Day trading is often said to be a difficult or even impossible way of making money out of financial markets. The detractors often claim that unpredictable market movements during the fast intra-day timeframes make it nearly impossible to find a reliable day trading strategy, and that short timeframes are too fast to trade on, so that there is little time to analyse the market and form a well-considered plan of action. They also typically quote the supposed high number of investors who fail to make money and who either later quit or move on to other kinds of trading.
There are various problems with this argument as it stands. It may be true that the markets are nervous, patterns unpredictable and that there is a higher drop-out rate than with other trading activities, but it is possible to address these issues.
The number of people who fail at anything attempted is always high - mostly people try something, find out it is not for them and move on. This is especially true of any ambitious venture, including those for making a lot of money. For day trading the Forex markets, it is often quoted that 90%, 95% or even 99% of first time traders fail to make any money and move on. Though probably close to the mark, in some ways these figures are moot. Most of these people are not really committed to the venture. They quite possibly have some other motive enticing them into trading. They may be tired and jaded with their day job, burned out, in financial straits or otherwise desperate for a change of lifestyle and better quality of life. It is a foregone conclusion that they will fail at trading, at least as long as they remain subject to these personal circumstances. Trading is a skilled and disciplined science and art that actually can be rewarding, but it requires a lot of work and the right mindset to succeed. The failure rate among truly committed students of trading is likely to be much lower than these oft-quoted figures of 90% and above.
There may well be a higher failure rate among beginning day traders than is the case with other kinds of trading, because strategies and tactics are wrongly transferred and applied from longer term trading regimes. For example, one must be much more cautious about using wave pattern and Fibonacci analysis in fast intra-day charts. These patterns, while they may still be discerned, are more elastic, more difficult to spot and so provide a poorer set of technical indicators than is the case in long-range markets.
Highly experienced investors may well be better placed to trade in general and have the experience, skill and patience to trade the market long-term. But beginners need to acquire that sense of inner certainty in order to enable their confidence to grow, and so benefit greatly from a shorter timeframe for completing tasks and evaluating their progress. For similar reasons, the more casual trader will certainly benefit from the more immediate results that arise from intra-day trades.
We then come on to the more important question - does anyone succeed at day-trading? If so, what are the most important points of consideration that separates these investors from those who are less successful? It is certainly the case that day trading is practised by many individual traders and also by the larger financial institutions, such as banks and hedge funds. Proprietary traders also day-trade. If we look at these institutions and the minor investors who follow their movements, certain recurring features can be seen. Because of the rapid movements and changes in price action, most strategies are price-based, rather than following indicators. By that I mean the main actions like entry, exit, updating contingent orders and so on, are determined by observations on the price, levels of support and resistance and fast cycle patterns. Also trading hours are all-important in day trading. Trading is only carried out at times when it is more or less guaranteed the price will frequently move a significant amount in one direction, except in rare circumstances during periods of high volatility.
While price is all important in day trading, watching some indicators is beneficial in so far as it can help spot changes in cycle, therefore direction, and identify trend presence and changes. With these tools the small time day trader can analyse the market on an ongoing basis and follow what the big players are doing. Grid trading, stop hunting and hedging news events are among the tactics that can be incorporated into a day trading strategy.
In conclusion, those contemplating day trading should not be put off by the often negative press this receives, but should be aware that it is an art on its own and learn the particular approach instead of just following the more widely known general trading strategies.
About this Author
David is an data analyst who has transferred his vast experience in digital image processing to carry out personal research into technical analysis of financial markets while also indulging in some casual day trading on the Forex markets. Recently he has started a new web log with the intention of sharing his research. Further information and tips and tricks can be found at this site.
http://www.daytradingstrategyblog.com
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