Understanding Day Trading Strategies

When people first get involved in trading, one of the things they might consider doing is day trading. But I'd say this is probably one of the most difficult ways of starting trading. So I thought let's do a video explaining what day trading is and how you can avoid the common pitfalls. Hello, I'm David Jones from Capital.com. I thought we'd do another educational video talking about day trading. So day trading explained for beginners. I think when people who haven't traded before or who've had little exposure to trading think about it, they think that trading is all about sitting in front of a screen 12 hours a day, jumping in and out and trying to make some money. And really that's day trading. You know, it's fairly Short-term trading. So I thought let's do a video explaining what day trading is. The common pitfalls, the common mistakes, I think, you know, an overall theme with trading is that people tend to be far too short-term. And I think if you're going to start day trading, that's clearly one of the problems. But I thought let's go through all of this and perhaps give some pointers on if you're starting day trading or you are a day trader, ways of improving your performance. As usual, if you're watching this video and you haven't subscribed, if you could click on subscribe. It does help support and grow the channel and means we can continue to push out lots of different content like this, educational content and also content on the various markets we cover throughout the week. Right. Let's get into it. So topic number one, what is day trading? Well, in its purest form, day trading is trading a market in and out during the day. but no overnight positions. So at the close of the market the day trader doesn't have any trades open and starts the next day afresh. So the appeal of that, one of the appeals, is the fact you don't have any overnight risk. So if something crazy happens when markets are closed you're not subjected to a shock when the market opens again. The downside is, as we'll talk about as we go through this, you can miss out on some of the bigger moves by being too short-term focused. So when we're talking about day trading, what markets should you trade? In theory, anything. If the market's open during the day, you could try day trading it if you wanted to. I mean, popular markets tend to be stock market indices. So the S&P 500 or the NASDAQ in the US. Here in Europe, we have the... The DAX, the German Stock Market Index, is always a popular one. Or the FTSE 100. For me, I must admit, if I had to day trade an index, I would focus on the US markets in terms of volatility and liquidity. Also, of course, foreign exchange markets are always popular. So the main ones, pound against the dollar, euro dollar, dollar yen, those sort of markets. But then there's a whole host of other FX markets you can trade. And commodities. Oil is the one I think that perhaps jumps out at me because that is a market where normally we have quite decent volatility throughout the day. Perhaps more volatility than it's seen in some of the other commodity markets. So there's some headline markets to think about when trading. So day trading, I said right at the start, is in and out the same day, no overnight positions. But that still means you could have variable timeframes. throughout the day. You might want to sit there and watch one minute charts. You might want to sit there and watch 10 minute charts or 15 minute charts. So again, it's important to think about how long you want to hold trades for and how much noise and volatility you're going to put up with. Personally, me, I'd be looking at 10 minute charts, but we'll have a look at that when we get on the platform. Then it's what sort of trader are you going to be? Are you going to try and follow trends throughout the day? So... perhaps get into a position early on and try and ride that move throughout the day? Or are you going to take the view that you're going to go against trends? If the market has an extreme view, an extreme reaction following a major news announcement, let's say like interest rates or non-farm payrolls, the market might go down, for example, and you might take the view, well, actually, that move is overdone. So you're going to go against those initial moves. So there's a couple of different ways of trading, and we'll take a look on the platform. You can use orders as well. Just because you're day trading, you don't necessarily need to be sat in front of the screen 12 hours a day. If you know there's a certain level where you want to buy oil, perhaps 50 cents lower than where it's trading now, you can use an order to take some of the stress away and just sit there and it gets filled if the order gets hit. Then, of course, there is the all-important risk management, the downfall of most traders. And let's not forget, most traders lose. The downfall of most traders, they don't pay attention to risk management. Just because you're short-term trading doesn't mean you can't have a big move against you throughout the day. So you need to still think about stop losses. Where am I going to get out if it goes wrong? And think about how you can maximise your profits. But... Let's take a look at some of these points. Let's jump on the platform and take a look and try and explain day trading a bit more by looking at some of these markets. So let's start things off with the idea of day trading. I'm going to look at the Nasdaq. This is the Nasdaq 100. So I thought I'd show you the idea of what day trading is all about. So the idea is in and out during the day, but no overnight position. So if I look on the Nasdaq, the Nasdaq is a 24 hour market. But the trading day, this is yesterday's trading day, runs from about here on the chart. And then if we jump through to the close, then that's up here. So you can see lots of volatility throughout the day, even though it trades overnight. A lot of the time, the volatility will not be the same sort of level, depending on what's happening in the world. But the idea is to trade within the trading hours for that market and end the day with no overnight positions. So when it comes to which markets to trade, Let's stick with the Nasdaq for now. If I take this chart out slightly, I mean, we've had quite a lot of volatility this week. So this is the last three days or so. So looking at the Nasdaq as an example of a stock market index, the market has gone from almost as low as 12,000 to about above 12,900. So lots of volatility just over these last few days. So, again, as a day trader, an opportunity there for plenty of trading opportunities. The opportunity to make and lose money, of course. So that's, you know, one reason indices appeal. We do get fairly decent swings throughout the day and it's markets that people are familiar with. And if we look at a currency pair, this is pound against the dollar, same sort of period. So again, over the last few days has gone from about 119.50 to as high as 122.40. So we've seen nearly a 300 point move in pound against the US dollar. over the last few days. So another example as to why currencies are popular markets. I mean, currencies are true 24-hour markets anyway. But again, if we're day trading, we probably don't want to be carrying any overnight risk. But you can see we get some sudden moves, quite a lot of sideways moves during this though, which could be frustrating. If you're sat there watching the market, then a sudden move again, and the market goes sideways. But again, with currency markets, we do have a level of volatility. which of course is what we need when trading. And then finally, I thought we'd look at a commodity I used. I talked about oil a few minutes ago. This is oil again over the last few days. The time of recording has gone from as low as about $93.65 to as high as $99. So again, big move here. $5.50 move in the price of oil over recent days. So another market that appeals to people as a way of... trying to make short term profits via day trading. So let's talk about the time frame. Let's stick with oil for now. So I've got a five minute chart here. And within this five minute chart, I think we can see things such as trends, we can see that on the 28th of July, the market slipped to 95.50. And it came back to it a few hours later, that was good support. And then if we jump forward, it came back to it again. in the early hours of the next morning. So we see this idea of support and resistance, if you're familiar with that, you know, in the chart, in the five minute chart. Now I can make this a shorter term chart. If I flick this over to a one minute chart, there's that old support that we had down around 9550. We have a lot more noise, of course, on the chart, because every minute the chart is drawing a new candle. It's completely up to you what time frame you want me. I rarely go below. Well, I don't go below five minutes for me. 5, 15, 10 minutes. They're my preferred time frame. I don't want to be looking at a one minute chart, but perhaps your approach is different. But I think for me, the slightly higher time frames work to try and filter out some of the noise in the market and not getting caught up sort of chasing the market all day long. One of the points I talked about is your trading style. Are you a trend follower or are you looking to go against the trend? If we look at this is the Nasdaq from a couple of days ago we saw the market push higher in response to an interest rate decision and then start to back off. You may have taken the view then well actually this market has overdone the reaction to an interest rate decision and you look to sell short. You're fading the trend. Or another approach would be, well, actually, the market is trading higher. So what I'm going to do is buy the dip. The market did dip and again over the next 24 hours has pushed higher. So it's really important. You can make money and lose money both ways. Think about, am I going to try and go with the broader trend for the day or over the last couple of days? Or am I going to wait for perhaps an extreme move in the market like we had here where the Nasdaq fell a couple of hundred points? in fairly short order and use that as an opportunity to say the market's overreacted. And like I say, both approaches are completely valid, but I think it's important to decide which box you fit in as a day trader. The other thing you can do, of course, is to leave orders. So if you look at a currency pair, so here's a five minute chart of Euro-US dollar. So we've seen the Euro trade as low as about 101.90 so far this morning. It was a few hours ago. So I think, well, actually. Maybe if it comes back down here again, I want to be a buyer. At the moment, it's about 15, 20 points above that. So what I can do, if I click on buy, I can actually leave an order to buy if the euro gets back to that old level. So the point here is making the platform do the work for you. You can see the blue line there on the chart so that if the euro drops that level, I'm going to buy in because I might be expecting the level to active support. So I don't need to sit here. and watch the market. Okay, so using orders is, I think, a clever way of trying to free up the time and enforcing the discipline of sticking to levels. The other part of discipline, of course, is to use a stop loss. So again, just because you're day trading, don't use it as an excuse to forget about risk management. So I might want to be a buyer of the euro if it gets to 101.90, but if the market falls to 101.60, I want to come out of the trade. So having a stop loss and risk management. for all of our day trades, I think is a very sensible approach. And to wrap things up, I would just say, let's not forget, most people lose money trading. And one of the reasons people lose money is by being too short term. So do not assume that day trading is the only way to trade. You know, we've seen some great trends in markets that run for days, weeks, and sometimes months. So having to sit there and figure out where it's going to go in the next hour isn't necessarily the cleverest bit of trading, but I thought I'd just do this quick video on explaining how day trading works. That's it for this quick update on Day Trading Explained. I hope you found it useful. There's a whole load more educational content on our YouTube channel, so take a look at that. But for now, from me, David Jones, and Capital.com, we'll leave things there. Good luck with your trading. For more trading videos just like this, please subscribe to our channel.

I thought we'd do another educational video talking about day trading. So day trading explained for beginners. I think when people who haven't traded before or who've had little exposure to trading think about it, they think that trading is all about sitting in front of a screen 12 hours a day, jumping in and out and trying to make some money. And really that's day trading. You know, it's fairly Short-term trading.

So I thought let's do a video explaining what day trading is. The common pitfalls, the common mistakes, I think, you know, an overall theme with trading is that people tend to be far too short-term. And I think if you're going to start day trading, that's clearly one of the problems.

But I thought let's go through all of this and perhaps give some pointers on if you're starting day trading or you are a day trader, ways of improving your performance. As usual, if you're watching this video and you haven't subscribed, if you could click on subscribe. It does help support and grow the channel and means we can continue to push out lots of different content like this, educational content and also content on the various markets we cover throughout the week. Right. Let's get into it.

So topic number one, what is day trading? Well, in its purest form, day trading is trading a market in and out during the day. but no overnight positions. So at the close of the market the day trader doesn't have any trades open and starts the next day afresh. So the appeal of that, one of the appeals, is the fact you don't have any overnight risk.

So if something crazy happens when markets are closed you're not subjected to a shock when the market opens again. The downside is, as we'll talk about as we go through this, you can miss out on some of the bigger moves by being too short-term focused. So when we're talking about day trading, what markets should you trade? In theory, anything.

If the market's open during the day, you could try day trading it if you wanted to. I mean, popular markets tend to be stock market indices. So the S&P 500 or the NASDAQ in the US.

Here in Europe, we have the... The DAX, the German Stock Market Index, is always a popular one. Or the FTSE 100. For me, I must admit, if I had to day trade an index, I would focus on the US markets in terms of volatility and liquidity. Also, of course, foreign exchange markets are always popular.

So the main ones, pound against the dollar, euro dollar, dollar yen, those sort of markets. But then there's a whole host of other FX markets you can trade. And commodities.

Oil is the one I think that perhaps jumps out at me because that is a market where normally we have quite decent volatility throughout the day. Perhaps more volatility than it's seen in some of the other commodity markets. So there's some headline markets to think about when trading. So day trading, I said right at the start, is in and out the same day, no overnight positions.

But that still means you could have variable timeframes. throughout the day. You might want to sit there and watch one minute charts. You might want to sit there and watch 10 minute charts or 15 minute charts. So again, it's important to think about how long you want to hold trades for and how much noise and volatility you're going to put up with.

Personally, me, I'd be looking at 10 minute charts, but we'll have a look at that when we get on the platform. Then it's what sort of trader are you going to be? Are you going to try and follow trends throughout the day?

So... perhaps get into a position early on and try and ride that move throughout the day? Or are you going to take the view that you're going to go against trends?

If the market has an extreme view, an extreme reaction following a major news announcement, let's say like interest rates or non-farm payrolls, the market might go down, for example, and you might take the view, well, actually, that move is overdone. So you're going to go against those initial moves. So there's a couple of different ways of trading, and we'll take a look on the platform. You can use orders as well. Just because you're day trading, you don't necessarily need to be sat in front of the screen 12 hours a day.

If you know there's a certain level where you want to buy oil, perhaps 50 cents lower than where it's trading now, you can use an order to take some of the stress away and just sit there and it gets filled if the order gets hit. Then, of course, there is the all-important risk management, the downfall of most traders. And let's not forget, most traders lose.

The downfall of most traders, they don't pay attention to risk management. Just because you're short-term trading doesn't mean you can't have a big move against you throughout the day. So you need to still think about stop losses.

Where am I going to get out if it goes wrong? And think about how you can maximise your profits. But...

Let's take a look at some of these points. Let's jump on the platform and take a look and try and explain day trading a bit more by looking at some of these markets. So let's start things off with the idea of day trading. I'm going to look at the Nasdaq.

This is the Nasdaq 100. So I thought I'd show you the idea of what day trading is all about. So the idea is in and out during the day, but no overnight position. So if I look on the Nasdaq, the Nasdaq is a 24 hour market.

But the trading day, this is yesterday's trading day, runs from about here on the chart. And then if we jump through to the close, then that's up here. So you can see lots of volatility throughout the day, even though it trades overnight. A lot of the time, the volatility will not be the same sort of level, depending on what's happening in the world.

But the idea is to trade within the trading hours for that market and end the day with no overnight positions. So when it comes to which markets to trade, Let's stick with the Nasdaq for now. If I take this chart out slightly, I mean, we've had quite a lot of volatility this week.

So this is the last three days or so. So looking at the Nasdaq as an example of a stock market index, the market has gone from almost as low as 12,000 to about above 12,900. So lots of volatility just over these last few days.

So, again, as a day trader, an opportunity there for plenty of trading opportunities. The opportunity to make and lose money, of course. So that's, you know, one reason indices appeal. We do get fairly decent swings throughout the day and it's markets that people are familiar with.

And if we look at a currency pair, this is pound against the dollar, same sort of period. So again, over the last few days has gone from about 119.50 to as high as 122.40. So we've seen nearly a 300 point move in pound against the US dollar. over the last few days.

So another example as to why currencies are popular markets. I mean, currencies are true 24-hour markets anyway. But again, if we're day trading, we probably don't want to be carrying any overnight risk.

But you can see we get some sudden moves, quite a lot of sideways moves during this though, which could be frustrating. If you're sat there watching the market, then a sudden move again, and the market goes sideways. But again, with currency markets, we do have a level of volatility. which of course is what we need when trading.

And then finally, I thought we'd look at a commodity I used. I talked about oil a few minutes ago. This is oil again over the last few days.

The time of recording has gone from as low as about $93.65 to as high as $99. So again, big move here. $5.50 move in the price of oil over recent days.

So another market that appeals to people as a way of... trying to make short term profits via day trading. So let's talk about the time frame.

Let's stick with oil for now. So I've got a five minute chart here. And within this five minute chart, I think we can see things such as trends, we can see that on the 28th of July, the market slipped to 95.50.

And it came back to it a few hours later, that was good support. And then if we jump forward, it came back to it again. in the early hours of the next morning.

So we see this idea of support and resistance, if you're familiar with that, you know, in the chart, in the five minute chart. Now I can make this a shorter term chart. If I flick this over to a one minute chart, there's that old support that we had down around 9550. We have a lot more noise, of course, on the chart, because every minute the chart is drawing a new candle. It's completely up to you what time frame you want me. I rarely go below.

Well, I don't go below five minutes for me. 5, 15, 10 minutes. They're my preferred time frame. I don't want to be looking at a one minute chart, but perhaps your approach is different.

But I think for me, the slightly higher time frames work to try and filter out some of the noise in the market and not getting caught up sort of chasing the market all day long. One of the points I talked about is your trading style. Are you a trend follower or are you looking to go against the trend? If we look at this is the Nasdaq from a couple of days ago we saw the market push higher in response to an interest rate decision and then start to back off. You may have taken the view then well actually this market has overdone the reaction to an interest rate decision and you look to sell short.

You're fading the trend. Or another approach would be, well, actually, the market is trading higher. So what I'm going to do is buy the dip.

The market did dip and again over the next 24 hours has pushed higher. So it's really important. You can make money and lose money both ways.

Think about, am I going to try and go with the broader trend for the day or over the last couple of days? Or am I going to wait for perhaps an extreme move in the market like we had here where the Nasdaq fell a couple of hundred points? in fairly short order and use that as an opportunity to say the market's overreacted.

And like I say, both approaches are completely valid, but I think it's important to decide which box you fit in as a day trader. The other thing you can do, of course, is to leave orders. So if you look at a currency pair, so here's a five minute chart of Euro-US dollar. So we've seen the Euro trade as low as about 101.90 so far this morning.

It was a few hours ago. So I think, well, actually. Maybe if it comes back down here again, I want to be a buyer.

At the moment, it's about 15, 20 points above that. So what I can do, if I click on buy, I can actually leave an order to buy if the euro gets back to that old level. So the point here is making the platform do the work for you. You can see the blue line there on the chart so that if the euro drops that level, I'm going to buy in because I might be expecting the level to active support. So I don't need to sit here.

and watch the market. Okay, so using orders is, I think, a clever way of trying to free up the time and enforcing the discipline of sticking to levels. The other part of discipline, of course, is to use a stop loss.

So again, just because you're day trading, don't use it as an excuse to forget about risk management. So I might want to be a buyer of the euro if it gets to 101.90, but if the market falls to 101.60, I want to come out of the trade. So having a stop loss and risk management.

for all of our day trades, I think is a very sensible approach. And to wrap things up, I would just say, let's not forget, most people lose money trading. And one of the reasons people lose money is by being too short term. So do not assume that day trading is the only way to trade. You know, we've seen some great trends in markets that run for days, weeks, and sometimes months.

So having to sit there and figure out where it's going to go in the next hour isn't necessarily the cleverest bit of trading, but I thought I'd just do this quick video on explaining how day trading works. That's it for this quick update on Day Trading Explained. I hope you found it useful.

There's a whole load more educational content on our YouTube channel, so take a look at that. But for now, from me, David Jones, and Capital.com, we'll leave things there. Good luck with your trading. For more trading videos just like this, please subscribe to our channel.

Transcript for:Understanding Day Trading Strategies

Transcript for:
Understanding Day Trading Strategies