Day Trading Strategy for Beginners
Day trading strategy for beginners is no different than that for advanced traders. The keys to day trading are discipline and risk management. However, day trading is the opposite of buy-and-hold investing with a long-term perspective. Day traders buy and sell securities quickly throughout the day. Here are basics about day trading strategy for beginners.
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For some investors, online securities trading is so compelling that they aim to become day traders. Day traders can trade almost any type of investment security. However day trading is most common among stock and forex traders.
In the stock market, day traders hope that their stock will continue to rise in value for the very short time they own them. Sometimes, it takes just seconds or minutes. That way, they aim to make quick profits of small amounts that can accumulate by the end of the day.
Stock traders can also consider short-selling when practicing day trading as well.
In the forex market, the volatility could be much more intense. Forex traders can use higher leverage, and enter the market in any direction. However, this flexibility comes at a cost: maximized risk.
IDDA: A Day Trading Strategy for Beginners
The Invest Diva Diamond Analysis (IDDA) can be used by day traders and long term investors alike. However, the material day traders analyze can vary.
The IDDA looks at the markets and the trader’s portfolio from five different points:
- Technical.
- Fundamental.
- Market sentiment.
- Risk management.
- Overall.
Let’s take a brief overview on the five points.
1- Technical Analysis – Day Trading Strategy for Beginners
Technical Analysis is the first step in the IDDA approach to developing a day trading strategy for beginners. It is the art of using history to predict the future. In all types of online investment markets, the securities have been making history with their price change. A technical analyst looks at how security has been performing and determines potential future price movements.
Day Trading Strategy for Beginners – Technical Analysis
In other words, technical analysts look for similar patterns that have formed in the past. Then, they will come up with trading ideas believing prices will make the same movements as they did before.
Read more about technical analysis here.
Day traders are recommended to conduct their technical analysis on shorter time frames such as the 30-minute chart, the 1-hour chart, or the 4-hour chart.
The daily chart could provide a big-picture outlook for day trading.
All of our Ichimoku Secrets can be applied to day trading strategy development. However, day traders must realize the amplified amount of risk they will be taking by trading in short time frames.
Market volatility is a lot more unpredictable when day trading, comparing to investing. A large portion of market volatility throughout the day is driven by fundamental news. Which brings us to the second point of the IDDA.
2- Fundamental Analysis – Day Trading Strategy for Beginners
Fundamental analysis includes research on the economic and political developments which could impact the security you are planning to day trade.
In the stock market, the fundamental analysis includes a series of research on stock valuation, earnings, company news, product outlook, company structure, and even their current PR.
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In the forex market, day traders follow economic data released from the respective currency’s country. Political developments such as elections, wars or even terror attacks can also play a role in the fundamental analysis.
Day traders can use fundamental analysis in two different timings.
1- Before the data is released (speculating the outcome).
2- After the data is released (ride on new market sentiment).
Due to its rapid and unknown nature, most day traders go by this golden rule.
“Buy the rumor, sell the news.”
This basically means buying the security if the speculation is positive before the actual data is released. The selling once the data is released regardless of the outcome.
This explains the rapid selloff we see after major risk events, even if the data is in positive territory.
You can obtain fundamental data directly from the publishing source, or from third party economic calendars such as Bloomberg Terminal.
Cut Market Noise: Join our Investing Group
3- Market Sentiment Analysis – Day Trading Strategy for Beginners
Market sentiment is the emotions and attitudes of day traders, about specific security. Sentiment analysis is the study of the love-hate relationship with the prices and traders, which in the geeky (or maybe animal lover?) trading world, is described as “bulls” and “bears.”
If traders expect upward price movement of a specific security, the sentiment is said to be bullish. On the contrary, if the market sentiment is bearish, most traders expect downward price movement.
Day trading strategy for beginners
Most traders have their own opinion, feeling or intuition about the markets, that’s why the prices don’t simply reflect all the information out there.
Each trader expresses her thoughts and opinions through the position they take in the market (bullish or bearish.) This helps make the overall sentiment of the market.
Just like technical analysis, there are indicators that help to have an understanding of the market sentiment.
We cover market sentiment analysis in detail in our Make Your Money Work for You PowerCourse.
4- Risk Management – Day Trading Strategy for Beginners
Risk management process starts with calculating your risk tolerance. Day trading strategies are never one-size-fits-all. Your financial situation is different than mine.
So is your risk tolerance.
Each individual day trader must calculate their risk tolerance before even thinking of joining the online markets. You can find basic tools to calculate your risk tolerance in this free workshop.
There are two types of online risk when it comes to trading and investing. Systematic and unsystematic.
Systematic risk represents the risk that is inherent in the “system” and cannot be eliminated through diversification.
Unsystematic risk represents the risk that can be diversified away, by combining multiple stocks, from multiple industries, into one portfolio.
If you are serious about day trading, you need to calculate your risk tolerance, develop a day trading policy statement and create a portfolio suitable to YOUR need.
5- Overall Analysis – Day Trading Strategy for Beginners
Overall Analysis is a general evaluation of all the other points of the IDDA. Is at least 90% of the other points signaling for a successful trade? And most importantly, do you feel comfortable with this trade or there is something deep down in your guts that is preventing you from taking the final step and placing the order?
The best advice here is that if you are not sure, then don’t do it! And certainly don’t simply hope that the market will move in your favor.
Final Thoughts on Day Trading Strategy for Beginners
Day trading is a serious business. In order to become a successful day trader, it is advised to make it your priority day job. It requires thorough research on all points of the IDDA. And also requires you to stick to your screen all throughout your trading hours.
If you are looking to grow your wealth on the side, then day trading is NOT for you. Consider medium to long term investing.
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Related:
- Can Day Trading on the Side be Profitable?
- Make Your Money Work for You PowerCourse: For long to medium term investors in stocks, ETFs and Forex.
- Forex Coffee Break Education Course: For short to medium-term traders in forex.
#1 Best Selling Author. Helping you accelerate your retirement with Triple Compounding™ Former engineer on a mission to help 1 million households take control of their finances. Founder & CEO of Invest Diva.
