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.
Day Trading Strategies
As you can well imagine, there are nowadays a variety of strategies and techniques being used by active traders in order to ensure they can benefit financially. These include:
Contrarian Investing, News Playing, Rebate Trading, Trend Following
Contrarian investing is the day trading strategy that follows the ideology that assumes that financial securities that have been steadily rising will later on reverse and fall. The opposite view is applied to already falling securities.
News playing, as the name suggests, is the technique of buying and selling securities based on news released by the company.
Rebate trading is another popular strategy which uses ECN rebates as the main source of income. Generally speaking, traders who use this strategy will usually purchase low priced securities in vast quantities.
Scalping is a technique which involves buying securities and then selling them within minutes, or even seconds. As a result, traders who use this strategy aim to profit from the small price gaps which occur almost immediately after a purchase.
Trend following is the trading techniques, which is the opposite of contrarian investing. This strategy assumes that securities that have steadily risen will continue to rise and falling securities will continue to fall.
Other popular trading strategies include the likes of Short Sells and Range Trading.
Determining What The Best Strategy Is
It is estimated that up to 80% of day traders loose their available capital before they are able to learn the strategies that can help ensure success. It is therefore important to tread lightly and take smaller risks when starting out. It is also important to find the right strategy or strategies that earn the trader the most profit. Below are tips on finding the right day trading strategies.
Match the right strategy with the right trader – It is important to match the trader’s personality, strengths, comfort level, and investing freedom with the right strategy. Those who are less inclined to take risks may benefit from scalping, news playing and rebate trading. Risk takers on the other hand may have no problem using trend following and contrarian investing.
Starting small and testing the water – ideally, you should begin by making small investments if you’re new to the game, as this will allow you an opportunity to learn all about the different pros and cons of a specific strategy.
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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