UFX Markets's take on Day Trading: What is Day Trading? Day trading is defined as the purchase and sale of a financial instrument within a single trading day. This is an achievable practice in all the financial markets, but it is especially prevalent in the Forex market as a result of this market being the most liquid of all financial markets. In general, day traders are a class of trader in and of themselves. They have large capital backing and are well informed. They will normally use a high level of leverage to maximize their profit levels. They liquidity they provide plays a very important part of the Forex market as a whole. In addition, they facilitate the smooth running of the Forex market with arbitrage. This article will examine day trading and the traders involved in it.
As mentioned earlier, day traders are a class of their own. They are usually well educated and they do this type of trading for a living. Unlike many retail traders, day traders are by all intents and purposes, truly professional. This class of trader has an in-depth knowledge of the Forex market and therefore, to be classified as a day trader, there are some criteria that need to be met:
In-depth knowledge and experience within the Forex market
Those who are new to Forex are strongly discouraged from trying to day trade. In most likelihood, novice traders will end up incurring losses.
Sufficient Working Capital
Day traders will only utilize their risk capital to free them from the stress and risk possibility of financial ruin. In addition, because the margins are razor thin, a day trader needs a large amount of capital to be able to profit from the intra-day fluctuations in currency prices.
A Trading Strategy
For one to have an advantage over others in the market, one must develop a proper strategy before venturing into day trading.
“Discipline is the Bridge between Goals and Accomplishments.”
Day traders are normally individuals with a strong sense of discipline. Without discipline, it is easy for one to end up trading based on emotion.
Day traders rely heavily on technical indicators that indentify opportunities to make money. Some of the technical indicators used by them are:
This is a Forex chart guide that looks like a flag with a mast on either side. This type of pattern results from narrow price fluctuations and indicates a consolidation before the proceeding movement resumes.
Elliott Wave Theory
Discovered by Ralph Nelson Elliott, the Elliot wave theory explains that the financial markets move in a repetitive and identifiable waveform.
This is another type of indicator that a day trader will look for in their trading strategy. With this, day traders look for assets that are trading near support and resistance levels. To help them identify a breakout point, day traders will utilize tools like:
- Fibonacci levels
- Gann levels
- Wolfe Waves
Even though day trading is a controversial topic, it is becoming more common as advances in technology allow the average traders access to software tools that were once available only to large institutions of trading. Nevertheless, novice traders are strongly discouraged from embarking on day trades until they have gained sufficient experience and attained enough risk capital to enable them to trade properly and efficiently.