Finding the Perfect Day Trading Strategy
Being able to match a trader’s individual personality and strengths with a specific technique, is perhaps the best way to begin day trading, in that it can vastly increase a trader’s chances of success.
Generally speaking, day trading involves buying financial securities and then selling them on the same day, and those who are involved in this practice are referred to as being day traders or active traders. Unlike in the past when this was reserved primarily for fund managers, banks, investment companies, and financial institutions, the arrival of online trading has by all accounts open the doors to the world.
Strategies Used In Day Trading
There are several day trading techniques and strategies available to traders in order to help them generate a profit, but the basic strategies are as follows:
Contrarian Investing, News Playing, Rebate Trading, Trend Following
Contrarian investing is a strategy which is based on the belief that financial securities which have been rising steadily will at a later stage begin to fall. The opposite view applies to securities which have been steadily falling.
News playing is a technique which relies on buying and selling securities based entirely on news which has been released by the specific company.
Rebate trading is generally a strategy that relies on ECN rebates as the main source of income. Generally speaking, traders who use this strategy will usually purchase large quantities of low priced securities.
Scalping involves establishing and liquidating a security quickly – often within seconds of minutes of each other. The goal of scalping is to gain profit from the small price gaps that occur immediately after purchase.
Trend following is basically the exact opposite of contrarian investing, in that traders who use this strategy will usually assume that rising securities will continue to rise, while falling securities will continue to fall.
Other popular trading strategies include the likes of Short Sells and Range Trading.
Finding the Right Strategy
Interestingly enough, statistics seem to suggest that approximately 80% of traders end up losing their available capital even before they’ve managed to learn about the various strategies. This is exactly why it’s so important to begin slowly, and to only take small risks in the beginning. Likewise, it’s of paramount importance to find the ideal strategy so that a profit can be made. Below are a few tips regarding how one should go about finding the right trading strategy.
Matching strategy with the trader – it is crucial to match a trader’s personality, strengths, and comfort level with a specific strategy. In other words, those who feel uncomfortable taking risks should focus on scalping, news playing, or rebate trading, while those who enjoy taking risks can go ahead and become involved with contrarian investing.
Start Small and Try Things Out – Starting with small investments is a good way for a new day trader to learn the pros and cons of a specific strategy. It is also a low risk of figuring out how the business works.
Day traders can of course also benefit financially from using multiple strategies at the same time. For example, you could consider investing the majority of your capital using one of the low risk strategies, while at the same time investing some capital using one of the high yielding strategies.
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