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Day Trading Strategies Beginners to Get Started

Day trading is a popular trading strategy in currency and stock markets, described as the practice of purchasing and selling financial instruments once or multiple times within a single trading day.

By Ara ZohrabianPublished about a year ago 11 min read
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Day Trading Strategies Beginners to Get Started
Photo by Maxim Hopman on Unsplash

What is day trading?

Day trading is a tempting, profit-making career for people who want to trade individually or for a large investment company. There’s plenty of resources online that novices in day trading can use to learn about financial markets, day trading strategies, and more. Here are some tips and advice that I have learned as a professional investor and day-trader that may help you pave your way as a day trading beginner.

The first thing to know about day trading is that it is not investing. Day trading is a type of swing trading within the same trading day. Day traders take advantage of small market movements, opening, and closing positions multiple times before the end of the day. Similar to how you trade CFDs, day traders can buy and sell all types of currencies, stocks, commodities, etc., but it is short-term. Day trading is the fastest way of swing trading.

Here is how trading is different from long-term investing

Day trading is a game of buying and selling financial instruments on the same trading day. A person will buy and sell in a single day without holding the position overnight.

Day trading is easier to be implemented on markets of high fluctuations that are more manageable, like cryptocurrencies or how forex market works.

Long-term investments are more risk manageable since their costs are formed on the basis of fees and capital gains taxes.

How to calculate your day trading profit?

The most common question asked by beginners about trading is “How much can I make as a day trader?”. The simple answer is from hundreds a day to billions of dollars. The objective answer is that you have to calculate your profit and loss yourself to get an actual picture of how much you actually make as a trader.

You have probably seen tons of traders who claim to make hundreds, thousands, and even 6 figures a day just day trading online. Before you go any further with your day trading experience let’s make it clear that losing is part of my trading. Some people think and treat trading like gambling and it’s hardly possible for them to gain anything before they get disappointed and leave. The average Win/Loss ratio in day trading is more than 1.0, meaning it is more than 50%. To understand how much you actually gain or lose in day trading you should calculate your Win/Loss ratio and your risk to reward. The lower your Risk/Reward ratio the better when trading. You can get a higher average Risk/Reward ratio only if you are consistent with trading.

The amount of money you gain highly depends on your trading account funding and the type of financial instruments you trade. In the USA to trade in financial markets you need not less than $25,000, while in other markets such as foreign exchange, you can start at $1000 or even $500.

Never go into day trading without a solid understanding of how it works and without an objective mindset. Most professional traders will claim that your learning curve and your mental state are two milestones of success in day trading.

6 things to know before you start day trading forex

We are used to thinking that successful trading is only an option for professional investors who work for large financial companies, but times have changed. Now any and each of us has unlimited access to information, tools, materials and other essential resources to build a successful trading career. And yet even with this broad spectrum of additional assistance, there’s a high chance of failure if you are only a beginner. And there are quite a few things I wish I knew before getting into day trading.

Don’t rush into a real trading account

This is something beginners usually do when they open a trading account. The initial deposit starts from $1 so they go ahead and put their money in a real account while watching trading “how-to” tutorials on YouTube. Most brokers online offer a demo account which is great to make your very first learning steps in day trading. Entering something you don’t fully understand is a trap that leads to instant failure.

Focus on the learning curve, not the money

Day trading is not a hobby, it’s a profession that requires a certain skillset, time, and dedication. Changing your approach to trading will help you to become successful in it faster than those who see day trading as gambling or a fast profit opportunity. Setting a money goal prior to a trading day is the wrong approach. It will make the focus on $$$ instead of your opportunities. You better take what the market has to offer, and not what you want. Day trading is a marathon, not a fast and easy way to get rich. Manage your expectations accordingly.

Risk management is a top priority

Part of understanding and using any day trading strategy is risk management. Do you ask yourself “What is the best stop loss for this trade?”, “What is my exit strategy if the market goes against me?” before entering a trade? Advanced traders develop a habit of setting stop-loss mentally before even entering a trade. As a newcomer, it is always wise to set a stop loss. This rule might overcome swing trading in high volatility markets, as you may get kicked out of trade almost immediately.

Manage your greed and fears

In the history of modern financial economics, the rationality of financial markets has been a contentious issue. You probably heard that traders commonly share features like aggressiveness or extraversion. Trading is like financial fitness with rollercoasters that will soon make you feel anxious if you don’t manage your stress and frustration levels. Self-control, discipline, and rational thought are three forces that keep your trading “demons'' away. Don’t force yourself into trading when you don’t feel like it. Wait for the right opportunity, and you will less likely be overwhelmed and bored sooner than you make a profit.

Understand and move with market conditions

Accept that you are not smarter than the market, and don’t try to reinvent the wheel. There is very little chance that you will find an opportunity/strategy that no institutional buyer found or thought of before you. As a beginner individual trader, things will feel less complicated if you follow the overall trend of the market, find technical confirmation on charts, and only then consider making any further move. Most trading brokers today offer daily updates and their communities to see what other traders are doing. Following those will make our trading process easier, especially when you’re not just following someone’s trading day blindly, but analyze it yourself to learn something new.

Accept trading loss as a part of the experience

Accepting that loss is part of any trading strategy is an instant solution to not getting yourself on a so-called “losing streak”. Even 7-digit traders like Mark Minervini, have a Win/Loss ratio of 50%. A good tip in case of a big loss, give yourself 1 hour to process the loss and just move on to something that is more productive. Don’t just sit and keep repeating the same mistakes over and over again. As a beginner trader, you should know your maximum drawdown (MDM) that comes with whichever strategy you choose to follow. It is usually expressed as a percentage between the high and low prices of a trade. Knowing the historical maximum drawdown of your trading strategy will help you understand when to stop. The next dilemma when it comes to a loss track in trading is should you stop your trading strategy or should you stop. Professional traders usually follow their strategy in this case knowing that at a certain point the market may reverse, but for beginner traders, it is more reasonable to set a certain amount of money you can afford to lose in a day. Let’s say you have decided that your max loss per day is $500, as soon as you reach the limit, you should stop trading for that day. As someone who had just started, you are not as emotionally stable. Your emotions will put you on a revenge path, leading to a losing streak. As simple as it sounds “Walk away!”. Come back the next day, feeling fresh.

How to read day trading charts and patterns

Understanding and reading charts are the foundational parts of any successful trading career, including day trading. Candlestick charts show us the current supply and demand for a stock. Reading candlestick charts helps to decide to open or close a position. Each candlestick represents price points at a certain period of time. Candlestick charts indicate the general trend of a stock. You can choose the period of time you want to see on your chart. For example, if you have chosen a 30-minute chart, each candlestick will represent 30 minutes of price action, starting from the low going up to the high. For a beginner day trader, the 1 and 5-minute candlestick charts should be enough to use.

Components of Candlesticks

The anatomy of a candlestick is simple. On a green candlestick, each candle indicates

  • High
  • Close
  • Open
  • Low

The high and the low represent the highest and lowest price the market got to within a period of time. The open and close are starting and ending prices during a period of time.

Remember that green candles are bullish indicators, meaning a candle is closed above where it opened. Opposite to green candles, red bearish candles always open at the top. Large body candles are also a good indicator of bullish or bearish markets. Reading candles helps to understand the general attitude of a stock.

Basic candlestick patterns

Candlestick patterns are used to provide clarity on market sentiment, trade entry reasons, trend continuation, as well as to detect reversal opportunities. Candlestick patterns can be used at any time frame for day trading, swing trading and even long-term investing. There are tons of candlestick patterns over there. Michael C. Thomsett, a full-time trader and author described 200 of them in his book. You can always go ahead and learn them all. In this article, we are going to discuss only a few of the most common beginner-friendly and my favorite patterns.

Hammer candlestick pattern

A hammer usually happens when the market has been declining, suggesting that it is going to determine a bottom. The pattern is identified by a hammer-shaped candlestick with a bottom shadow that is at least twice as large as the candlestick’s body. The bullish hammer represents a market reversal. After noticing a hammer, you should wait for a volume confirmation in the next candlestick which should close well above the closing price of the hammer candlestick. To secure yourself, you can place a stop-loss below the lowest low, or even above the real body of the hammer candlestick. This way you lock the profits but also limit your downside if the following confirmation never comes.

Bullish engulfing pattern

The bullish engulfing pattern is arguably one of the strongest confirmations of a bullish move. This situation happens when the real body of a candle covers or “engulfs'' the entire real body of the previous candle. To identify a bullish engulfing pattern you should find a green candlestick right next to a red candlestick, where the green candlestick opens where the red candlestick closed and closes above where the previous candlestick opened. This pattern represents strong buying pressure.

Doji pattern

Doji patterns are often an indication of a market reversal. Doji pattern happens when there are candlesticks with the same open and close price, meaning that the candlestick has no real body, but it is formed by long upper and lower wicks. Depending on your strategy, the Doji pattern can be used both for bullish and bearish trading.

4 beginner day trading strategies

Trading without a strategy is an easy failure. There is no single full-proof trading strategy to work for every trader and market. Don’t take any strategy out there at face value without doing your homework and understanding how it works. Below are the 4 most common strategies to choose to start with as a beginner.

Following the trend

As simple as it sounds, trend trading strategy involves buying when stocks are up, and selling when they’re down. For a beginner trader, it is usually better to follow the uptrend, since the downtrend tends to be more aggressive and unpredictable. Usually, you have to start your day 1-2 hours early before the market opens to detect the overall trend of the day. Generally, it is wise to open a position during the first or second pullback, otherwise, just leave the strategy for another time.

Reversal day trading

It can be hard to catch a stock that will make a big move. This strategy is relatively easy to implement since in most cases anything that goes down eventually goes up and vice versa. It is easier to find stocks that recently made big moves and calculate possible resistance points. The advantage of reverse trading is you don’t have to be consistently impulsive and aggressively rush into a trade. You just watch the trend develop and wait for the momentum to begin to shift.

The easiest way to identify an uptrend market on a chart is by looking at the impulsive movements, big moves that lead to new highs. After an impulsive move, the market takes a breath, which is a pullback. The most objective way of identifying an uptrend market is to find the lowest low of the chart and make sure that the lowest point is not beat. This is a good guarantee that you are on an uptrend.

Scalping

Day trading scalping strategy uses quick movements in a stock market to make a profit. This strategy might be a little intimidating for beginners since it requires the ability to read the chart and make fast decisions based on momentum moves. However, if you have already mastered chart reading and have solid control over your trading psychology, scalping is a great opportunity especially if you find a high level of intraday volatility.

Trading the news

For most newer traders, news day trading is a little touchy and dangerous strategy to implement. Nonetheless, this strategy is highly popular especially among foreign exchange market traders, where news leads to higher volatility, meaning higher profit and risks. It is important not to sink into a quicksand here since the news is something available to everyone involved in the financial markets. The spread in news trading sometimes is so high that even if you have closed a position at a certain point, you end up at a much lower position. This situation is called slippage. If you choose to trade with the news, make sure to trade with regulated international brokers like IFC Markets or similar, to avoid any spread speculations the non-regulated brokers may attempt.

Conclusion

Day trading is certainly not for everyone. Especially as a beginner, you tend to be more stressed out, intimidated, and more vulnerable to possible outcomes. Give yourself a one-month trial period to understand if day trading is right for you personally. To the small number of people who decide to continue day trading, I recommend getting more punctual and consistent with your trades and trading strategies, and not forgetting to continuously improve your trading skills as well as your trading attitude.

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About the Creator

Ara Zohrabian

Ara Zohrabian, an author and an expert in fundamental and technical analysis. Currently he is a Senior Analytical Expert at IFCMarkets Corp.

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