Finding the Best Day Trading Strategy
ByFinding the right day trading strategy is about matching up the trader’s personality and strengths with the techniques used in the field. Doing so can help increase a trader’s success rate.
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.
Day Trading Strategies
There are a wide variety of strategies and techniques used by day traders to help them make good profit. The basic day trading strategies are as follows:
Contrarian Investing, News Playing, Rebate Trading, Trend Following
Contrarian investing is the day trading strategy that follows the ideology that assumes that financial securities that have been steadily rising will later on reverse and fall. The opposite view is applied to already falling securities.
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 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.
Determining What The Best Strategy Is
Interestingly enough, statistics seem to suggest that approximately 80% of traders end up losing their available capital even before they’ve managed to learn about the various strategies. This is exactly why it’s so important to begin slowly, and to only take small risks in the beginning. Likewise, it’s of paramount importance to find the ideal strategy so that a profit can be made. Below are a few tips regarding how one should go about finding the right trading strategy.
Match the right strategy with the right trader – It is important to match the trader’s personality, strengths, comfort level, and investing freedom with the right strategy. Those who are less inclined to take risks may benefit from scalping, news playing and rebate trading. Risk takers on the other hand may have no problem using trend following and 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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