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What is Day Trading?
Day trading can be your ticket to make some money and achieve your dream of being financially independent. It is possible to day trade almost all markets but the most common ones are stocks, Forex, cryptocurrencies and index futures.
But, what exactly is day trading? What made it so popular today?
Day Trading at a Glance
Day trading is basically a form of trading where you buy and sell securities in the positions that are typically opened and closed within the same day. As stated earlier, liquid markets can all be day traded, such as index futures, commodities, stocks, Forex as well as other derivatives.
How is Day Trading Done?
Instead of fundamental data, sentiment and charts are the tools that day traders use to come up with trading ideas. There are day traders specializing in trading the regular list of extremely liquid instruments such as Forex pairs and CFDs or index futures. There are also day traders who prefer to trade stocks wherein they search for the most volatile and active stocks on a daily basis.
Several approaches can be used for day trading although successful traders almost stick to the disciplined process to identify and carry out trades every day. It includes research right before the opening of the market as well as after its closing. They also develop a watch list and create new strategies.
A good trading strategy must include some or all of the elements below:
It is a must to trade only a specific strategy if the correct market conditions are all in place. The filter is the set of rules in relation to volatility, volume, position of specific indicators and time of day that will tell you when to start searching for setups.
Setups are the second set of conditions and rules that must take place before entering a trade. Once all the conditions are put in place, you have to look for a trigger.
Triggers define the precise moment you should enter the trade. It is the final event that must occur to confirm the trade. Most of the time, a trigger involves the price or indicator that crosses a particular level and closes below or above that level.
Every strategy must have a specific way of calculating the size of the trade you will be entering.
Initial stop loss
This is the price level wherein you will close the losing trade to prevent additional losses. When you know your positions size and stop loss level prior to entering a trade, you will also know the maximum risk you have for that trade.
This is the level wherein you will partially close or close a trade. It is often the price level that has the highest probability of profit generation and being reached.
Trade management plan
This includes techniques such as scaling, trailing stops as well as the time when you will close the position the closing of the market.
When it comes to day trading, it is a must to monitor your performance on a regular basis to weak on your weaknesses and build on your strengths.
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