A Brief Guide to Day Trading

At one time only open to banks and other financial institutions, day trading has become more widespread amongst individual consumers thanks to the creation of the internet. Day trading is referred to as such because the positions are not held overnight while trading markets are closed.

There are several options available when it comes to what can be traded on the day trading market. Day traders may wish to participate in short-term trading (also known as scalping) where positions are only held for a matter of seconds or minutes. Swing or position trading afford the investor more time to hold onto the position throughout the day.

Investors wanting to take part in day trading have several markets to choose from. Popular day trading markets include the following: futures trading based on foreign currencies, futures trading based on commodities, options on futures, and currencies exchange (US Dollar to Euro, US Dollar to Swiss Franc, etc.) There are SEC restrictions on the day trading of US stocks.

Investors new to the day trading market would be well-suited to choose a market that has low margin requirements, a low tick value, and move at a moderate pace. Day trading investors may also use automated robots which run on highly sophisticated algorithms to produce the best results. For example, the ETNA Robot can run hundreds of trading strategies simultaneously and is capable of issuing 3,000 orders per second. In general, automated robots such as ETNA allow for the ease of trading futures, stock and options, foreign exchange trading, and scalping.

Scalping is one of the most popular day trading strategies. The price target here is immediately after the trade has become profitable. Fading is another strategy which involves shorting stocks after a rapid increase. Fading is one of the riskier types of day trading strategies because it is based on the assumption that the stock is overbought, that early buyers are ready to take profits, and that existing buyers may be scared off. Regarding fading, the price target is when buyers step in again. Daily pivots benefit from a stock's daily volatility. Investors will try to buy at the stock's low of the day (LOD) and sell it at the high of the day (HOD). The price target in this particular type of trading is to trade at the next sign of a market reversal. Momentum day trading strategies revolve around news releases or strong trending moves supported by high volume. An investor may buy a stock based on a news release and ride its trend until it starts to downturn. The target here is to trade when volume decreases and the market grows bearish.

There are a number of different successful day trading systems including the following: moving average bounce, double moving average bounce, pivot point bounce, and zero line cross. The moving average bounce system works on a short-term timeframe with a single exponential moving average and trades from the price being moved away from, reversing, and bouncing off the moving average. The double moving average bounce system uses two exponential moving averages where the second average is used as a filter for the direction of the trade to ensure that the system only includes trades in the longer term direction of the market. The pivot point bounce system uses a short-term timeframe and daily pivot points, then trades the price moving forward and bounces off any of the other full or half-way pivot points. The zero line cross also uses a short-term timeframe though it has two long-term Commodity Channel Indices (CCIs) and a single exponential moving average. Trades made using the zero line cross system are based on the CCI crossing over the zero line while the price is on the correct side of the moving average.

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