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Day trading involves buying and selling financial instruments, such as stocks and forex, within a single day
Popular approaches include scalping, momentum trading, breakout trading, and contrarian trading
Strategies like stop-loss orders, position sizing, and diversification can minimise loss and maximise profit
Source – IG
Day trading involves buying and selling financial assets within the same day to profit from short-term price movements. Day traders rarely hold positions overnight, closing their positions before the end of the trading day.
Intraday refers to the price movement of assets that trade during regular business hours. This term is often used to determine a particular security’s new highs and lows. For example, if a security reaches a new intraday high, it has hit a new high relative to its other prices during the trading session.
In Australia, day trading is popular among investors, particularly those seeking to take advantage of any volatility on the Australian Securities Exchange (ASX). The ASX is the main exchange in the country and is home to Australia’s largest companies, like Commonwealth Bank, BHP, and Woolworths.
Unlike investment strategies that require investors to hold positions for extended periods, day trading allows them to enter and exit the market quickly, taking advantage of the short-term rises and falls.
Day trading does come with risks; traders must have strong self-discipline and be able to make quick decisions.
From Novice to Expert: How to Start Day Trading Successfully
Successful day trading requires a combination of knowledge, skill, and discipline. Here’s some advice to get started:
Learn the basics: Before starting to day trade, it’s necessary to have a solid understanding of financial markets and how they work, the types of assets available, and the factors that can impact prices.
Develop a strategy: Successful trading requires a clear strategy that outlines your goals, risk tolerance, and trading style. All potential traders should have a plan for managing their trades, including setting stop-loss orders and taking profits.
Choose a broker: Online brokers, like IG, offer powerful platforms for day traders. When selecting a broker, it is essential to consider factors such as regulatory compliance, fees, trading tools, and customer support. IG is one of the safest global brokers since it complies with several major regulatory agencies, including the FCA in the UK, CySEC, ASIC, and many others. It is also listed on the London Stock Exchange, ensuring more transparency.
Practice with a demo account: Many brokers, including IG, offer demo accounts that allow clients to practice trading without risking real money. It can be a great way to test your strategies and get comfortable with the platform.
Start small: When you begin day trading, it’s best to start with a small amount of capital and gradually build up your account as you gain experience. Doing so will help you learn how to manage risk and avoid significant losses.
Stay disciplined: Successful traders are disciplined and stick to their strategy. Avoid making emotional decisions based on fear or greed.
Learning the Basics – How to Build Awareness on the Front End
Awareness of the basics of trading is essential before you place your first trade in real-time. Before you look for seminars or other avenues of education, check first with your broker. Several brokers, like IG, have invested heavily in educational and training materials, including eBooks, videos, YouTube channel resources, and other materials designed to enhance your individual trading experience.
IG is a regulated and reputable broker for trading on the ASX with over 45 years of experience. It provides a broad range of educational tools, including more specialised offerings like IG Academy and Master Your Trading Mind hub. The former offering helps you build your personal trading skills at your own pace, while the latter tool equips your mind to handle the rigours of trading. There is a psychology to trading, and experts with IG have developed tips and insights to prepare your mind for the task. Trading success requires holding your emotions in check and following a disciplined step-by-step strategy when investing.
Whether you are a beginner or an accomplished trader, there are many articles and informative podcasts that can raise your trading experience to a higher level. The IG Academy can be accessed by phone, laptop, PC, or tablet, providing a wealth of materials for every level of trading expertise. If you prefer a more direct approach, IG hosts webinars that allow questions to be addressed to the firm’s trading experts.
Identify Trading Opportunities
Identifying trading opportunities is a crucial step to success. This process involves finding opportunities where you believe the price of an asset is likely to move in a particular direction. Here are some tips for identifying trading ideas:
Follow the news
Keep an eye on events that are likely to impact the market. Major economic data releases, company earnings reports, and geopolitical developments can affect the price of certain assets.
Analyse charts
Technical analysis involves examining charts to identify patterns that might indicate a potential trading opportunity. Traders use technical indicators like moving averages, RSI, and MACD.
Look for catalysts
Catalysts are developments that are likely to trigger a significant price move. For example, a company may launch a new product expected to generate substantial revenue.
Monitor social media
Platforms like Twitter can provide valuable insight into market sentiment. Traders can use social media to track mentions of different stocks and identify new opportunities.
Use screeners
Screeners are tools that allow traders to filter stocks and other assets based on criteria, including price, volume, and market capitalisation.
Navigating the Market: Which Trading Instruments Should You Choose?
Source IG
A wide range of financial instruments are available for Australian day traders, depending on their preferences and risk tolerance. Shares offer ownership in a company and are the most popular instrument bought and sold on the ASX. Indices refer to a group of shares rather than just one company stock. For example, the ASX 200 index tracks the 200 largest Australian companies.
Forex trading involves buying and selling currencies to profit from fluctuations in exchange rates. This type of day trading requires knowledge of the global economy and political events that may impact currency values. Contracts for difference (CFDs) are financial contracts that allow traders to speculate on the price movements of an underlying asset without owning the asset. Traders can use CFDs to trade stocks, indices, currencies, and other instruments.
Options are contracts that can be bought and sold, while futures require traders to buy or sell an asset at a predetermined price and date. Both options and futures trading can be complex and require an understanding of the underlying asset and market conditions.
The Art of Day Trading: Top Trading Strategies
Day trading requires a well-defined strategy that considers market conditions, risk management, and established goals. Some key strategies include scalping, momentum trading, breakout trading, contrarian trading, and news trading.
Scalping involves making frequent small trades to profit from small price movements. Scalpers seek trading opportunities that offer small profits but have a high probability of success.
Momentum trading is buying or selling assets experiencing strong upward or downward momentum. Momentum traders look for assets that exhibit solid trends and take positions in the direction of the trend. It can be risky, as trends can reverse quickly.
Breakout includes taking positions in assets breaking out of a price range or trading channel. Day traders who use this strategy look for price levels where an asset has historically struggled to break through, and they can take positions once the asset moves above or below this point.
Contrarian trading involves taking positions that go against the prevailing market trend. This type of trading is based on the idea that the market often overreacts to news or events, causing prices to move too far in one direction. Contrarian traders look for opportunities to buy undervalued assets or to sell overvalued ones.
News trading is taking positions in assets based on news and current events. Day traders who use this strategy monitor news sources for information that could impact the price of an asset and take positions based on that data. It can be risky as the news may be unpredictable, and prices can move quickly in response to new facts.
Survive and Thrive: Risk Management Strategies for Day Trading the ASX
Managing risk and minimising loss is crucial to long-term day trading success. Traders can use several strategies to reduce their risk. One effective method is to set stop-loss orders. A stop-loss order automatically closes a position when a specific price is reached, thereby helping to limit losses.
Another method is to use position sizing. This involves determining the appropriate position size based on your account balance and risk tolerance. This way, you can limit the amount of money risked on each trade and ensure you have enough capital to continue trading.
Diversification is also essential, as some assets perform differently under varying market conditions. By spreading your trades across different assets, you can reduce the risk of a single trade damaging your portfolio.
It’s also essential to avoid trading emotionally. Trading based on fear or greed can lead to poor decisions and increased risk. To minimise emotional trading, stay disciplined, follow your trading plan, and try to make rational decisions.
Finally, it’s helpful to track your trades. Maintain a journal to help identify patterns in your trading, enabling you to adjust your strategy and learn from mistakes. By reviewing your transactions regularly, you can continually improve your approach and lower your risk.
Key Takeaways
If you’re interested in day trading, having a clear strategy, a solid understanding of the market, and a disciplined approach are vital. With the right tools and mindset, day trading can be a lucrative and rewarding way to participate in the Australian financial markets.
Disclaimer: The content of this article is sponsored.
Having gained a degree in economics, Alan entered the world of financial services starting his career in London and then moving to New York for a number of years. His first post at a City bank saw him establish a reputation as an forex trader. Having recently returned from New York after eight successful years, Alan is now a prosperous trader in his own right concentrating on commodities and forex.
