A Guide to Day Trading in 2021

 

The term ‘day trading’ is common and widely used, while it describes a strategy that is decidedly short-term in its outlook.

 

Often deployed in the $6.6-trillion forex market, it’s also a trading strategy that’s built on executing a high volume of orders rather than the profitability of each individual trade.

 

We’ll explore the concept of day trading in more detail below, while appraising the best strategies for investors to consider.

 

What is Day Trading?

 

In simple terms, day trading refers to the buying and selling of assets within a short time-frame (typically less than 24 hours). As we’ve already touched on, the objective here is to earn a relatively small profit on each trade, with repetition and volume helping to compound these gains over time.

 

Day trading has become increasingly accessible throughout the digital age, with platforms such as the MetaTrader 4 offering live trades and a demo account amongst a raft of other user-friendly features.

 

This trading strategy is built on the concept of leveraging a market’s innate volatility, as investors look to profit from the vast number of price fluctuations that occur each day. As a result, traders will often only hold onto a position for a matter of minutes, while they’ll never maintain an open position overnight.

 

Of course, any strategy that relies on volatility is inherently risky, so day traders can have a difficult time making money.

 

In fact, a 2010 study by Brad Barber at the University of California found that just 1% of day traders consistently earn money, following the analysis of trades over a 14-year period between 1992 and 2006.

 

How to Succeed as a Day Trader

 

Fortunately, there are ways to mitigate the risk of day trading, with the selection of the right markets and asset classes particularly important.

 

More specifically, you’ll need to identify which markets are most compatible with the principles of day trading, so that you can optimise the strategy and your potential returns. Forex and stocks are amongst the best markets for day traders, as they’re naturally volatile and provide considerable opportunity for investors to make incremental profits.

 

You can also find huge swathes of real-time and historical data pertaining to these markets available online, so you can successfully carry out the requisite research to make informed day trading decisions.

 

On a final note, we’d recommend that you create a viable and timeless strategy that informs the individual trades that you execute. One of the most effective strategies is news trading, which enables day traders to buy or sell in relation to specific economic and geopolitical events as they unfold.

 

If your efforts are particularly data-driven and heavily influenced by research, you could also engage in range trading.

 

This enables you to understand the typical high and low range of a particular stock or asset class, creating a typical trading range for you to target with regular trades.