For novice traders, choosing day trading strategies is often preferable to a short-term approach. This method is less mentally exhausting and allows for results to be observed within a few hours, which can significantly boost confidence.
In day trading, traders have ample time to analyze and make decisions, do not need to monitor charts and avoid swap fees constantly.
In this article, we will review the basics of Intraday Trading. Readers will become familiar with stock selection methods and suitable time frames for implementing day trading strategies. Additionally, you will learn critical techniques in this field and benefit from practical examples to enhance your trading system.
The following section examines essential day trading strategies for beginner traders. Day trading refers to entering and exiting trades within a single trading day, regardless of the placement of buy or sell orders. The important aspect is that all trades must be closed before the end of the day, avoiding swap fees.
In day trading strategies, although it is not strictly necessary to adhere to the rule of closing trades within a single trading day, it is better to keep trades open only when observing a strong and reliable trend to achieve optimal results.
A key advantage of day trading strategies for newcomers is that swap fees are not incurred. These costs can be seen in each instrument’s “Contract Specifications” section, and these fees may triple at certain times. Novice traders might lack the experience to calculate all fees accurately, which can significantly impact their trading results.
In day trading strategies, there is ample time for decision-making. Time frames are available for deciding when to enter trades and profit from short-term trends.
The trading process in these strategies is straightforward. In M30 to H1 time frames, there is no need for continuous chart monitoring, and trading results are visible by the end of the day, which provides psychological and emotional benefits.
Additionally, the initial capital required for this type of strategy is relatively low. Various methods exist for setting stop-loss levels, and traders should place them at an appropriate distance from the entry point.
The only limitation of these strategies is their limited profit potential compared to long-term strategies. However, on the flip side, the risk of loss is lower with these strategies.
Finally, types of day trading strategies include short-term scalping, swing trading, channel trading, impulse trading, and trend-based strategies, all of which will be explained in this article.
To implement a successful day trading strategy, traders should focus on several key elements:
A trading plan should be defined as an algorithm to achieve objectives. Having clear goals in life enhances motivation for learning and skill development to achieve those goals.
To create an effective day trading strategy, traders should pay attention to the following principles:
Understanding Market Conditions and Using Key Parameters in Day Trading
Success in trading depends on having a suitable trading system, adhering to it, and maintaining psychological stability.
This section will introduce top-day trading strategies, including signals and entry and exit points.
Trading Based on Fundamental Analysis
One such strategy is trading based on fundamental analysis. The impact of news and economic data on asset prices can vary in both the short and long term.
The key aspect is how the market reacts to this information and which direction it will take. In news-based trading, there are two common approaches:
Attention to forecasts is crucial. For example, if a company’s net profit is lower than expected, fundamental traders might anticipate a decline in the company’s stock price.
It is essential to consider the likelihood of an event occurring and how the market will react to it. For instance, if the market expects the Federal Reserve to hike interest rates, this event might have little impact on the value of the dollar.
Additionally, the significance and impact of the news should be carefully assessed. For example, if a company increases its profits despite a downward trend in the stock market, its stock may not be significantly affected.
Key tools in news trading include economic calendars, which show the timing of economic news releases and important company statements, and analytical newsletters.
For a better understanding of this strategy, consider the following example:
After Facebook announced its Q3 2022 financial report, its stock value fell by 24%. This significant drop was due to a 52% decrease in net profit compared to the previous year, a 19% increase in expenses, and negative forecasts.
The company’s attempt to rebrand as Meta also failed to impact investor sentiment positively. The opportunity that arose after the financial report and the price gap allowed traders to enter a short trade and potentially earn significant profits in a short period.
Pivot points are key levels in technical analysis that often indicate potential market direction changes. These points become more significant when the price deviates significantly from its usual average as the likelihood of a price reversal increases in these conditions.
Common tools for identifying potential pivot points include:
To better understand this day trading strategy, consider the following example:
Accurately determining pivot points can be challenging, but we might consider an area as a potential trend change zone. By analyzing past highs on the chart, we defined a horizontal line at level L2, which the price had not yet breached. The price tested level L1 and rebounded but eventually broke through and surpassed this level.
The range between L1 and L2 is defined as a demand zone. Breaking the L2 line indicates an upward trend, while a price rebound in the demand zone could signal the start of a downward trend. Observations showed that after breaking level L1, the price turned downward, leading us to enter a Sell trade at this point.
Breakout Trading
In the trading approach known as Breakout Trading, entry into a trade occurs when the price moves beyond critical levels such as support or resistance levels or trend lines.
These levels are typically determined when there is a significant concentration of buying and selling volume (including pending orders). Disruptions in the balance between buying and selling volume can lead to the price breaking through the level and starting a new trend.
This strategy is particularly effective in time frames from M30 to H1, and shorter time frames may show false breakouts due to market maker activities.
Tools Used in Daily Breakout Strategy Include:
After breaking a fundamental level, a strong signal is received when the price retests it and continues to follow the trend. Allowing the price to retest levels reduces the likelihood of falling into false breakouts, but care must be taken not to miss entry opportunities, as sometimes the price continues its trend without retesting the key level.
Example of Breakout Strategy:
The hourly chart of the EURUSD currency pair shown below shows an upward trend. This trend has formed with three consecutive peaks, each higher than the previous one.
However, the fourth peak, which is lower than the third peak, indicates a weakening of the current trend. A double-top pattern on the chart, another reversal signal, is also visible.
Given these signs, the price will likely experience a significant decline soon. As a result, these conditions provide an opportunity to open a sell trade after breaking a horizontal line.
Trading Based on the Ichimoku Indicator
The Ichimoku Cloud, or Ichimoku Kinko Hyo, is an advanced analytical tool among trading strategies. This indicator, classified under trend detection, momentum, and signal filtering indicators, consists of five lines: two lines associated with the Ichimoku Cloud and three other lines that function as oscillators for filtering.
A practical example of using Ichimoku in day trading is that it can be employed as a comprehensive trading system. For signal analysis, as shown in the figure below, the price above the bullish cloud indicates that buying opportunities are available. Conversely, if the price is below the bearish cloud, it can be considered a suitable opportunity to open a sell trade.
Scalp Trading
Scalping is a trading method in which traders execute a large number of trades with short time frames. This method is typically carried out using time frames from M5 to M15, where trades usually remain open for a few minutes to an hour. Since the profit from each trade is relatively small, traders increase their profit by increasing the number of trades.
One advantage of this strategy is that it allows trading during corrective periods or in markets with stable trends. However, the drawback lies in the large number of trades, which can be time-consuming and mentally exhausting for the trader. To address this, scalpers often use robots and automated advisors.
For example, in the daily scalp trading strategy shown in the figure below, a large channel, created due to severe market fluctuations, is visible on the M15 time frame.
In these conditions, trades are based on price reversals from the channel boundaries, and signals are confirmed using a series of bullish or bearish candles that indicate strong movements.
Trend Trading
Day trading based on trends involves following the general market direction while disregarding temporary corrections. In this strategy, the trader seeks to identify the beginning of a new trend and starts trading once the trend direction is confirmed.
These trades are usually closed during price reversals or at the end of the trading day. Using stop-loss or trailing stop allows the trader to manage the position without constantly monitoring the chart.
Signs indicating the start of a new trend include significant news releases, formation of reversal patterns, reactions to strong support or resistance levels, trendline breaks in the opposite direction, trend weakening in supply and demand areas, trend reversals, and artificial supply and demand created by market makers.
For example, as illustrated in the figure below, in a daily trend strategy, one might observe the start of an upward trend with deep corrections after a short and volatile downward movement. If the trade is opened at the beginning of the trend, deep corrections will have minimal impact on the trade.
Using a trailing stop, the trade will eventually be closed with a profit. In daily trading, trades are usually closed at the end of each trading day, but this depends on the length of the trend and the trader’s risk tolerance.
Momentum Trading
Momentum trading refers to entering trades when the price experiences sharp and sudden movements, typically occurring under specific market conditions. This strategy’s main advantage is the ability to gain quick profits. However, the challenge lies in accurately timing the start and end of powerful price movements and exiting the trade at the right time.
Possible factors that can create price momentum include:
For a better understanding, consider this example:
In the hourly chart of BTCUSD, rapid price movements are marked by large candles, followed by a steady trend with smaller candles. These movements start with a series of bullish candles, leading to the formation of the main wave.
At the beginning of the chart, three rapid price waves, each stronger than the previous one, occur within a short time frame. Analysts believe that these movements are due to the market reaching its low. Recent reports on US inflation likely influence this sudden movement.
Key Practical Guidelines for Day Trading
Here are some practical tips for novice day traders, which are commonly shared across various trading theories:
Final Thoughts
To achieve success in day trading, remember the following key parameters:
