Day trading is a technique where you never leave any positions open over night. You open positions and close them within the same trading day.
To make sure they can close positions exactly when they want to, day traders typically seek out high-volume and high-liquidity markets. If a market is lacking in volume and liquidity, you might get stuck with a position open over night because no one wants to buy it. Or, you are forced to decrease the accepted price a lot to get rid of the position before the trading day is over.
Day trading is especially common on the forex market and the stock market. In recent years, cryptocurrency has also begun to attract quite a lot of day traders, for currency pairs (crypto/crypto or crypto/convetional) where there is sufficient liquidity and volume.
Day trading strategies
Several different trading strategies have been developed for day trading. Here are a few examples:
- News-based day trading. The trader exploits trading opportunities that arise from news events. This can be anything from scheduled press releases to sudden emergencies. News often create an increased volatility that a skilled day trader can take advantage of.
- The trader opens and closes a multitude of positions within a very short time frame, typically seconds or minutes. Scalpers aim to make a tiny profit on each trade and do not hold out for more. The accumulated profits can be substantial, since they do so many trades. Scalpers do best when the market is fairly calm, since they exploit tiny up-and-down movements rather than price trends.
- Range trading. Range traders rely on technical analysis and chiefly utilize the concepts of support and resistance levels to decide when to open and close positons.
- High-frequency trading (HFT). A high-frequency trader uses sophisticated algorithms to exploit small or short-term market inefficiencies.
How to chose a broker and platform for day trading
Here are a few examples of important points to keep in mind when chosing a platform for day trading.
- Speed of execution
Compared to swing traders and long-term investors, day traders rely heavily on entering and exiting the market at exactly the right moment, and even a small delay can turn a profit into a loss. It is therefore important to pick a broker and trading platform that executers orders very rapidly. (Of course, it is also your responsibility to select markets with enough liquidity and volume to facilitate speedy purchases and sales.)
A long-term investor who invests $20,000 and plans to hold on to the asset long-term does not worry much about a $50 broker fee. If you on the other hand plan on doing multiple small purchases and sales throughout each trading day, a $50 broker fee for each buy and for each sale will quickly eat into your bankroll. It is important to select a broker and broker account type where the fee schedule is suitable for day traders.
- Pick a user-friendly trading platform that suits YOU
In situations where every second matters, it is important that you are comfortable with the trading platform and can carry our your tasks at a rapid pace without any misshaps. Avoid trading platforms that are clunky, glitchy, bug-prone or difficult to navigate.
We recommend that you select a broker that will allow you to make a free Demo Account and check out the platform for free. That way, you are not bying a pig in a poke. The Demo Account will also allow you to try out a few different day trading techniques using play-money, before you decide to risk any real money.
- The right assets
It is of course important that the broker offers assets / products that are suitable for day trading, e.g. when it come to high-volume and high-liquidity.
- Customer support
If something goes wrong or you have a question, how can you get in touch with customer support? Do you have to make an expensive phone call abroad? Is live chat support available? When is the support staffed and do they speak (or write in) your language? Does the customer support have a good reputation online? We usually don´t think about these things until something bad has already happened and the customer support turns out to be email only and taking three weeks to reply.