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.
Day trading is the practice of buying and selling financial instruments, such as securities, within the same trading day. Traders who practice day trading are called active traders or day traders. This field used to reserve for financial firms, fund mangers, investment firms, and banks. With the advent of electronic and online day trading, however, it has become accessible to almost anybody interested in the practice.
The Various Strategies Employed
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 a strategy which is based on the belief that financial securities which have been rising steadily will at a later stage begin to fall. The opposite view applies to securities which have been steadily falling.
News playing is basically a technique used to buy and sell securities based primarily on news which has been made available by a specific company.
Rebate Trading is a trading strategy that uses ECN rebates as its primary source of income. This strategy usually involves purchasing low priced securities in large volumes.
Scalping on the other hand involves establishing and liquidating financial securities in a very short space of time. In fact, it is not uncommon for traders who follow this route to purchase and sell securities within minutes, or even seconds.
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 day trading strategies include short sells and range trading.
Finding the Perfect Strategy
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.
Matching strategy with the trader – it is crucial to match a trader’s personality, strengths, and comfort level with a specific strategy. In other words, those who feel uncomfortable taking risks should focus on scalping, news playing, or rebate trading, while those who enjoy taking risks can go ahead and become involved with contrarian investing.
Starting mall and treading lightly – newcomers in particular should start out slowly by making small investments, as this will afford them an opportunity to learn about the different advantages and disadvantages regarding the different strategies.
A day trader may also benefit from using more than one strategy at a time. In example, the trader can invest a majority of the capital using low risk strategies such as scalping and rebate trading. At the same time, a portion of the capital may be used to high risk, high yield strategies like short
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