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The best day trading strategies and 10 tips for traders
Here you will learn how the best day trading strategies are structured, get an insight into our forex trading strategy and also 10 important trader tips.
Would you like to become a day trader and turn it into your main job or just a side income for now?
Congratulations, you have already set a financial and professional goal. In a study by Statista, only 42% said that they want a job that makes you happy. Terrifying, isn't it?
Since you should ideally start the chapter “day trading” alongside your main job, this article will give you the information you need on day trading strategies as well as important tips for getting started in stock market trading.
At the start we will briefly go into the basics, we promise;)
What is day trading?
Day trading is the act of buying and selling a financial instrument in one day or even several times over the course of a day. The use of small price movements in stocks, bonds, currencies, commodities and other assets can result in a lucrative income - provided you have a proven day trading strategy.
Just like that, speculative stock market trading can be a dangerous game for beginners or anyone who does not adhere to a well-thought-out strategy and strict risk management.
To start day trading you need nothing more than an account with an online broker and a little start-up capital. Depending on the financial instrument, a few 100 EUR are sufficient, as you can "borrow" money from the broker using the leverage effect. This is particularly possible in forex and CFD trading.
Actually, you don't even need your own money to get started, because many brokers offer free demo accounts where you can practice under real conditions, but with play money.
Next, let's take a look at some general day trading principles and then move on to deciding whether to buy or sell the best day trading strategies.
10 helpful day trading tips to get you started
1. Stock exchange expertise is of fundamental importance
There is a lot to explore for a novice trader. Before even making a trade, the most important basics should be understood. The trader must be able to answer the following questions:
- How does a price come about?
- Which market participants am I facing?
- What are the trading hours and who is posting the prices?
- What are the characteristics and pitfalls of my chosen financial instrument?
- What influence do geopolitical and monetary policy news have on my chosen asset?
Always remember: Those who do not prepare themselves optimally for trading on the stock exchange will be eaten by the so-called "Big Boys". This includes investment banks and hedge funds, the true professionals of the markets.
2. Choose your starting capital wisely
No matter how much wealth you currently have. Start day trading with as little capital as possible! There is the famous 90s rule:
"90% of all private traders lose 90% of their capital in the first 90 days."
And it's true. Most beginners start learning on the stock market. You will also be part of it. So ask yourself the question: would you rather lose 90% of 1,000 EUR, or would you rather lose 100,000 EUR?
With the right preparation and the tips that you get here, it doesn't have to come to that. Just make it clear to yourself that it takes a long time to make good money and be SUSTAINABLY profitable.
3. Plan your time properly
Time is a precious commodity. We all have to get by on 24 hours a day. In addition to work, family, sport and relaxation, you now want to find time for day trading. Does your family understand that? 😉
You should therefore plan exactly when you will devote yourself to day trading and what exactly you will then do. The first few months are all about building up specialist knowledge and testing strategies on demo accounts. Don't make the mistake of looking at the charts for 2-3 hours! You don't learn anything and make emotional decisions based on gut instinct.
4. First test a market
You have a huge universe of tradable markets and financial instruments at your disposal. For example, start with CFDs in the forex or stock market.
Familiarize yourself with the markets and their trading hours, volume and correlations with other markets. This is where building your day trading strategies begins.
5. Avoid broker referrals and signaling services
At the beginning, your greed is particularly pronounced. You want to get rich quick. Yes, we all want to, but it doesn't work. In day trading we want to collect constant, small profits according to a fixed process. This means that you benefit from the compound interest effect in a timely manner with a manageable risk.
Often broker recommendations attract you to individual trades or the seemingly 100% chance of a signal provider. Make it clear to yourself that nobody can know whether a share, currency, etc. will fall, rise or go in circles!
Your goal has to be to find and trade YOUR OWN trade setups. Do not allow yourself to be influenced by outsiders and, at most, use neutral analyzes to help you make your decision.
6. Understand trading hours
There are 3 major trading sessions a day. The Asia Session, the London Session and the New York Session. The trading day starts in Asia, London then brings in a lot of volume (between 08-09 a.m. CET) and New York closes the deal. During peak times it can become very volatile, new trends emerge, etc.
With a high level of liquidity in the market, broker conditions also improve. The spread gets smaller and with it your costs. Shortly before the close of trading, most brokers tighten the spreads again and your costs rise, which leads to less book profit or more book loss.
7. Limit losses with limits
You can trade close to around the clock. The Forex market is open 24 hours Monday through Friday and American stocks are usually traded until 10 p.m. in the evening. Depending on the trading style, an open position continues at night. So you should definitely work with limits (even during the day), because an unforeseen event can crash the markets in a few seconds and turn your position into a heavy loss.
It is part of the basic equipment of every trader to work consistently with stop loss or hedging. For the start, however, I recommend the Stop Loss. This will keep you able to act.
Always remember: losses are part of trading! You will always give back part of your profits, because not every trade is positive. With a strict risk management (this includes the stop loss) you limit the losses.
8. Be realistic
The best day trading strategies are characterized by more profits than losses over a relevant period of time. This means that a trader can also be successful if he loses EUR 100 on 5 trades in a row and wins EUR 600 on the 6th trade. Most profit traders have hit rates between 50-70% and earn very good money with it.
Don't try to find the one monster trade that will make you a millionaire. It is the persistence of a duplicable strategy that brings you into financial independence.
9. Stay calm and disciplined
There are days when everything goes against you. And I really mean EVERYTHING. Four losing trades in a row, a bitchy partner at home and your soccer team loses 5-0 at home.
The market will test you and your patience again and again. Make it clear to yourself that in bad times you need to have the strength to get up from your desk and stop trading. Unfortunately, many traders do the opposite and look for "revenge trades", according to the motto: "Well wait, bad market, I'll show you who is the stronger here".
Do yourself a favor and don't mess with Mr. Market. He sits on the longer lever ...
10. Develop a trading plan and stick to it
A successful day trading strategy always consists of tried and tested parameters. These parameters can be technical indicators, candlestick patterns, news, etc. A trading plan then records when to trade and when not. This can be a simple Word document or an Excel spreadsheet.
The trader has to follow this trading plan on a daily basis and is only allowed to trade if all the criteria on the “checklist” have been checked.
Why is day trading difficult?
Stock exchange trading is perhaps the most difficult job in the world. There are so many things that affect the markets.
The first thing you should know is that we all swim in the same shark tank. You are sometimes facing professional traders and investors whose careers revolve around trading. These people have access to the best technology, information and connections in the industry.
In addition, every day on the stock exchange is unique. You won't find any chart history exactly the same again one day.
Since we humans want the highest level of security due to evolution, but the stock market is full of uncertainty, two laws of genes collide here.
The psyche of the trader is challenged again and again and the human characteristics such as greed and fear prevent success.
As a trader you have to want to participate in a change process that is necessary to be profitable in the long term.
What do day traders pay attention to and what do they trade?
Day traders try to earn money by taking advantage of low price fluctuations in individual assets and generally using large amounts of (borrowed) capital.
Common asset classes are currencies (Forex), stock indices (Dax, Dow, ...), individual stocks, commodities, bonds.
The financial instruments used for trading are CFDs, FX (spot), options, futures, certificates.
The decision about the traded asset is influenced by the following criteria:
- liquidity: Liquidity enables you to buy and sell a stock, currency pair, etc. at a fair price. If you buy a stock and there is no more demand, you have a problem. Liquidity is therefore characterized by high supply and demand. The most liquid market in the world is the Forex market. Over $ 5 trillion is traded here every day.
- volatility: Volatility measures the price range of an asset in the period under review. For example, if a stock normally fluctuates around EUR 2 per day and suddenly has a price range (daily low to daily high) of 10 EUR, then it is extraordinarily volatile. Often there is a fundamental reason such as news and the traded volume increased. Many day traders love this volatility and develop day trading strategies around this scenario.
If you know which market you want to trade in and whether you prefer volatility or quiet, trendy phases, you can select an asset such as one or more currency pairs, stocks from different industries and countries.
The following tools will help you to keep track of this multitude of possibilities:
• Real-time newsfeeds: News move the markets. So it is helpful if you have a news feed that provides you with market-relevant news in a timely manner. This is how you get trade ideas and can implement them before the movement is over.
• Intraday Candlestick Charts: You need chart software where you can see real-time prices, use chart technology (e.g. trend lines) and select many assets. Most online brokers already equip you with this tool. Forex traders mainly use the Metatrader, which makes all of this possible.
Day trading strategies: when and how is a trade made?
Most traders fail because they don't have a clear set of rules. They just start trading and hope for the monster trade. But at the end of the day there will be more loss than profit in the account.
You need to create a trading plan that includes the criteria for where the best chance of a winning trade will arise.
Define and write down the conditions that must be met in order to place a trade. A simple “uptrend buy” is too general and won't get you anywhere. It has to be as specific as possible.
1.) If in the EURUSD in the 4-hour chart the exponential moving average 200 is still 20 pips above the current price and the price has not touched the EMA200 for at least 10 days and ...
2.) Another support line falls to this price level, then I position a sell limit order 5 pips in front of the level and bet on a rebound at this level.
3.) The order is only placed if no relevant risk events (NFPs, interest rate decisions, etc.) are pending in the next two hours.
4.) The risk-reward ratio is 1: 1, so that SL and TP are set at the same distance from the purchase price.
This example shows you how a day trading strategy can be set up and how the trading plan records the criteria in writing.
You can use this document as a checklist for every trade and check whether you have adhered to your setup or not.
If you notice after a relevant number of trades (at least 100) that this setup has brought in more winning than losing trades, you have a working day trading strategy.
When do you end a trade?
There are several ways to exit a trade. You should set yourself a goal for the trade right from the start and think carefully about whether and when it makes sense to deviate from that goal.
You should add Stop Loss and Take Profit to a trade immediately after opening. This means that you don't have to observe the trade and it could end up in the target (take profit) at three at night when you are asleep.
Where you want to end your trade depends largely on your personality and thus on the trading style you choose. These four styles are generally available to you:
1. Scalping - Scalp trades are traded in large numbers and with a low point target. The trade often only takes a few minutes.
2. Day trading - A day trader holds a trade for a few minutes or hours and closes his positions at the latest at the end of the trading day.
3. Swing trader - A swing trader has a goal of several 100 pips or points, which results in a holding period of several days and weeks.
4. Position trade - The position trader has the longest time horizon of all and needs several months for his trade.
In general, it makes sense to stick to the intended goal. The difficulty in trading on the stock exchange is to find the right balance between “I'll take the trade to the last point” and “I'd better take the book profit with me now”.
It often also helps not to observe an existing trade non-stop, but rather to check the position as rarely as possible. The market no longer needs our presence, because the trade has already been implemented.
An early sale is ultimately still worthwhile if the fundamental conditions have changed. This can cause news or a complete change in trend.
Watch the new trading webinar now
Day trading chart patterns and indicators
The chart technique helps us to develop ideas and to optimize trade entries and exits. Chart technique includes:
• Candlestick patterns, also called Japanese candlesticks
• Technical analysis, for example trend lines
• Volume, not necessarily chart technique but also an important indicator
There are now an unbelievable number of technical chart indicators that need to be critically questioned as to which benefits they have. Often times, it's the simple trend lines and averages that work sensibly.
There will always be people who criticize the chart technique because it is related to the past. These people usually did not understand the purpose of these tools.
What we are looking for are zones in the chart that are observed by many market participants and where many traders implement the same idea.
Note: If more buyers than sellers place their "market" orders in the market (i.e. directly, without a limit), the price rises and, conversely, it falls.
Day trading strategies for beginners
As soon as you have made the first steps on a demo account and notice which trading style suits you and which approaches suit you, the point is to optimize the setup that has been tried and tested so far and then to set up a strategy portfolio from several setups.
Below you will find basic day trading strategies that you can use and provide with your parameters.
Trend following strategy: A trend follower positions itself according to the present trend. Several time units (D1, H4, H1 ...) should be observed. The overriding trend is determined in the higher time units. Then, depending on your trading style, you take a lower time unit (e.g. hourly chart) and wait until the trend here, too, points in the same direction. Finally, you position yourself at the support line and hope that the trend will continue.
Trade out of correction: A trend always consists of a movement in the direction of the trend and a subsequent correction. After all, no price rises inexorably and every movement comes to an end. Nevertheless, the trend can still be intact. Anyone who still believes in the existing trend but wants a cheaper entry level is waiting for a correction.With the help of Fibonacci retracements, pivot points, etc. you can then bet on a rebound.
New trading: Fundamental drivers such as market-relevant news from geo and monetary policy play a role in news trading. Corresponding news creates momentum in the price and the trader positions himself in the direction of the breakout.
This is the best trading strategy for us and we will present it with an example.
The best trading strategy for us: New trading
With new trading, as mentioned, market-relevant news or risk events are converted into trades. There are certain events that move prices and change sentiment in an asset.
New trading works particularly well in the forex market, because currencies react very sensitively to political events and what the central banks do (monetary policy).
This is how we trade key interest rate decisions, economic data publications and market-relevant news (Trump, Brexit, etc.). In order to be able to plan these trades properly, we use various news feeds such as Forexlive, Newsquawk and Twitter. We also look at the economic calendar every day, because it offers us good setups every week with the reliability of a Swiss watch!
Update: The professional newsfeed fromNewsquawk is now available free of charge in the XTB live account.
A setup from the news trading strategy (example):
There are economic data releases every day. With a common calendar like investing.com you can prepare for it and with a little practice you will know exactly when it is worth being on the screen.
If you know what the central banks are looking for, you also know which economic data is causing movement.
A central bank is responsible for its country's monetary policy. The ultimate goal is price stability. This target is considered achieved when inflation is close to but just below 2%.
If the target is not reached, the central bank can think about expansionary measures such as interest rate cuts, which lower the rate of a currency.
In the opposite case (when inflation is above target), the central bank can raise interest rates in order to dampen inflation. In that case the currency rises.
By now, it should be clear to everyone that the release of this data can create volatility in the markets. This offers opportunities for day traders.
We trade the so-called G8 currencies (USD, EUR, GBP, JPY, NZD, CHF, AUD, CAD) as well as the Scandinavians on the forex market.
So if we see an important economic data release on the calendar for one of the countries, we will prepare for the event shortly beforehand.
To do this, we look at the “Forecast” area in the calendar. Analysts estimate a value here days in advance. This value is then the so-called benchmark for the event.
If the actual result deviates strongly from the forecast, we usually see a rapid devaluation of 30-50 pips in the currency. Conversely, if there is a positive deviation.
So we pay attention to two things:
1.) Is the event relevant to the market?
2.) Is there a clear discrepancy between the forecast and the actual result.
Market-relevant events include labor market data, growth data (GDP) and inflation data.
In the following chart you can see how the Swedish krona reacted to weak inflation.
The EURSEK has risen sharply at the moment of the announcement and that for the next few hours.
There are various ways to place a trade here. We prefer to wait for a small return in the first minute and then go (in this case "long") into the market.
This way we can make a handful of trades each week that are executed according to a set trading plan.
You have now also got to know a tried and tested setup. It is part of the fundamental day trading strategies.
Would you like to learn more about this setup and how exactly we act so that you can also implement it?
Then use our free video training and you will get to know this day trading strategy better!
If you want to get started in day trading and don't just want to pay hardship, you first need a healthy dose of specialist knowledge.
It is then a good idea to gain initial experience on a demo account and determine your own trading style. This is followed by strategy development.
The best day trading strategies are duplicable and can be neatly written down using a trading plan.
This set of rules serves as a daily orientation for the trader and helps him to keep track of things even in difficult phases.
Always remember: stock market trading and especially day trading is not a hobby! It's tough here and you have to prepare very well.
Use the tips from this post and start our free trader training now!
Watch the new trading webinar now
Are you looking for a proven trading strategy? Here you will learn our best news trading setup - 80 min webinar - step by step to the news trader:
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Register now for the Newstrader webinar (click here)
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