Day trading is a short-term form of investing in the markets. Day traders look to buy and sell the price of an asset during the same trading session; sometimes multiple times a day. But what are the best indicators for day trading and do you have the right personality to learn to day trade? Let’s find out.

  • Swing trading vs day trading: What’s the difference? Day traders stick to their own rules by always closing their open positions by the end of a trading session.

  • Day traders lean heavily on day trading signals and patterns to pinpoint the right price to open and close positions. These signals are usually identified by support and resistance levels.

  • Day trading covers all types of financial instruments. It’s possible to day trade Bitcoin, stocks, indices, futures, options and forex pairs.

How does day trading work?

A day trader relies on two things to make money daily from the financial markets – price action and liquidity.

If an asset is moving up and down in value within a matter of minutes or hours, day traders look to take small, frequent profits on these fluctuations. They only do so when there is sufficient liquidity to enable them to get in and out of the markets fast.

To execute orders into the market, day traders rely on a broker to handle this on their behalf. Contract for difference (CFD) brokers are some of the most agile options for day traders as it allows them to speculate on the price of an asset falling as well as rising.

That’s because you can go long (buy) or short (sell) on an asset when you’re only trading its potential value instead of owning the underlying asset.

The best day trading platforms make it easy to monitor the markets and manage open positions with speed and accuracy. Any day trading app worth its salt will also allow you to set stop-loss and take-profit orders to set the risk-reward ratio of each trade.

Intraday trading strategies

As with all forms of trading, day trading has its own elements of risk. No matter how well prepared a day trader is, there is never any guarantee the price will move in the direction they expect.

Day trading strategies are handy to form a data-led opinion on an asset’s price. These strategies can be paired with any fundamental analysis, such as positive or negative news or press releases on an asset to support a trading plan. Here are three day trading strategies to consider for anyone looking to learn day trading methodology:

  • Scalping

    This volume-based approach sees traders open and close multiple trades for small but frequent profits, which can accumulate into a tidy sum at the end of a trading day. Scalpers rely on tight stop-losses to minimise losses on each trade.

  • Momentum trading

    Day traders may use technical indicators to find assets where there is significant upward or downward momentum in their price. Providing the trading volume continues to follow the trend, day traders can piggyback the momentum and ride it up or down until the trend fizzles out.

  • Support and resistance trading

    Day traders will monitor assets to see when their prices reach support and resistance levels. They may look to trade within this range, providing it’s stable i.e. go long at the support level and short at the resistance level.

Is day trading for you?

One of the best day trading tips you’ll find is that it’s not an approach that suits everyone. Day traders are highly disciplined. They accept losses and aren’t prepared to leave positions open overnight in the hope that a losing position becomes a profitable one.

They’re also highly patient and don’t dip in and out of the markets unless it meets their trading plan. Day trading is about endurance. It requires high levels of concentration and durability to take losing streaks on the chin and not let them affect their overall judgement. Sometimes that durability requires them not to trade and chase losses and wait for the next legitimate opportunity instead.

How to get started with day trading

Keen to learn how to day trade the markets? Here are five day trading tips to get you started:

  1. Only trade with funds you can afford to lose

    Scared money is never good money to trade with. Deposit money into your trading account and consider it gone forever. If you make a profit, so much the better.

  2. Focus on risk management

    Become a master of stop-loss and take-profit orders. Decide the best risk-reward ratio for your day trading style.

  3. Familiarise yourself with technical analysis

    Check out our guide to technical analysis and get to grips with day trading patterns.

  4. Start by day trading the assets you know best

    Put your money where your knowledge is – and if you need to further your trading education, we’re here to help.

  5. Choose a reliable CFD broker that gives you the leading edge

    At INFINOX, we’re fully compatible with industry-leading day trading platforms like MetaTrader 4 and MetaTrader 5 to help your trading bank to grow.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

All trading carries risk.