With a variety of markets and different forms of trading – such as contracts for difference (CFDs), for example – there isn’t simply one method of executing your trades.
The difficulty is not only understanding the different strategies you can use, but knowing how to use them effectively, as well as their advantages.
Among the many different strategies available, one of the most widely used by many traders, is the day trading strategy.
Day trading has a unique process, which, when applied successfully, can significantly increase your chances of profit and help you minimise risk when trading.
In this article, you’ll learn the fundamentals of day trading, including what day trading is and the different benefits it can bring to your trading experience.
What is day trading?
Through day trading, traders aim to profit from trades which are opened and closed within a day’s trading period.
The number of positions opened is entirely up to the individual, but the key component of day trading is to ensure every active trading position is closed before the end of the day.
Let’s use CFD day trading as an example. You could open several different CFD positions on a market – or even across a range of instruments – at the beginning of the trading day.
By the end of the trading day, all positions should be closed, without any of them being left open overnight. Any profits or losses incurred happened within the day’s trading hours.
The next day, you can then repeat the process.
What are the benefits of day trading?
Day trading is popular amongst traders, as it can bring a wide range of benefits to your trading experience. These include:
- Lowered trade risk
Day trading can help lower risk, due the fact none of your positions are left active overnight.
Markets can be vulnerable to drastic changes or fluctuations overnight, in reaction to sudden news or events, for example.
Therefore, there could be significant alterations to the market performance, but you won’t be able to identify or address it until the next day, when it could already be too late.
Day trading takes some of the risk out of the equation, as all trades are closed in the space of a day, and any changes to the markets will be clearly visible for you to monitor during the day’s trading hours.
- Quicker profits
With day trading, you can successfully make quick profits from your trades.
For other trading strategies, you might need to wait much longer before reaping the benefits of a successful trade.
With position trading for instance, your positions are open for a number of months, or even years, before you can close the positions and make a profit.
With day trading, however, there’s the possibility to make a return on your trades by the end of the day.
- Trade successfully in various markets
Day trading also allows you to potentially profit from bear market conditions.
If you were to day trade CFDs, for instance, you could profit from multiple instruments in the day’s period of trading, and have the opportunity to trade in both rising and falling markets.
With CFD trading, you can open both long and short positions, which means you can receive a profit from accurate price speculation when asset values are rising, and when they’re also falling.
With more potential avenues for successful trading in your 24-hour period, you’ll have a higher chance of profit when day trading.
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With this simple guide to day trading, you should now be able to incorporate this beneficial strategy into your trading portfolio, to potentially increase your chances of profit and create a more rewarding trading experience.