Day trading is becoming increasingly achievable for investors with a feel for the financial markets and a good handle on global commerce. Day trading relates to buying and selling the same stock or share on the same day, sometimes even multiple times. In doing so, day traders seek to take advantage of modest price moves in the market, using tight stop-losses to protect their bankroll and making steady, consistent profits.
Day trading is one of two main styles of trading in the stock markets. It’s undoubtedly the most involved trading style, compared with active stock trading, whereby traders will look to open only a handful of trades each month. Some beginners will prefer to take that longer-term view of the markets, often committing funds to the market for weeks, if not months at a time. Nevertheless, if you’re wondering whether high-volume day trading could be an option for you, read on as we divulge three of the best day trading strategies for beginners to pick up and run with.
Ichimoku Cloud Indicator
The Ichimoku Cloud Indicator, also known as the Ichimoku Kink Hyo, is a commonly used day trading signal by beginners. If you are new to technical trading in the financial markets, learning the Ichimoku Cloud Indicator is a good way of building upon your knowledge of candlestick charts and improving your forecasting of price moves.
This indicator revolves around five lines on the chart, two of which are the most important the Senkou span A and Senkou span B lines. These lines form a ‘cloud’ within which the price has been moving throughout the day. If a market looks like moving beyond this cloud, a day trader may look to follow the trend and take advantage of small moves. Many beginner day traders will also employ a trailing stop loss in this fashion, so that if the new trend line proves profitable your risk is greatly minimized, with some trailing stops eventually able to sit in their own profitable position.
Market Opening Gap Strategy
A basic day trading strategy in the stock markets revolves around ‘trading the gap.’ This relates to the gap between the price of a stock at yesterday’s market close time and today’s market opening time. Draw a horizontal line between the two to pinpoint the market direction and simply open a trade and follow the momentum.
Let’s say for example that the FTSE 100 opened lower than yesterday’s close, you would open a short (sell) position in the market. Ideally, the gap in prices should be at least 20 points, but no more than 50 points as this suggests volatility and will require more time and research to understand whether such a move will be sustained. Depending on the size of the gap you’re trading, use a stop-loss with a 1:1 ratio, so if you are trading for a profit gap of 25 points, set a 25 point stop-loss.
Fundamental News-Based Trading
Ordinarily, day traders will rely heavily on real-time analytical charts and trading tools to pinpoint short-term trends in the stock markets. However, those new to day trading the stock markets should lean more on the fundamentals of news and press releases that can also influence market moves on the value of stocks, forex pairs and commodities.
Typically, those who rely on news releases based on economic data or company information will wait to see the initial view of the stock market. They will interpret the early-stage price behavior before heading into the market and placing an order, following the initial price direction in line with the breakout from the price chart.
In most cases, risk-averse traders will implement a stop-loss order below the breakout level on the price chart, so that in the event the price move retraces and pares its gains or losses their overall trade will result in a minimal loss or break even in the best-case scenario. The only risk with stop-loss orders is placing them too soon while the market is volatile post-news. Fast-moving markets can see stop-losses triggered too soon, even if the general price direction is what you anticipated.
Once you’ve settled on a favored online trading platform and broker, hopefully the above strategies will give you some food for thought when trying to take steady, consistent profits from market fluctuations each day. These strategies will also help you to take the emotion out of your trading to define your entry and exit points and control your profits and losses.
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