In the world of the Financial Markets, Day trading has gained quite a lot of traction due to the rise of internet technology. The internet has revolutionized trading by introducing electronic markets and automatic order execution. This has resulted in lower fees, more efficient markets, greater information and transparency for investors.
Day trading is considered as a style of trading with such traders exhibiting the following characteristics:
- They tend to focus on lower timeframes of the market (4h, 1h, 30min, 15-1min timeframe charts) in line with higher timeframes (Monthly, Weekly & daily timeframe charts)
- Day traders look to execute and close trades within the same day or the next day at most
- They usually take a couple of trades every day, around 1-3 trades per day or even more for more active traders.
For the reasons above, day trading is quite attractive to most people. However each trading style requires its own personality and necessary tools in order to become a profitable and consistent trader.
Day trading offers a lucrative opportunity for traders who don’t want to hold trades for too long and are more concerned with achieving short term gains. Therefore succeeding as a day trader requires certain tools which include:
- Statistical Data
This involves analyzing trends, patterns and relationships using quantitative data. The reason it’s so important is because data is factual and isn’t based on a feeling or a hunch. Data is the hard cold reality so to speak. In the business world, investors are mostly concerned with numbers so as to determine whether an investment is viable or not. Likewise in trading, a trader has to have data on the specific trades they want to enter in order to fine tune a strategy that bests suits their investment.
A day trader for that matter has to be armed with statistics in order to survive and thrive in trading. This allows them to record key statistical data in their journals for quick reference depending on whether the trade goes in their favor or against them. Therefore, the next time a similar trade comes along they will be well prepared and will know whether to execute that trade or not.
- Trading Plan/ Checklist
Second, every day trader needs some kind of trading plan or checklist to use in order to take trades or not. A trade checklist is different from statistical data in the sense that data will provide the framework which will govern the trader’s checklist based on what’s working best for them.
The checklist should outline things such as:
- Market structure e. what’s happening in the daily chart, 4h chart or 1h chart e.g. Daily rejection or breaking candlesticks at daily support & resistance levels.
- When to execute the trade g. entry after 1h bullish/bearish engulfing candlestick close.
- Where to target if the trade goes in the desired direction e.g. target recent daily high
- When to cut losses if it doesn’t go in the desired direction.
This is covered in detail in our e-learning course: HERE
- Trading Journal
Every trader needs a journal to monitor their behavior in the market. Journals reflect the decisions made by the trader based on the statistical data collected and is used to track their progress and performance. Every aspect can be recorded in a journal; the following is a list of potential points that can be monitored:
- Type of asset traded
- Where trade was executed & exited
- Reason for entry/exit
- What happened after the trade was executed
- Time trade was executed as well as holding period.
- Profit or loss made on the trade
- Trade target as well as stop loss
- How much capital was at risk
- Economic Calendar
Day traders should have a grasp of the fundamental factors that might affect their positions (news and economic announcements). This is because day traders take around a dozen trades per week so being aware of these factors is necessary due to the volatile nature of key important news events. At Fusion Forex the strategies we use are 70% based on pure price action and only around 30% based on fundamentals. In other words fundamentals rarely affect whether a trade should be executed or not. The only caution we sometimes is to avoid trading when there’s high impact news announcements.
Here’s a LINK to a website we use to keep track of the upcoming news and economic announcements. It automatically categorizes news announcements and events as high, low or medium impact, as well as the currencies which might be most affected by them
- Efficient Trading Platform
An efficient trading platform is important as a day trader not only for market analysis but also to keep you within the pulse of the market. A good user interface which is easily accessible from anywhere and on a wide array of devices is mandatory for any day trader. This is especially important for me as I prioritize efficiency in almost everything I do, so quickly switching between devices to check on the markets depending on where I am is a priority.
We recommend using trading view, which is able to do all these things as it is simply too efficient for anyone looking to become a day trader. Also being a cloud based platform, it ensures the entire trader’s analysis, trades, notes and any other information is effectively stored without fail. Sometimes it’s frustrating for a day trader to lose all their chart setups and end up starting again from scratch.
- Solid Education
Finally, the last and probably the foundational thing is to have a good education. Most new traders tend to undermine education in order to save money because they don’t want to incur the cost or they simply think they’ll just figure out how to trade consistently somehow. Not having a good education in the beginning will most certainly cost you more in the long run. Day trading without a proper mentorship program and a reliable community group of traders is a sure way of blowing up an account. To cut down your learning curve checkout our E-learning Program here (hyperlink) or contact us to find out more about our community group. Also you can leave us an email at firstname.lastname@example.org
You can also find out more about our one on one course mentorship program by inquiring: HERE
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