Easy and Simple Tips about Day Trading Basics
You need to understand what day trading is and what it isn't before learning day trading basics. It appears to be that quite a few newbies think that day trading is a strategy that utilizes daily charts (in which each bar or candle is one trading day). Day trading is not a trading strategy or some kind of a system, by the way. Day trading is actually a method of trading when a trader trades within business hours only and exists all positions at the end of every day. In the case of daytrading, a trader as a rule does technical analysis in early morning hours, and once a new business day starts, the trader waits for a trade signal and after that opens positions, which she / he will close as soon as day finishes.
In FOREX daytrading, the average day profit is about 60 - 120 pips, the typical day loss is between -15 and -30 pips, as well as the average number of trades is 1 in case of a trend strategy and around 2 - 3 for a flat strategy. Fx daytrader typically figures out the direction the market should move throughout the upcoming business hours, after that opens up a Buy or a Sell position, which he closes at the end of the day with a profit. In case a position closes with a stop-loss order, day traders seldom re-enter the market the day it takes place except if they're trading inside a channel.
The market can be in trend or in flat the day a trader decides to trade, and if it is flat, the trader can make between 2 and 3 trades by 30 - 50 pips each opening positions towards the middle of this channel.
There are a lot of similarities among different day trading strategies, and the identical currency trading forex apply to them. You predict, and after that you open a position, then get your profit and exit the market. The real difference is only in how a certain trader projects the price movement, and what currency pairs he / she uses. There can also be a difference in how profitable or loosing positions are closed by different traders.
Daytrading is not investing. That's why day positions never live more than 8 hours, and end up being closed by traders earlier than business day finishes. They should end a day with a profit or loss no matter what. The ones who open positions as day traders, occasionally leave them overnight for two main reasons. When market pierces through an significant level, or overtakes a previous significant extremum, a new strong trend usually starts, which means it is best not to close open positions while the new trend evolves. The opposite reason is pure stupidness of a trader. A number of typically novice traders, after making a mistake don't take a planned loss, and remove the stop loss-order leaving the room for serious movements against the open position, usually, they leave this losing position for several days waiting up until the market turns around providing an opportunity to close this losing position without loss. Many of these so called traders all of a sudden turn into investors, and almost all of them wind up losing their deposits. Avoid joining them at any cost. Grab your -20 pip loss and make +80 pips profit the following day. By doing this, you adhere to your trading plan, minimize your losses and let profit to grow.
There exists another type of day trading strategies I must discuss in my Day Trading Basics. In reality, any strategy where a trader works within a day and closes all positions at the end of the day is generally called a day strategy, even if a trader makes 20 - 50 trades a day. Day strategies using dozens of small transactions every day are classified as scalping strategies. A trader implementing this type of strategy pretty much never leaves any positions open more than 10-20 minutes, and constantly gets away with 5 - 10 pips profit or loss, and always closes his day with a profit between 10 - 300 pips. This kind of trading involves an enormous concentration as well as special software that help a trader to open and close necessary positions with a click of a single button. Scalping is extremely difficult for regular folks and novice traders, and usually is not recommended in the beginning.
Now the most basic day strategy that I use every single day to make my living.
- Opt for EURUSD currency pair and a lot that uses 2% of your deposit per trade.
- Do technical analysis around 7:00am EST, and find out the direction the market is likely to move throughout the upcoming working hours.
- By 8:00am it's going to be apparent where the pair is moving to, so open a position.
- Investigate the spot where the former extremum is, and set your stop-loss order slightly past it, yet not beyond -30 pips. In cases where volatility is high during the morning wait until the market busts the channel and enter at the break point setting up stop loss order to -30 pips.
- Set take profit order to +120 pips which is the average daily range of EURUSD currency pair. This large take-profit order will probably be executed in no less than 30% of the cases.
- Close your position as soon as market flats out or at the end of the day at about 4:00pm.