Day trading tends to be very popular when the market surges (e.g. the dot-com bubble or the cryptocurrency bubble). This is because everyone and their grandmother can make money trading when the market is going up. But it’s when the market’s going down that separates the truly skilled day traders from the beginners.
In this post we are going to look at:
What is day trading
Day trading is a strategy whereby the day trader makes multiple trades each day.
For one reason or another, day trading is seen as a “full-time job”. The day trader is glued to his or her computer screen all day, from the opening bell to the closing bell.
Many people choose to become day traders for different reasons:
Day traders can use a discretionary approach or a quantitative approach.
Discretionary day traders either use price action or standard technical analysis to trade:
Others employ a quantitative (systematic) approach to day trading. This is what I do with the Day Trading Model. Day trading models allow the trader to backtest certain indicators for the optimal BUY and SELL signals. In addition, models allow the trader to backtest certain risk management strategies.
What are the advantages and disadvantages of day trading
Some people decide to become day traders due to the advantages that day trading has over trading strategies with longer time frames. If done properly…
Day trading leads to lower risk
Successful day traders spread their capital across multiple small positions. For example, a common rule of thumb is “don’t risk more than 5% of your portfolio on any single position”. Another rule of thumb for day trading is “always hold at least 5 different positions”.