Day trading can be a home-based business and it does not require any major infrastructure. There are no special skills required and there are no tests that need to be passed. A lot of the risks of making large losses can be avoided if you are not holding your trades overnight or when away from your trading charts. Day traders may also enter and exit multiple trades during a day trading session. You do however need a strategy and a solid level of knowledge if you want to be successful. A major reason a lot of traders look at day trading is because the market can fall overnight.

Day traders use high amounts of leverage using trading strategies to capitalize on small price movements in highly liquid stocks or currencies. This means that even small movements in price can lead to big wins (and losses). In day trading, you close your trade before the markets close to avoid a lot of the headaches. Another major benefit is the amount of trading opportunities you get. Because you are day trading you will be trading on smaller time frames. This will give you more trades and more chances to make potential profitable trades.

We have summed up some successful trading strategies for your trades to be successful in short term or Day trading. Now, we are going to investigate the most widespread forex Day trading strategies.

• Scalping Day Trading Strategy

Scalping is a day trading strategy that aims to achieve many small profits based on minimal price changes. As a scalper volatility is your friend. The more volatile the markets are, the more price is moving and the more trades you can find to potentially make more profits. When using scalping strategies you are trading in a similar way to other day trading strategies. You are looking to get in and out before the market closes or before you finish your trading session. A scalper simply can’t afford to wait for the market to come back.

Scalpers aim for a large quantity of trades, opening almost ‘on a hunch’, because there is no other way to navigate through the market noise. Scalping can be exciting and at the same time very risky. Scalpers must achieve high trading probability to balance out the low risk to reward ratio. Probably the hardest part of scalping is closing losing trades in time.

If you want to be a scalper, consider developing a sixth market sense – look for volatile instruments, good liquidity, and perfect execution speed. If mastered, scalping is potentially the most profitable strategy in any financial market. It is only the associated risks that prevent it from being the best day trading strategy.

• Price Action Strategy

There is also a strategy for part-time traders who pop in and out of work (10 minutes at a time). These brief but frequent trading periods may lend themselves to implementing a price action trading strategy. Price action trading means analyzing the technical or charts of the currency pair to inform trades. Traders can analyze up bars (a bar that has a higher high or higher low than the previous bar) and look at down bars (a bar with a lower high or lower low than the previous).

Up bars signal an uptrend while down bars signal a down trend, while other price action indicators may be inside or outside bars. The key to success with this strategy is trading off of a chart timeframe that best meets your schedule.

• Momentum Day Trading Strategy

There are traders, who lack the patience to wait more than a day for a single trade to develop. They favor situations when things develop instantly and any single trade become profitable during the next several minutes or else they will simply close the position. These are people, who prefer to take profits of 20 pips ten times within the trading day, instead of making a 120-pip profit on a single trade, while watching the market move initially, say 70 pips in the opposite direction.

A suitable approach for such people is the so called short-term momentum strategy. The general idea behind it is to make long or short entries only when momentum is on ones side. In doing so, a trader aims to reach his/her first profit target as soon as possible. The following indicators can be used with this trading approach – the 20-day Exponential Moving Average (EMA), the 100-day Simple Moving Average (SMA) and the Moving Average Convergence Divergence (MACD) (the histogram settings can be – short-term EMA with a period of 12, long-term EMA with a period of 26, signal EMA with a period of 9 and closing prices). A trader needs to make his/her entry only when the MACD has turned within five candles. It is so, because the entry needs to be exactly when momentum is starting to build, not when it has already amassed.

Day Trading and Risk Management

The above ground rules can help you avoid some of the biggest catastrophes in day trading, but it’s important to manage smaller risks, as well. Risk management is all about limiting your potential downside, or the amount of money you could lose on any one trade or position. When considering your risk, think about the following issues:

Position sizing. If the trade goes wrong, how much will you lose?

Percentage of your portfolio. Closely related to position sizing, how much will your overall portfolio suffer if a position goes bad?

Losses. What level of losses are you willing to endure before you sell?

Selling. After making a profitable trade, at what point do you sell?

Even with a good strategy and the right securities, trades will not always go your way. It’s important to have a plan for when to close a position, whether it’s purely mechanical — for example, sell after it goes up or down X% — or based on how the stock or market is trading that day.

Proper risk management prevents small losses from turning into large ones and preserves capital for future trades. But that means traders have to be willing to realize a loss, which is hard for many traders to accept, even though it’s essential to long-term survival.

Learn Day Trading The Right Way

If you’re not quite ready to be a prime-time player, you can always try a stock market simulator first. Paper trading involves simulated stock trades, which let you see how the market works before risking real money. Paper trading accounts are available at many brokerages. You can also get a feel for the broker’s platform and functionality with this approach, in addition to seeing how theoretically profitable you’d be.

While it can be useful to test day trading under simulated conditions, there’s still no substitute for real-life trading where you have money at stake. Here are some additional tips to consider before you step into that realm:

Establish your strategy before you start. Losing money scares people into making bad decisions, and you have to lose money sometimes when you day trade. Having an exit plan for each of your investment holdings is important because it helps you avoid making an emotional decision when you need to make a rational decision.

Be patient. Look for trading opportunities that meet your strategic criteria. If the situation doesn’t meet it, don’t trade. You don’t have to trade if nothing looks attractive.

Read, read, read. Continually watch what’s happening in the markets. Big news — even unrelated to your investments — could change the whole tenor of the market, moving your positions without any company-specific news.

How to Make Money in Day Trading

The answer to question about how to make money day trading really depends on the individual and the way that the trader implements their trading plan. Many day traders are extremely active when they trade, often initiating and exiting positions within seconds in some cases. Other day traders position themselves at a certain level of a currency pair using limit orders, and then take their time in closing out the position sometime later on the same trading day.

Trading news releases is very popular among day traders, since during those announcements market volatility usually increases, which can present them with more opportunities. The experienced traders make use of the latest charts, moving averages, support, and resistance levels to identify and follow market direction. Finally, it is essential to choose the correct profit/loss ratio. Basically, making money in day trading depends entirely on the quality of a trader’s trading plan, how well it is implemented in practice, and the trader’s discipline in adhering to their own rules. Day trading becomes even more challenging when a trader comes into the market each morning unprepared. 

Because day trading is considered very risky, the beginners might make use of demo trading accounts, which lets market participants practice and learn from their mistakes without losing real money.