Day Trading for Dummies
The Beginner's Guide To Day Trading
Day trading - also called intraday trading - refers to the opening and closing of trades within the same day.
This style of trading is very popular among beginners, as it is often portrayed as a quick, easy, and exciting way to make money.
Practically however, day trading is the most challenging form of trading, and those who try it typically fail.
It also doesn't help that the vast majority of trading "educators" out there are not profitable traders, but savvy marketers pretending to be one.
So before you do anything else...
Check Your Learning Sources
Before taking any trading advice, first ensure that it's coming from someone who can demonstrate some level of trading competency on a 3rd-party performance tracking platform.
This applies to the book authors you follow, trading experts you listen to, and online forums you visit.
In the spirit of transparency, therefore, here's my verified track record on Myfxbook:
Now with that out of the way, let's get down to business with this dummies guide to day trading.
Here are the topics we'll cover:
How Do Day Traders Make Money?
Day traders identify short-term profit opportunities within the small price fluctuations of each day.
They typically do this with:
- News services,
- Technical indicators, and
- An understanding of order flow mechanics
1. News Services for Dummies
Short-term prices can be heavily influenced by political or economic news.
Here are some examples:
To avoid being caught off-guard by such news, and perhaps to even profit from them, a day trader follows news websites such as ForexLive and subscribe to news notification services such as Ransquawk.
The moment some market-moving news occurs, the trader is immediately informed. Then, he can quickly take steps to position his trades to benefit from the situation.
2. Technical Indicators for Dummies
Almost all traders use technical indicators to aid with trading decisions, and intraday traders are no exception.
The only difference is that they tend to prefer to technical indicators that are more sensitive (responsive) to the immediate price moves.
For example, instead of using the simple moving average (SMA) indicator, they tend to prefer using the exponential moving average (EMA) indicator as it is more sensitive to the most recent fluctuations of the price.
Intraday traders also tend to prefer using shorter period settings on their technical indicators.
For example, rather than using the standard RSI period setting of 21, they might use a period setting of 9.
In the chart above, we see that the 9-period RSI is better able to identify overbought and oversold price levels, compared to the 21-period RSI.
In this way, a shorter period setting allows intraday traders look for profit opportunities within the daily price fluctuations.
3. Order Flow Mechanics for Dummies
A competent day trader understands the subtleties of short-term price action and the mechanics of how trade orders are filled.
This gives him a perspective that goes beyond what is ordinarily displayed on a price chart.