How to Find An Effective Day Trading Strategy

Finding the right day trading strategy is about matching up the trader’s personality and strengths with the techniques used in the field. Doing so can help increase a trader’s success rate.

Finding the right day trading strategy is about matching up the trader’s personality and strengths with the techniques used in the field. Doing so can help increase a trader’s success rate.

Generally speaking, day trading involves buying financial securities and then selling them on the same day, and those who are involved in this practice are referred to as being day traders or active traders. Unlike in the past when this was reserved primarily for fund managers, banks, investment companies, and financial institutions, the arrival of online trading has by all accounts open the doors to the world.

Strategies Used In Day Trading

As you can well imagine, there are nowadays a variety of strategies and techniques being used by active traders in order to ensure they can benefit financially. These include:

News playing, Trend following, Rebate trading, and Contrarian investing

Contrarian investing is basically a form of day trading which follows the ideology that those securities which have been rising steadily, will eventually begin to fall. If securities have been falling, then the exact opposite view is applied.

News playing is a technique which relies on buying and selling securities based entirely on news which has been released by the specific company.

Rebate trading is generally a strategy that relies on ECN rebates as the main source of income. Generally speaking, traders who use this strategy will usually purchase large quantities of low priced securities.

Scalping is a technique which involves buying securities and then selling them within minutes, or even seconds. As a result, traders who use this strategy aim to profit from the small price gaps which occur almost immediately after a purchase.

Trend following is basically the exact opposite of contrarian investing, in that traders who use this strategy will usually assume that rising securities will continue to rise, while falling securities will continue to fall.

Other well known day trading strategies include the likes of ‘short sells’ and ‘range-trading’.

Determining What The Best Strategy Is

Alarmingly enough, it is said that approximately 80% of day traders end up losing all their available capital before they manage to learn about the various trading strategies, and this is why it’s imperative to start out slowly, and to limit yourself to taking small risks. Below are a few tips which can help you in determining what the right day trading strategy for you is.

Matching strategy with the trader – it is crucial to match a trader’s personality, strengths, and comfort level with a specific strategy. In other words, those who feel uncomfortable taking risks should focus on scalping, news playing, or rebate trading, while those who enjoy taking risks can go ahead and become involved with contrarian investing.

Starting small and testing the water – ideally, you should begin by making small investments if you’re new to the game, as this will allow you an opportunity to learn all about the different pros and cons of a specific strategy.

Day traders can of course also benefit financially from using multiple strategies at the same time. For example, you could consider investing the majority of your capital using one of the low risk strategies, while at the same time investing some capital using one of the high yielding strategies.

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