Day trading or intraday trading are both stock market terms meaning the entry and exit of a trade on the same day, where the trader aims to profit from small movements in share prices throughout the trading day. Many day traders are always on the look out for stocks holding the following key aspects:
- Liquidity: Meaning the trader is easily able to get a good price when either buying or selling an underlying asset.
- Volatility: Ensuring the underlying asset is actually been both bought and sold by other traders, causing movements in price.
- Daily Price Range: The range of average movement the stocks share price has on any given trading day.
Once day traders have uncovered a list of stocks holding the ideal attributes listed above, many dive deeper into each stock with resources such as candlestick patterns, recent news or earnings reports and level 2 quotes which allow traders to see the number of open orders placed on the underlying stock. Where a day trader enters and exits his or her position highly depends of the technique of day trading they use. Here is a short overview of four of the most profitable day trading strategies:
This form of day trading focusing on profiting from minor movements in price, exiting their position once their position has become profitable, which in many cases could even be only a few cents. As many day traders trade on margin (Money borrowed from their broker) allowing them to leverage their capital usually 3 fold. This allows them to make reasonable returns even with a low level of capital.
Momentum Day Trading
The momentum trader is always on the lookout to ride the next trend narrowing their stock picks to companies with high volume and a strong trend, whether that trend come from recent positive news reports or earnings reports, they aim to follow the trend up until they begin to see signs of reversal and bail out.
Daily Pivot Trading
These kind of day traders focus their efforts to follow stocks average daily price ranges and aim to enter their position at the LOD (low of the day) and exit their trade at the HOD (high of the day) or simply selling at the next sign of reversal in price.
Day traders following the fading technique base their trades on stocks of companies they feel have recently been either overbought or on the verge of a major sell off from the traders who had entered the stock at a lower position and are ready to take they profits. The trader then shorts the short and profits off the fall in price.
Although day trading is considered to be extremely dangerous, a trader can highly increase his or her chances of success by strictly following their own method as we as planning each trade in detail before execution.