Day Trading In Australia: What You Need To Know - Forbes

When you day trade, you use some strategy to identify profitable investments. Some of the popular strategies used include the following.

Trade the News

Day traders pay close attention to the news to profit from market volatility during major events, like before the announcement of the latest jobs report or an interest rate change from the Federal Reserve.

They attempt to predict the direction asset prices will move in response to major news events or look for assets that have not fully repriced in response to a breaking news event.

This strategy also works when traders follow the news flow for specific asset classes or individual stocks. Trading a public company before and after the release of a quarterly earnings report is a common approach.

Range Trading

Range traders try to identify assets that commonly trade within a set price range. The trader aims to buy when the investment's market price is near the low end of the range and aims to sell as it gets close to the high end of the range.

Range trading requires precise timing, and executing orders inaccurately may result in significant losses. Sudden news or market events can break the price ranges, leading to abrupt or unfavourable price movements.

Scalping

Scalping is a faster version of range trading, also trying to buy and sell off small price changes to an investment. With scalping, a day trader may buy and sell hundreds of times daily for one investment, trying to earn a small profit from each tiny movement. Scalpers follow short-term price charts, trying to find these trends.

Scalping is generally reserved for experienced traders who can see short-term patterns in price and have a comprehensive risk management strategy to help avoid significant losses.

Momentum Trading

Stocks and other investments are always subject to general price trends. If a stock loses money one day, it might keep losing money as other investors cash out. Meanwhile, a stock that has been going up in price may keep gaining as other investors jump on the bandwagon.

Momentum investors try to take advantage of these price trends, taking advantage of the principle that past price movements can indicate future trends. Momentum traders often use technical indicators and chart patterns to identify entry and exit points.

Fading

In fading, a day trader follows a contrarian mindset. The trader buys into assets that have been heavily sold or sells assets that have gone up in value. A trader using a fading strategy predicts that the herd mentality pushes prices too far in either direction.

The goal is to profit when markets overreact to news or events. Traders assume that prices eventually revert to the mean. However, fading can be a high-risk strategy, as it goes against the current trend and may result in losses if the market does not quickly return to equilibrium price levels.

Leverage

Day traders often use leverage for their investments. This means trading with borrowed money, using margin. Margin trading has the chance for much higher gains if your trades go well, but you can lose money much more quickly, too. Your broker also charges interest on margin loans.

Past Results Do Not Guarantee Future Performance

None of these strategies are guaranteed to work perfectly, even some of the time. Just because an investment has followed an identifiable pattern in the past doesn't mean it will continue to in the future. While past performance can help us guess future results, it can't guarantee them.