Many dealing centers advertise day tradingas if it was really one of the easiest and most profitable ways to make a profit. Usually, they tell us that you can earn only 10 pips per day and in a month it will give a good result. Indeed, if you open transactions with a volume of one lot, the monthly profit may amount to 2000 US dollars.
However, the reality is that getting these very 10 points per day can be extremely difficult, and sometimes impossible, to prevent day trading textbooks. In addition, in addition to profitable transactions, there will also be unprofitable ones. Depending on the profitability of your strategy, their number can reach 50%. In this case, the monthly profit will tend to zero.
In this article I will tell you about the features of intraday trading or day trading (from English daytrading). You will learn about all the nuances of this trading style, and I will help you decide whether or not to take it at all.
We will deal with trading instruments
Before you begin to engage in intraday trading, you should pay attention to those trading instruments with which you are going to work. Most day trading tutorials will tell you that 30 trading instruments are trending% of the time.
But from personal experience, I can say that this is not always true. Rather, not for all tools. I conducted an experiment on several currency pairs, working with elementary breakdown trading systems, the essence of which was as follows:
- Opening buy transactions in case of breakdown at the price of the maximum value of the previous session (in this case, the last day).
- Retention of purchase transactions until I receive the profit level set by me.
- Opening short positions when breaking through the minimum value of the previous day.
- Retention of sales transactions until the price reaches my profit level.
As a result, I got the following picture. On the GBP / USD currency pair, my profit grew, while on the AUD / USD currency pair, I did not get everything. From this it follows that for the last asset it is better to use other Strategy.
From all this, I draw the first conclusion - before starting work, it is advisable to determine which asset the transactions will be made with. To do this, it is important to understand which currency pairs are most often in trends, and which consolidation. At the same time, the situation may change over time. After all, there is also news background. The more important the news, the stronger the reaction of the market to them, the more often you will see trends on the chart.
Determine market potential
Before you start trading with a particular instrument, I recommend that you pay attention to the ATR indicator (Average True Range or Average True Range). What is he showing? This indicator reflects the historical volatility of the instrument and is indispensable for day trading.
This indicator has its own trends. If the ATR curve grows, the average daily volatility also increases. Conversely, if the curve decreases, volatility also falls.
Why do we need to know all this? First of all, in order to understand what average daily movement to count on. If the price per day goes on average 50 points from minimum to maximum and the indicator of the Average true range increases, then we can expect that in the near future the range of fluctuations will also increase.
This indicator can be used to set intraday goals. If its average value indicates an average movement in 50 points, then you can plan at what level the trading instrument will exhaust its movement.
Find pivot points
In trading, as in mechanics, it is very important to find points of support. Here the price stops the current trend and may reverse. True, here I will make one important reservation. Once I tried to work with the same levels. But given the significant market noise, what worked well yesterday may lose relevance tomorrow. Therefore, I often redraw levels for greater accuracy.
In my practice, I found a rather interesting hint, which I use constantly if I resort to day trading. I find the lows and highs of the previous week. These levels serve as support and resistance for the price. In case of their breakthrough, stronger movements are possible. Or, if the price remains within the range, you can work between these marks, opening deals for sale near the maximum and for purchase near the minimum.
I also noticed that not all trading instruments respond equally to such levels. Some bounce harder, others spend more time near these marks before a U-turn. Although a lot depends on the news background.
Pay attention to volatility.
In the trading process, I also found an interesting pattern - market volatility is constantly changing. If it was low for a while (for example, a couple of days), then in the near future it will certainly grow.
Pay attention to the screenshot. The rectangle indicates periods of low volatility. After them, the market shows a significant increase in the spread of price fluctuations. How to put all this into practice?
Usually I draw similar rectangles with the maximum and minimum levels for the period. Trades are placed outside this rectangle. And here you can use different options. For example, place two orders outside the rectangle in both directions. As soon as it breaks through, you can leave only a deal that coincides with the direction of the price movement. I close the second.
As for limiting risks, options are also possible here. I prefer to fix part of the profit, and protect the remaining volume with the help of a trailing stop.
By the way, there is another interesting point. If the period of low volatility lasts more than a day, I do not recommend opening positions inside and working from levels. The fact is that in the near future volatility will increase and this can lead to losses. Therefore, try to look for entry points outside the rectangles.
When choosing a tool and trading tactics, it is very important to pay attention to trading sessionsin which you can work. Personally, I trade during the day and my schedule coincides with Moscow. Therefore, I manage to capture the European and American sessions. Those living in the Far East can pay attention to the Asian session.
Why do you need to know all this? The fact is that European and American currencies and stocks, for example, have more volatility and activity during the periods of their sessions. If you look at the fluctuations of the USD / JPY currency pair, the most active periods are in the Asian session. And at the same time, European currencies are practically “resting”.
News - Market Drivers
Many traders, especially intraday ones, try to work during the release of important statistics and other news. At this time, market activity usually increases, and volatility can increase significantly. Sometimes trends reach 200 or more points in just a couple of hours.
But even if you are not going to work on the news, it is important for you to know the time of their release for decision-making. Why? The reason I described above is the increase in volatility. Before news, especially important, usually the range of fluctuations is small and narrowing. After the news, the price leaves this range and often with a strong impulse.
If you are not seeking to profit from the news, it is better to close the deal or increase the size of the stop loss, since fluctuations at such moments can be chaotic for some time.
By closing a deal, you run the risk of losing significant movement and making money on it. Leaving a position, you risk losing a significant increase in volatility if the price goes against your expectations. Choose you.
Support and resistance levels
If you are in day trading, you can not do without these marks. Support and resistance are important levels that are a pillar and a deterrent from further price movements.
Pay attention to the screenshot. The price almost clearly fulfills the indicated level, which acts as support or resistance, depending on the position of quotes. Can I make money using this method? Naturally. However, there is one caveat, or rather, my personal recommendation.
If you intend to trade by levels, it is advisable to combine this method with candlestick analysis. In this case, you will receive more accurate signals about entering the market.
Let's consider some real examples. Take a look at the screenshot. There are candlesticks near support and resistance levels, based on which you will make more balanced and competent trading decisions.
And now a fly in the ointment in a barrel of honey. Getting ten points a day is the dream of any trader. After all, with large sizes of positions you can earn 100 and even more than dollars a day. All newcomers dream that one day they will be able to say “Goodbye” to their employer and settle in a comfortable chair at home with a laptop or tablet in their hands, opening deals and making their legitimate profit.
And everything would be fine, but there is one caveat - each transaction has its own costs in the form of a spread (the difference between the bid and ask price). On average, the spread is 2 points. That is, your profit from the transaction will no longer be 10 points, but 8 total. It would seem a trifle, but a considerable amount can accumulate in a month.
If we consider the same futures contracts, the commission here is much lower, on average, 2 US dollars per lot. Accordingly, it is worth considering whether to trade currency pairs at this pace. Perhaps it is better to turn to more powerful strategies that involve transactions with higher potential.
By the way, here the secret of why brokers and DCs so diligently advertise intraday trading is revealed. The more deals you open, the higher the commission gets to the provider.
Still want to do day trading? I have some bad news for you. In this trading style, in addition to market ones, there are also psychological factors that can lead to the loss of part of the funds or the entire deposit.
You need to make important decisions quickly and not everyone is ready to handle it. In day trading there will be only a few minutes, and sometimes seconds, to open a profitable position. During this time, you need to place an order and determine the acceptable level of risk.
Of course, you can have your own trading system in which all this is already written. Then your task is much easier. If the size of your stop loss is calculated mathematically for all positions and is unchanged, you can simply place an order, and after its execution modify it.
But it is the decision-making process that is the most difficult. You see a signal, and you must respond immediately. Not always and not at all it turns out, you don’t forex robot.
In addition, you can have tons of other annoying factors. You are tired of the main job, household chores at home, and here you need to sit down and carefully study everything. There is not always enough time for this. In general, in such a rhythm it is unlikely that something worthwhile will turn out.
Friends and family will wait
If you are going to engage in day trading, you will have to forget for a while about friends and family. And it’s good if your loved ones treat this with understanding and do not create an additional stressful situation that will negatively affect the results of your work.
Do not engage in day trading if you have only a couple of free hours per day. Nothing comes of this venture. Better spend this time on family and your loved ones. Do you think that in this case you will have to forget about the dream of making money in the financial markets? I will talk about other trading styles a little further.
Work on senior TF
So, I hope that I explained to you the complexity of day trading and now you want to learn more about how you can do without it. To do this, just look at older TFs, such as a daily or even weekly schedule. There is also a lot of interesting things, and the potential is huge. Let's evaluate the advantages of this work:
- Lower transaction costs. You will open fewer deals. Accordingly, there will be less overhead.
- More sustainable trends. Look at the daily charts for various instruments. Trends there are more pronounced. You can observe clear signals for a U-turn.
- You will spend less time trading. This means you can pay more attention to your loved ones.
- Less psychological stress. Working in this mode, you do not have to do analysis daily. It is enough to spend it on the weekend, choosing a convenient time.
There are two trading styles - swing trading and positional strategy. The first involves working with one wave of the trend, and the second with the whole trend as a whole.
The screenshot shows an example of swing trading. The deal closes as soon as the first correction begins. The advantage here is flexibility and mobility. However, there is a significant drawback - you get only part of the movement. Not the fact that you will be able to competently re-enter the market and take good profit from the next wave.
Position trading involves working throughout the trend until it is completed. The advantage here is that you get a big profit. However, there is a minus. If you misjudged the potential of the market, the trend may not start. Accordingly, you will wait for the trend to develop, and the price may return to its original value.
Choosing between day trading and positional strategy
There is no consensus on this. Someone works for younger TFs, while others prefer older ones. Both categories receive a profit. But what about beginners? They want to understand what exactly to choose.
Features of intraday trading
Here you need to work a lot with the schedule and the market. Every day you will open a large number of transactions, and they will last from several minutes to several hours. At the end of the day, all transactions are usually fixed.
As for the frequency of opening positions, it is quite high. Sometimes 1-2 is opened daily, and sometimes 10-20 transactions. At the same time, the level of profit may vary depending on the success of your work as a whole. If investors get an average of about 8% per year, day traders can have significantly more. But labor also increases proportionally. In addition, if the trade did not work out, you can get much less by the end of the year.
Do not forget about transaction costs in the form of a spread. Regardless of the result of your work, you will give an average of 2 points to a broker. And with an unfixed spread when news releases, you will give a lot more and not the fact that you can earn something.
In the process of day trading you will be accompanied by stress and psychological pressure. Decisions need to be made almost immediately.
Features of positional trading
Work is underway on older TFs. Moreover, transactions are rarely opened, trade is on the trend. Sometimes trends can stretch for months. And in this case, you can get from 200 to 1000 or more points.
Despite the fact that the frequency of opening deals is much lower than with day trading, the potential of positional trading is much higher. Just one position can bring you as much as you earn by opening hundreds of transactions per month. Agree, it sounds tempting.
Moreover, transaction costs here are much lower. You give DC the same 2 spread point on average. With just one deal, in the end it is much less than with a hundred.
With positional trading, you are less prone to stress and can work in more comfortable conditions. You do not have to come home from work and analyze schedules. This can be done on weekends. In general, you will spend less time at the monitor.
Reasons why day trading is not for everyone
First of all, I consider this approach unprofessional. Rather, it is a lottery where the chances of winning or losing are equal to 50 on 50. And this applies to both experienced and beginners. It is not necessary to think that more experienced traders know some strategies that allow them to constantly earn money. On the contrary.
The knowledge of such traders is more than enough to never work inside the day, and earn on positional trading.
Many traders believe that the more they work, the higher their profit. This approach is fully justified in ordinary work, where the more you do, the more chances are that the boss will notice you and move up the career ladder, which will also affect your salary.
But trading is different. There is no need to do anything else. Just one deal can bring you as much as you can not earn and for six months of painstaking daily work.
Why is intraday trading not suitable for everyone? In English there is such a word overtrading. This is when you open a lot of transactions and overload your deposit. So, day trading is a direct road to this state. Moreover, the more you trade, the higher your leverage will be. And this is also a problem.
Almost all beginners listen to brokers and gurus who promise fabulous profits. I, too, was like that at one time, which is a sin to conceal. I thought that 10 points every day is simple, because the price, here it is on the chart, here is the trend, I’ll enter here, go out there and put my money in my pocket. Nowhere is easier.
But in practice all this often does not work. Years of practice have led me to believe that it’s better to open several positions and take a movement of 500-1000 points in size, than try to open deals as often as possible, spend your time and money on staying in the 0 area in terms of profit. If you have any familiar day traders, just ask them how much they earned over the past year. Believe me, there are few who could boast of a positive result.
Yes, among intraday speculators there are good deals that bring good profits. But most open positions risk closing at a loss. And you literally six months exhaust and exhaust your nervous system so much that you want to forget forever about trading in the financial markets.
Market Makers Love Day Traders
Have you ever wondered why day trading is so actively advertised everywhere? Brokers, of course, get their points from each transaction. We opened 5 positions during the day with an average spread of two points, with the broker 10 points in my pocket, without even trading.
But on the other side of the charts there are professional players with large capital who are ready to work on any movements and stay out of small drawdowns, which will be disastrous for your deposit.
Have you ever wondered why there are so many candles with long shadows in different directions on hour and minute charts? Here, it would seem, a candlestick buy signal, and it is followed by the opposite. And what to do in such a situation? Honestly, no way. You simply will not be able to recognize all this and work profitably for the future. More often than not, your trades will be closed in steps, because there is no other option.
You do not need to be a trading guru to understand that support and resistance levels are places where a large number of stop orders are accumulated. Moreover, all these stop losses have a distance of approximately 10-20 points. No longer makes sense with an average intraday movement of 50 points. Otherwise, you will not be able to keep the proportion of 1 to 2 in terms of risk and potential profit.
Market makers with great financial capabilities are ready to play against the crowd and make money when you lose. And then, when most stop losses are triggered, which immediately affects the price, they change their direction to the opposite and win again.
I read a lot of reviews about various Forex brokers and DCs, in which traders accuse companies of almost theft, poor quality of services, greed and so on. But you know what’s most interesting? Not a company merges a trader's deposit. A normal company is just interested in having a trader trade, because today brokers work with liquidity providers and are intermediaries between you and the market.
The trader is to blame for all the troubles. It is he who decides to open deals with high risk, although all experienced market players dissuade him from this. The trader himself takes up positions, then complains that the price has reached his stop and the deal has closed. Blames the market and anyone, but not himself.
If you still have a desire to trade within the day, I want to summarize under the article and again highlight the main points to which you should pay attention.
7 important recommendations for future day traders
- The right choice of trading instruments. It is important to decide which of the assets most often shows a trend movement, and which most of the time is in consolidation.
- Carefully study the volatility of the selected instrument. On average, the price per day goes from 50 to 100 points one way.
- Identify the highs and lows of last week. These are important indicators for any trader working with technical analysis.
- In case of weak volatility for at least a few days, we should expect its sharp growth in the near future.
- It is important to understand when the maximum trading activity for the selected instrument is observed.
- Follow the news. Even if you do not trade on macroeconomic calendars, news leads to a sharp increase in volatility.
- Find support and resistance levels, use candlestick analysis to amplify the received signals.