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Day Trading Strategies

By Jeffrey Cammack Published: May 23rd, 2018 Updated: May 22nd, 2019

Day trading is where all trades are opened and closed within the same day, and profit is made from trading intraday market fluctuations.  While the advantage of day trading is that there is no overnight risk, time is limited for profiting on a single trade.

Day trading involves taking multiple trades in a day at a higher frequency than with other trading methods, and this means effective personal discipline, sound risk management routines, and reliable direct market access (DMA) broker.

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How to Day Trade Successfully?

  1. Day traders need discipline, and strength of self-control can determine your success as a trader. You need to be able to wait for the market to create an opportunity and have the patience to wait for the market as sometimes there are just no trading opportunities.  You also need to have the discipline not to revenge trade after a losing trade – where emotions get the better of you following a loss, and trading decisions become less sensible and further deflate the account balance.
  2. Using a tight stop loss is also essential to your survival as a day trader. Like with any trading style, you’re going to have bad days.  This is more the case with day trading because day traders are trading with higher frequency. With more frequent trader there will be more losing trades, so using a protective stop loss will prevent larger disasters.
  3. Have a strategy.  Don’t trade without a strategy.

Day Trading Strategy

The vast majority of people lose when day trading because they lack a robust strategy. A daily trading routine is needed to survive in the markets, otherwise, when you’re in the heat of the battle, it will be hard to execute on your trading plan.

Day trading strategy focuses on the two critical factors of volatility and liquidity.

Day traders are highly dependent on volatility to generate the intraday price swings to make money.

Market volatility is not equally spread across the trading day – the opens of the major trading sessions like the London and the New York tend to produce the most volatility. The liquidity is produced as a part of the volatility as buying and selling take place.

Any successful day trading strategy takes advantage of the most volatile times of the day and watches the market for patterns.

Day Trading Patterns

There are numerous trading patterns, however, you should only focus on trading those trade setups that can provide you with low-risk, high-reward opportunities.

Since day trading is so dependent on volatility, you need to focus on volatility patterns as those will yield the best results. A typical volatility pattern is the breakout of a congestion zone. Since volatility doesn’t have a directional component, its the job of the trader to develop a directional bias and determine where the market is going.

If our trading system confirms that there’s going to be increased volatility in the direction of our directional bias, this will create an opportunity for a trade with a decent risk to reward ratio.

Day Trading Cryptocurrency CFDs

Cryptocurrency CFD trading seems to be the ideal market for day trading since the volatility is the main characteristic of this relatively new market. The cryptocurrency market, however, is considered a high-risk CFD market, because there are few market control, which makes it more unpredictable.

The advantage of having 20%, 30% and even 50% swings every single day mean that there are a lot of day trading opportunities, but dependent on the direction of your trade, this could be a great disadvantage.

With this lack of predictability, any trader trying to profit on this market needs to be experienced in technical trading, and monitor all trades while they are open.

If you are going to invest in the cryptocurrency market, the easiest way remains to speculate on the intraday price fluctuations in these cryptocurrencies is by using CFDs, because CFD trading offers traders the opportunity to go either short and long, and profit from all possible market movements.

Is it possible to day trade for a living?

There are quite possibly more straightforward ways to make money than by day trading. This form of trading is not for the faint of heart, and if you day trade using real money and you lose your hard earned money, it will be a difficult emotional experience.

You want to make sure you’ve got a proven trading edge before adventuring into this business.  Some people who day trade do so as a group where they share tips and help each other, all this time keeping their accounts and profits separate.

Having said that, day trading for a living is possible and is a perfectly viable career if you have the right personality characteristics. These would include decisiveness, the ability to think quickly, discipline and persistence.

If you recognize some of these personality traits in yourself, then day trading for a living could be a great career option for you.

Trading Forex and CFDs is not suitable for all investors and comes with a high risk of losing money rapidly due to leverage. 75-90% of retail investors lose money trading these products. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.