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Day-Trade Strategies

 

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The Day-Trade Strategies & FAQ



Day trading is the act of buying and selling a currency, a share, or any other financial asset in the same day. Day-traders are exposed to significant market risks and to high transactional cost. Understanding technical analysis and been able to evaluate upcoming information is the key to day-trading success. Here are some common day trading strategies.

 

 

THE BASICS OF DAY-TRADE


There are three crucial factors you must have in mind when trading intraday:

 

1) Minimizing Trading Cost (trading spreads, trading commissions, overnight rates)

2) Depth of the market (sufficient volume activity for easy enter / exit)

3) Significant volatility that may create trading opportunities in short-term

 

How to Choose which Assets to Trade


Technical analysis can provide a quick analysis framework when choosing financial securities. Several technical tools and ratios are used by intraday traders like the Candlestick Patterns, Indicators, Trendlines, and Triangles. Be very careful in identifying reliably the general market trend. Your profit potential depends not only in your picks but also to the trend of the market you trade as well. When trading stocks, remember that it is better to buy an expensive stock in a cheap market than a cheap stock in an expensive market. Use your analysis to measure and evaluate the general trend of the market.

 

Library

 Forex Books

► Stock Trading Books

► Commodity Trading Books



How to leverage your intraday trade


High capital leverage is usually used by day traders. You may use borrowing money from a margin account. In case of stocks -the marginal account usually requires an initial investment of at least $2,000. In case of options the initial investment is set to a minimum of $250. When trading Forex the minimum amount needed is about $100.


In the case of trading stocks -once the initial marginal account is opened, you may borrow up to 50 percent of your portfolio. This 50% leverage is called a margin. Be careful margin accounts increase furthermore your market risk.  Alternatively, of buying a stock you may buy an option or future contract that it is based on the fluctuations of a stock. The risk is similarly very high so be sure that the derivative contract that you buy is significantly volatile.

 

Short-Selling the stock-market


You may buy a stock and predict that it will move upwards but you may also sell a stock predicting that is going downwards –that is called short-selling. Standard or binary options with a stock as their underlying asset may be used instead of buying directly a stock. An intraday trader who sells a stock short actually borrows a security and sell it. Afterwards he hopes to buy that security back in a lower price.

 

A Marginall Calls may be issued


A margin call may be issued by a broker when the value of a trader's margin account falls below a pre-defined limit known as the maintenance margin. Then two things may happen:

1) A trader must deposit more money into his account to cover the marginal call.

2) If the call isn’t met, the broker will start selling the trader's securities until the maintenance margin is once again attained. Under most margin agreements, a broker can sell all trader's securities without waiting for him to meet the margin call. 

 

 

4 COMMON STOCK DAY-TRADE STRATEGIES


 

1) Stop-Loss Day-Trade Strategy


A stop loss strategy incorporates a preset order that a security will automatically be sold if the price of that particular security reaches a minimum level. The advantage of a stop order is that traders are exposed to limited risk. The disadvantage is that the stop price could be triggered by any short-term high fluctuation. In general, stop-loss orders are important and are used widely among professional traders. Retail day traders use another stop-rule. They set an overall maximum loss that they can suffer in a specific day. Whenever this point is met they decide to withdraw from the market the rest of the day.

 

2) Momentum Day-Trade Strategy


When you implement this type of day-trade strategy you are searching for strong trends wich are accompanied by high volume activity. A momentum trader will buy a stock usually on favorable news releases and sell it when he receives a clear sign of trend-reversal.

 

3) Scalping Day-Trade Strategy


When you implement a scalping day-trade strategy you buy a stock or an option planning to sell it just for a small profit. That means closing a position almost immediately after it becomes profitable.

 

4) Fading Day-Trade Strategy


When you implement a Fading day-trade strategy you search for stocks and options that usually make rapid upward or downward moves. When you indicate such moves you place orders against these rapid trends. Although this day-trade strategy is risky, it can be proved profitable if your choices are wise.


 

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