Trading on the stock exchange, or investing, can in principle be done by anyone. And many people engage in some form of investing, perhaps even more than you think. And maybe you invest without thinking about it. Because, for example, pension funds invest your contribution to achieve a return. This way they can give you a nice income by the time you retire. Today I will take you into a more active form of trading, namely day trading. A day trader, also known as a day trader, trades quickly in various markets. The positions are bought and sold within a day, so it is a dynamic form of trading. Day trading is often done by professionals, but you can also get started as a private individual. You do have to like the game, and know enough about it not to make blunders.
What is day trading?
Day trading, or day trading, is therefore a quick way of investing. Where one of the most given tips for (starting) investors is not to sell too quickly, to have a long breath or something like that, day trading is all about selling quickly. A day trade is a purchase and sale of a position within one (trading) day. In fact, most trades take place within a much shorter time frame. For example, it may happen that a purchased position is sold within an hour, fifteen minutes or even within a few minutes. A day trader therefore focuses on small profits. A rate does not normally change more than a few percent, or even a few tenth percent, per day. Let stand by the hour. That is why day traders often use positions with leverage.
Positions with leverage
With a leveraged position you do not buy a full share, but only a part of it. That part is often 1% or 5% of the full share. You do get the profit (or loss) on the entire share. Suppose you have € 100 to spend and one share costs € 100. With a price increase of 1% you would have earned € 1. And although day traders go for small profits, this is very minimal. However, with a leverage of 5% you buy the 21st of the share. Or better, with your € 100 you can invest in € 2000 of the same share. Then a 1% price increase suddenly means € 20 profit, or 20% return for you. Investing with the leverage effect is also interesting for smaller amounts. It is good to remember that the lever also works the other way. In other words, a loss is immediately magnified. If the exchange rate drops 1%, in the aforementioned situation you lose € 20 or 20% of your stake. However, it is also possible to earn money, also as a day trader, with a fall in price, provided that you predict it well in advance or that you will see it coming. This is called going short, and you now sell positions at the higher rate. The trick is that you do not yet have those positions yourself, and purchase them later at the lower rate. The difference between your selling price now and your purchasing price at a later time is your profit. This method of trading is particularly popular among day traders.
Everyone can day trade
As I said, the advice to have a long breath as an investor does not apply to day trading. Day trading is a form of fast investing, it is about quick and (relatively) small gains. Substantive knowledge of the products in which you trade is therefore not actually required. Technical Analyzes, which many investors rely on, are also much less relevant for a day trader. This is because you act so short that only results in the very short term are important. That is why visions of the future of companies and countries (for currencies) also have little added value for day trading. What is useful to you are events that have a direct impact on the exchange rate. Take everything around Brexit for example. If you have to vote again, you can assume that the exchange rate of the British Pound will change relative to other currencies. The same applies to companies for the publication of (annual) figures or other matters that may influence the price. Prices often react immediately to this kind of news, and often stabilize again shortly afterwards. As a day trader you can respond very well to this!
What do you pay attention to as a day trader?
Incidentally, this does not mean that as a day trader you have to get started at random. There are also analyzes available that are useful to you as a day trader. Think of course movements, patterns and other things that can influence the course of the day (such as the aforementioned events). It is never wise to invest based on a feeling. Then it is gambling and although we certainly love it, it is not convenient to do in the investor world. And although day trading is a bit more like gambling, it is good to always make well-considered trades. When investing, you still have time to correct a mistake, because of the time you have or take there, that does not apply to day trading. . Waiting too long means that it is no longer day trading. Is that really bad? In principle not, then it becomes a normal investment. But … keep in mind that holding positions outside the opening hours of the stock exchange costs money. And then your trade can suddenly incur even more costs, which does not make it more favorable. Day trading therefore actually requires that you can make quick but well-considered decisions. Decisions that are not based on gut feeling, but are well substantiated. Becoming reckless is out of the question and can cost you a lot of money quickly (think of leverage). You have to keep an eye on the prices and trends, you act accordingly. This requires knowledge and experience. So you can only become a good day trader by practicing (possibly with a demo account) and by doing. And yes, then you will really miss it. Day trading is not an exact science.As a day trader you always keep an eye on the prices. A small difference can already mean profit and then it is cashing (and through).
Where can you trade day?
In principle you can trade on every market and via every broker. There are, however, points to watch out for. For example, the regular stock market is often less suitable, because the prices here move relatively little on a day. Thanks to the leverage you can still earn money as a day trader, but there are markets that are more suitable. The Forex (Foreign Exchange, or the foreign exchange market) but also cryptocurrencies are known for their more volatile nature. The rates here move much more, also seen during the day. Indices can also provide attractive positions. Any provider where you can trade in these positions is potentially suitable for day trading. There are, however, a number of things to take into account when making your choice. As said, you make relatively small profits as a day trader. If you have to pay considerable transaction costs on that, it is not favorable. A broker where the transaction costs are low, or even 0, is therefore preferred. But there is something else to take into account, and that is the speed of the platform. Day trading is mainly about buying and selling at the right time. A minute late can already mean the difference between winning or losing. Most providers offer the opportunity to practice with a demo account. With this you can try out the platform and the trading itself with fake money. So if you have doubts about which provider to choose, or if you want to test whether everything is going fast enough, then this is a great way to try. That way you also get a feel for trading and you may know soon enough whether or not it is for you.
Day trading strategies
Strategies have been devised for every way of investing and trading, which form a guide for your well-considered choices. The strategies used by day traders do deviate from other investment strategies. That is, of course, because the whole nature of day trading is different from that of other investment forms. Many day traders act according to the price chart. You can then indicate at which rate you want to buy and sell, or vice versa when it concerns a short. You also state your stop loss, or the rate at which you want to sell even if you are at a loss. This ensures that you in any case do not lose more than you have determined in advance. A market scanner ensures that you can keep an eye on how the positions move during the day. You can apply your own filter to such a market scanner, so you determine the day's trading. This is a way to trade, but not a strategy. The most commonly used strategies will be discussed below.
The fastest day traders are also called scalpers. With scalping you only take a position very briefly, sometimes no more than a few seconds. You hereby settle for a very small profit and quickly move on to the next position. The intention is that all those very small gains, viewed in a day, yield a nice profit. A number of things are important here: a fast platform (after all, seconds are involved), low or no transaction costs (the lower the profit, the more important this is) and a tight stop-loss (a loss can undo small profits in one fell swoop) and you don't want that after all). Scalpers do this type of day trading on both long (“normal” buy and sell) and short positions.
If you go scalping too fast, but if you are also charmed by this strategy, then you can choose to do pivot trading. The basis is the same here: you are looking for the same positions that you would take with scalps. Only instead of trading it again quickly, within a few seconds, do you wait a little longer with pivot trading. You build in a tight stop-loss, and furthermore you have to wait until you have achieved the desired profit. You choose the (presumably) lowest or highest point of the day for this, depending on whether you go long or short, and you start using this. Personally, I see this as the basic variant of day trading and this is perhaps the best strategy to start with.Day trading is all about finding the right price movements
When trading in momentum, a day trader goes in search of positions where substantial price movements can be seen at that moment. It doesn't matter if the price rises or falls enormously, as long as the changes (in short periods) are significant. A momentum trader opens and closes positions fairly quickly, although he is not as fast as a scalper. You always trade in momentum with the market, you never actually see movements against the market happening with this strategy. A momentum day trader can go both long and short. When a position is closed, the trader looks into the depth book and tries to discover a block of buyers or sellers. Before that level is reached, the day trader has already sold its position.
Contrair / fading
“Au contraire” literally means “on the contrary” or the opposite. Therefore, counter-acting is directly opposed to acting in momentum. Just like a momentum trader, a contraire day trader looks for positions where significant price movements can be seen at that moment. But the agreement also ends there, because a counter-trader goes against the market. The idea is that a position whose price is falling must also rise again, and with a rising price it will fall again. And this day trader acts accordingly, both long and short. This way of acting, which is also called fading, is a rather risky way. Although you build in a stop-loss, you can still lose a lot of money quickly. The chance that the price in the short term keeps a trend and therefore continues to move in the same direction is greater than if it suddenly breaks in such a short term. A day-trader who acts in a counter-manner must therefore be prepared to take risks and not panic if it does not succeed (immediately).
Day trading is active trading
As a day trader, sitting back and waiting is not an option. Every minute, or sometimes every second, counts. Once you have taken a position, you can use software to do the rest (so sell at the right time). Yet day trading is a form of active trading, in which you are actually constantly involved. Day trading is therefore dynamic and you can only be truly successful if you give your full time and attention to trading. You don't do this in between. You can use software to make the trade take place for you. You enter your strategy in these types of day trading platforms. So when buying, selling, short, long, stop-loss etc and this software then acts for you. A recent example of this is Cryptohopper, the company of Ruud Feltkamp, who set this up specifically for cryptocurrencies. Although it can provide you with a nice profit, you will miss the best of day trading: the excitement! You will not become a day trader in a day or a week. You mainly have to practice to become a successful day trader and see what potentially successful trades are. As mentioned, you can practice this with a demo account, but eventually you will have to go for the real thing. Now, day trades are perfect for dealing with small amounts. Day traders often have multiple positions at the same time, so some money is required, but then you too can get started!