definition and strategies • Finance Hero

What do we mean by “Day trading”?

Day trading (or intraday trading) is a trading technique that consists of opening and closing positions on the same day.

Day traders generally target positions over several minutes or hours by taking advantage of small price movements during the trading day, which means they can place a significant number of stock orders in the same day.

To optimize this system of repeated buying and selling, day traders rely on leverage, which allows them to maximize their gains quickly with relatively low initial capital.

Leverage and the use of derivatives allow you to borrow money from your broker to increase your exposure with the aim of multiplying your gains.

Considering the number of transactions, day traders need to be aware of fees! Before choosing your broker, remember to consult our comparison of the best trading platforms!

Day trading: a profitable practice?

Because of its approach, day trading is highly speculative, so profits are uncertain. Some traders succeed, but it is a risky strategy that requires a certain amount of know-how, a good understanding of the financial markets and appropriate risk management.

The profitability of intraday is often in contrast to good investments or even passive management. While day trading takes advantage of price volatility that leads to bullish or bearish movements in the very short term, long-term investing is a practice that consists of investing in the creation of company value.

The success rate is therefore greater in investing than in day trading compared to the risks involved. In addition, some financial experts explain that over long periods of time, passive trading strategies outperform active strategies – especially when trading fees are taken into account.

Day trading strategies

Day trading

Several strategies are generally implemented by followers of day trading. Here are the most important ones.

News trade

News trading occurs when a trader enters and exits the market before or after the release of an important economic statistic for the markets by exploiting maximum volatility. Among the ‘market movers’ that have the greatest influence on the markets, we find the figures for inflation, employment and growth, because they will influence the central banks’ decisions on their monetary policy.

Chain trade

Range trading allows intraday traders to take advantage of price movements between high points (supports) and low points (resistances) during a sideways trend where neither buyers nor sellers are in control of the market.

Breakout trade

Breakout trading allows you to take advantage of price acceleration when an asset crosses or breaks a key price level. To optimize your results, ensure that certain market configurations exist, such as consolidation before a breakout and an increase in trading volume at the time of price acceleration, which shows investors’ willingness to support prices as much as possible.

Technical analysis

Technical analysis is at the core of most day trading strategies and relies on the analysis of price action and the use of technical indicators to try to spot important price areas, moments of acceleration prices, reversal or pullback conditions or even chartistic numbers of confirmation, reversal or indecision.

Which products should I use for the intraday?

In order to achieve results using day trading, it is important to use derivative products such as CFDs (contracts for difference), options (cal options and put options) or futures (futures contracts) which are based on leverage in order to magnify price fluctuations.

However, such a trading technique is risky if the market moves against you. It is therefore important to have good risk and money management, especially with stop-loss orders, to better preserve your trading capital.

➡️ Not all stockbrokers offer derivative products that are suitable for day trading. We give you our selection here.

Do you have the profile to be a day trader?

The day trading strategy is not suitable for all types of traders. It is therefore important to make sure that this trading style suits your personality before you start.

Day trading may be right for you if you:

  • know how to handle pressure and stress well
  • want to earn fast
  • prefer to know whether you won or lost at the end of the trading day
  • have a high risk tolerance
  • has high availability to trade in real time
  • master the concept of leverage and margin trading
  • have some knowledge of how markets work and technical analysis
  • are patient and committed enough to follow your trading plan and wait for all setups to present themselves before trading
  • know how to control your emotions to prevent them from influencing your trading decisions

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