Trading habits

Making trading decisions and developing a sound and effective trading strategy is an important foundation of trading. Traders use the term ‘day trading’ which means that they buy and sell stock within the same day. Day trades seek to make profit by making use of large amounts of cash so as to take advantage of price movements which in indexes or highly liquid stocks.

In this article we will look at some of the day trading strategies that are normally used by traders.

Entry Strategies
There are specific stocks that are ideal for day trading. Not all stocks and forex are suitable for day trading and a daily trader has to focus mainly on two things in a stock market which are volatility and liquidity.

Volatility: Is generally the measure of the approximation day price range.

Liquidity: This will intern allow the day trader to enter and exit forex at a favorable price (i.e. low slippage and tight spreads)

Therefore if there is more volatility this means that there is greater profit or loss for the day trader. As a day trader you should be able to know what kind of forex you are looking for. Therefore you should be able to identify entry points as well as your exit points. In order for you to do this effectively there are three tools you may use and these are;

Intraday Candlestick Charts - This will provide you with raw analysis of price action.
Level II Quotes / ECN - This will give you detailed information of orders as they happen.
Real-Time News Service – This will give you day to day news feeds. News is one vital tool in stock movements.

Finding a Target
You should also be able to identify a price target so that you are able to adopt your own unique trading style. Here are some of the common day trading strategies.

Scalping: This is one of the most popular trading strategies and it involves the selling of stock immediately when it becomes profitable. The main target in this strategy is about profitability.

Fading: It involves the shooting of stocks after a rapid upward trend. It is based on the assumption (1) buyers are ready to start taking profits, (2) they are over bought and (3) present buyers may be afraid out. This strategy is very risky but at the same time it can be very rewarding. In this strategy the target is on the focus when buyers step in again to trade.

Daily Pivots: This involves in profiteering from daily forex’s volatility. Therefore traders will buy forex that a very low for the day (LOD) and expect to sell them at the high of the day (HOD). In this strategy the main focus is on the next sign of the forex level price.

Momentum: It focuses mainly on trading depending on the news releases. It also tries to identify highly strong trending moves based on high volume. Here the price target is when volumes start to decrease and bearish candles start to appear.

You should also note that in day trading strategies traders make use of the same tools as for normal trading. The exits and entries are the ones that will differ at most circumstances.
As a trader you should also determine a Stop Loss. Whenever you trade on margin you should note that you are more venerable to sharp price movements than compared to the normal traders. Therefore determining a Stop Losses is very essential when day trading. The best strategy to adopt is to set up two stop losses.

1. Physical Stop Loss: This is when you would have to order until a certain price level so as to accommodate your risk tolerance. Therefore you would buy forex with the money that you are certainly sure you want to lose.

2. Mental Stop Loss: This is the point where your criteria are violated. Therefore you will become prepared whenever a trade makes an unfavorable turn you will immediately exit your position.

As a day trader you should be able to set your daily goals or targets. You should be able to set up your maximum profit that you will get per day as well as setting up you maximum loss that you are able to withstand per day. Therefore as a day trader you should not take up unnecessary risks that will result you to a big loss during the day.

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