Tools and Strategies for Online Trading and Day Traders

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If you are new to the type of trading called ‘day trading’ then check out the following tools and strategies that are used in this specific area. Day trading is a term that is used for trading which is done in a day.

Day traders aim to make a certain amount of profit within a single day. Traders reach this goal by leveraging larger amounts of capital and by taking advantage of the smaller price movements in indexes or higher liquid stocks. As with all trading online day trading can be a dangerous game if you haven’t got a well-thought out method in plan.

All About Entry Strategies

A good day trader will look for two things when trading online and those are liquidity and volatility. Liquidity is the term used when traders enter and exit into a stock at a reasonable price and volatility is simple a way of measuring the expectations of the daily range. The more volatility a trader has the greater the profit or the loss can essentially be.

Once a trader has defined which stocks they are looking for they need to learn how to define the entry points. There are three available tools which can be used to see this.

Intraday Candlestick Charts

Level II quotes/ECN

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Fitting the Target to the Trader

A trader needs to identify a price target, this will also depend on the day trading strategy used.

Scalping. Scalping is one of the most popular and most known strategies used in day trading. This is basically selling a stock almost immediately after it becomes profitable. If you are using this strategy then the price target is one that just clears the profit margin of your stock.

Fading. Fading is the term used when day traders ‘short stocks’ after an increase in the stock. Although this strategy is based on the logic that the stocks are overbought and that existing buyers might be scared, it can be a highly rewarding way of trading. The price target in this case would be when buyers begin stepping in again to buy the stock.

Daily Pivots. This is another popular strategy used among day traders and especially among beginners. A trader would profit from a stock simply by its volatility. The goal here is to buy the stock at it’s lowest price during the day and then sell as it’s highest price on the same day. The price target here is similar to the ones above and is as simple as that when the stocks show a sign of reversal, you trade to make profit.

Although there are many different strategies and tools to help you with day trading the ultimate goal is to sell that stock as soon as you see a profit, however large or small.

Evaluate and Tweak your Performance

A lot of people want to get into day trading to make enough money so that they can quit their day job. The ultimate goal as a trader should be not to lose money. Sad to say, most traders lose more money than they expect and until they work up a momentum and a strategy this is usually the case. Even the most experienced can lose money.

To improve your chances of beating the odds of being at a loss, evaluate your performance. Track percentages of your gains and losses and how your individual strategy is working. It is better to analyze your strategy when making a loss rather than to chase another profit. By working on your strategy you can work out where the underlying problem is and try to solve it. Are you trading too soon? Are you buying in at the wrong time? Is the strategy one that doesn’t work for you? Even when you make a profit make sure you ask yourself these important questions.

As with all types of trading day trading is difficult to master. It takes time and effort. Do your research and try out each strategy to see which one works best for you. CMC markets is a great platform to test drive your skills before actually using them in the live market. More than anything, be prepared to lose and be prepared to win!