Day Trading Basics - NASDAQ Investing

Day Trading Basics

You need to know what day trading is and what it is not before mastering the day trading basics. Since it seems like quite a few novice traders mistake day trading for trading with the use of daily charts. Day trading is not a trading strategy or a system, by the way. Daytrading is in fact a trading kind in which all trading is made within a day. In the case of daytrading, a trader typically does technical analysis during morning hours hours, and when a new working day begins, the trader waits for a trade signal and after that opens positions, which he will exit as soon as day finishes.

In FOREX day trading, the average day profit is around 60 ? 120 pips, the average day loss is between -15 and -30 pips, as well as the average quantity of trades is 1 in case of a trend strategy and 2 ? 3 in case of a flat strategy. Day traders who live in Americas, wake up quite early in the morning way before working day begins, so that they could take advantage of the active European trading session, and also have sufficient time for technical analysis; they commonly close all open positions towards the end of the day with a profit or loss. In the event that market goes against an open position, it must be closed by stop-loss order and no more trading is made within this day.

If trader forecasts a flat market throughout the next business hours, he / she may trade inside the channel 2 ? 3 times by 30 ? 50 pips on average.

There are many commonalities between various daytrading strategies, so the same day trading basics apply to them. You analyze, then open a position, then get your profit and finally leave the market. Day trading strategies only vary in the ways price movements are predicted, how stop-losses are calculated and what currency pairs are utilized. There may also be a difference in how profitable or loosing positions are closed by various traders.

Daytrading isn?t investing. That?s why daytraders rarely leave their positions open for longer than 8 hours. Traders need to complete every day with a profit even if it is a negative profit. Those who open positions as daytraders, occasionally leave them overnight for two reasons. Whenever a very strong price movement emerges, there is a probability the market is going to move in the same direction for several days, which means it is easier to continue to be open to get the most from the price movement. Trader stupidness and poor behavior will be the second reason. A number of usually novice traders, after making a mistake don?t take a projected loss, and take away the stop loss-order leaving the room for large movements against the open position, usually, they keep this loosing position for a few days waiting until the market changes its direction giving a chance to close that losing position without a loss. Many of these so named traders all of the sudden become investors, and many of them finish up shedding their deposits. Avoid joining them at any cost. Grab your -20 pip loss and earn +80 pips profit next day. By doing this, you stick to your trading system, control your losses and permit profit to build.

In my Day Trading Basics I also want to mention a special kind of daytrading strategies. In reality, almost any strategy where a trader works within a day and closes all positions towards the end of the day can be termed as a day strategy, even if a trader does 20 ? 50 trades a day. Strategies that involve numerous tiny transaction are usually called scalping strategies. Individuals who do scalping, don?t keep positions open for longer than Twenty minutes, and always close their positions prior to leaving their workstations; the usual profit/loss of any average scalping strategy is about 5 ? 10 pips. Scalping demands concentration and extensive training using practice accounts and then on mini-accounts, and it is considered to be a privilege of experienced traders. Scalping is incredibly stressful for regular people and beginner traders, and usually is a bad idea in the beginning.

To conclude the things I have just said, I would like to give you my simple but proven daytrading strategy.

1. Proven with EURUSD pair, and 2% of deposit per trade (figure out lot size depending on the leveraging of your account).
2. At the beginning of the morning at 7:00am EST check what european traders have done to EURUSD currency pair and pay attention to where it began to move.
3. Once market begins to move towards predicted direction, open a position.
4. Place your stop-loss order to the earlier extremum however, not more than -30 pips. In cases where volatility is excessive in the morning hold back until the market busts the channel and enter at the break point placing stop loss order to -30 pips.
5. Don?t forget to install a take-profit order with +120 pips target which is that corresponds to the average daily range of EURUSD currency pair. When a significant movement occurs, your big take profit order will likely be fulfilled.
6. Close your position once market flats out or right at the end of the day at about 4:00pm.

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Source: http://nasdaqtradingnews.com/2012/02/04/day-trading-basics/

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