Finding the Perfect Day Trading Strategy

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.

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 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, as the name suggests, is the technique of buying and selling securities based on news released by the company.

Rebate trading is another popular strategy which uses ECN rebates as the main source of income. Generally speaking, traders who use this strategy will usually purchase low priced securities in vast quantities.

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’.

Determining What The Best Strategy Is

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 the right strategy with the right trader – one of the most important things to bear in mind is that it’s essential to match a trader’s individual personality, their strengths, and also their comfort level, with the correct strategy. In other words, those who feel uncomfortable taking risks should rather consider scalping or news playing, rather than becoming involved with contrarian investing, which for the most part is best suited to those who are willing to take risks.

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.

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