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
There are several day trading techniques and strategies available to traders in order to help them generate a profit, but the basic strategies are as follows:
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 generally a strategy that relies on ECN rebates as the main source of income. Generally speaking, traders who use this strategy will usually purchase large quantities of low priced securities.
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 basically the opposite of contrarian investing, in that the strategy is based on the principle that securities which have been rising steadily will continue to do so, while those securities which have been falling steadily will continue to fall.
Other well known day trading strategies include the likes of 'short sells' and 'range-trading'.
Finding the Perfect Strategy
Alarmingly enough, it is said that approximately 80% of day traders end up losing all their available capital before they manage to learn about the various trading strategies, and this is why it's imperative to start out slowly, and to limit yourself to taking small risks. Below are a few tips which can help you in determining what the right day trading strategy for you is.
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.
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.