Daytrading, also known as ‘intraday trading’, is a type of strategy for trading that involves closing every order on the same day that it was opened. Somebody who daytrades is called a ‘daytrader’ or sometimes also a ‘day trader’.
This is one of the most popular strategies for trading CFDs among the various time-based strategies. Like any other type of strategy to be used, it has its own unique features, advantages and disadvantages.
Daytrading: basic ideas
As a general rule, daytrading aims to exploit volatility and significant movements within the main sessions of the instruments to be traded. These movements typically result from significant changes in sentiment, correlations, responses to important technical areas, economic data and of course major elections and referenda.
Daytraders typically open orders at the start of the London session or otherwise at least an hour or so before major releases relevant to their chosen instruments. They usually aim to time entries correctly from both a technical perspective within clear, healthy trends and a fundamental one before important releases.
Despite the fact that daytraders usually focus on the lower timeframes for actually entering and exiting orders, they still need to be acutely aware of multiple timeframes. The direction of the main trend on higher timeframes like the four-hour and daily charts is critically important. Unlike scalpers, daytraders almost always avoid trading against the main trend on higher timeframes.
Indicators and other technical considerations
While daytraders do need to pay attention to fundamentals, TA is in general more important for this type of relatively short-term strategy. This includes price action and Fibonacci in most cases as well as support and resistance and technical indicators.
Moving averages and oscillators are among the most important categories of indicator for most daytraders. As with basically any type of strategy, simple moving averages help in daytrading to determine trends, possible entries and exits and areas of support and resistance.
Oscillators meanwhile are key for detecting saturation. Many daytraders have firm rules to avoid buying in overbought and selling in oversold, whereas traders looking at the longer term can often choose to enter despite saturation. Probably the most used oscillators among daytraders are fast stochastics; attention is paid to crossovers on relatively higher timeframes like H1 and H4. For more information, check out Exness Academy’s article on the stochastic.
Elements of success in daytrading
As with practically any other strategy, a trader needs to be disciplined to be a successful daytrader. It’s not usually necessary to be as emotionless as a scalper to daytrade, but you do generally need to be more strict in cutting losses than a swing trader or a very long-term trader typically might be.
Planning is also a central factor in a daytrader’s success. It’s important to study both the economic calendar and charts fairly carefully before entering any orders each day. Managing capital and avoiding overexposure are also key skills required for daytraders.
Key advantages and disadvantages of daytrading
As with any type of strategy, daytrading has advantages and disadvantages. These might be more or less important for different traders with different personalities.
Arguably the biggest single advantage of daytrading is the increased possibility of trading an instrument with a high swap successfully. Since daytrading involves closing all orders on the same day as opening, even the very highest swaps are basically irrelevant for this strategy. Daytrading is also generally less time-consuming than scalping.
One of the most important disadvantages of daytrading is that very few instruments are active every single day. It’s impossible to make a significant profit on some inactive days. Related to this is the fact that daytraders can’t exploit swings to the fullest. The average main movement in forex lasts about two or three days before consolidation: daytraders can only join one day’s movement at a time.
Is daytrading right for you?
Daytrading is one of the more appropriate strategies for people who work full time. It’s not as intensive as scalping in terms of time but it also usually yields fairly quick results, good or bad.
One of the most important efforts of daytraders in practice is to avoid exhaustion. They usually try to rest during the day even if they’re not working full time: they don’t normally spend long hours at a time glued to charts. This is key for good concentration.
Daytraders who do work full time typically get up a bit earlier than they would do otherwise. Over breakfast, they bring themselves up to speed with the latest news and what’s happening in the economic calendar as well as on charts that day. They might set their orders including pending orders before going out to work, making sure to add reasonable stops and targets.
There are usually only two other times part-time daytraders check their charts. Typically they have a quick glance at lunch. Then in the late evening before bed they close any trades for which stops and targets weren’t triggered earlier.
If this sounds like something you could add to what you usually do every day, daytrading might be a suitable strategy for you. For more information on how to develop and test your strategy, check out Exness Academy’s article on strategic trading. Stay tuned for more articles on strategies coming soon!
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