It involves going against the flow and buying stocks when it is falling and going short when the stock is rising. Only a pro trader can be able to implement this strategy and go against the market flow. Trading the news, and scalping also need quick-decision making ability to make a profitable living out of stocks.
Why Can’t One Make Money Consistently From Day Trading?
Day Trading requires expertise, skills, and knowledge to consistently make money from it. For beginners, day trading is not easy, and they might find implementing strategies quite difficult. Sticking to only one strategy can also be difficult. However, if you become a pro in various day trading strategies, you can easily excel in this field, and make a profitable trading business.
What Should Be Your Next Step?
Once you know about all the day trading strategies, your next step is to test these strategies and see what works best for you. You can create a demo account to test and learn them and pick the most profitable one. You can start with virtual funds, and then move to a fully funded account.
Building an asset for yourself takes time. You can choose different ways to make a profitable source of assets for yourselves, and day trading is the opportunity almost everyone should consider once in a while. If you are in stocks, you can find various trading strategies and by implementing them, you can identify the one that works best for you. We have listed some popular day trading strategies for beginners that might be helpful for you.
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Author: Dumb Little Man
At Dumb Little Man, we strive to provide quality content with accuracy for our readers. We bring you the most up-to-date news and our articles are fact-checked before publishing.
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