LLTS113 — The Fundamentals of Day Trading — An Overall Comprehensive Guide for Beginners

Day trading is a popular form of trading where trade occurs during market hours. Unlike other forms of trading, such as swing or position trading, day trading can be lucrative for those willing to put in the time and effort to learn how to trade. This article serves as a beginner’s guide, covering all the fundamentals of day trading, its pros and cons, and strategies investors may use to successfully engage in day trade.

Day trading enables investors to buy and sell securities comprising stocks, options, currencies, and futures contracts. Day trading aims to take advantage of short-term market fluctuations and make quick profits by using technical analysis to identify trading opportunities and make decisions based on price charts, volume, and other technical indicators. However, Day trading can be risky, as traders are exposed to market volatility and can lose money if they make poor trading decisions. Therefore, it’s essential to clearly understand the risks involved before getting started.

Day Trading — Where to Begin?

For a trader that has just set out to start day trading, there are multiple things to look out for. For starters, make sure to remember to only invest the money you are willing to lose in case things do not go in your favor. As a beginner, it must be kept in mind that it is more important to inspect for the perfect opportunity that aligns with your strategy before you decide to trade. Do not rush into one and be patient since only with mistakes and losses will you get a grasp of day trading. Moreover, traders must realize that day trading should not be a major primary source of income since markets perform differently during bear and bull runs. Therefore, over time their dependency on day trading may increase once they regularly start making profits. Beginner-level traders must also establish their strategies, both for entering and exiting trades, to ensure rational decisions instead of emotional ones.

To be successful as a day trader, you need to put in a lot of time and effort. You should learn about market trading strategies and day trading regulations as part of your research. Many individuals believe that day trading is a straightforward, skill-free way to make money. You must first recognize the challenges if day trading is something you want to pursue. You may even lose money in the process and therefore, fully understanding what you’re doing, will take some time. Even if you are familiar with every strategy and word, you could still fail. You must be prepared to work hard for months or years to study the markets, develop a strategy, and continuously carry it out over time if you want to become a successful day trader.

Day Trading Strategies

Various intraday strategies exist to assist day traders in making better choices while trading and ensuring that it matches their investment goals and risk appetite. Some of these are:

- Scalping

One of the most frequently used strategies for day trading is Scalping. This strategy can be utilized to earn profit due to price fluctuations in the market. Investors seek to maximize their profits by either margin trading or future contracts. However, investors should never disregard risk management principles and must be cautious in comprehending marginal requirements for effective positioning. Investors may also analyze the order book and use fundamental and technical indicators to create strategies that determine trades’ exit and entry points.

- Range trading

Candlestick chart analysis, support and resistance levels, and other various tools are used in range trading.

This strategy enables investors to look for price ranges within the market structure and base their trading techniques and strategies on them. Range trading is friendly and a comparatively easy strategy for traders that have just started.

- High-Frequency Trading

This strategy involves algorithms to create trading bots that can be used to enter or exit positions. Although this may seem pretty simple to traders, it definitely has its own intricacies. Due to the volatile changing conditions of the market, there is a need for constant backtesting and algorithm updates to adapt to the market. Therefore, assuming that a robot performs all your trades would be foolish.

Common Mistakes in Day Trading

Like other markets, day trading crypto has challenges, and traders must remain careful and devise a solid strategy to succeed. The following are mistakes to avoid when day trading crypto:

- Fear of Missing Out (FOMO)

Traders who jump in to make profits before analyzing their entry positions are likely to meet obstacles, which might lead to losses. Trading out of FOMO is often an unwise decision that results in unwise trades that could be avoided by implementing discipline and sound trading strategies.

- Overtrading

Too much trading and changing ideas quickly are likely to cause unnecessary losses. Crypto day traders can avoid overtrading by separating rational trading from emotional trading. They can do this with a solid risk management strategy, effective trading plan, and straightforward analysis.

- Failed Risk Assessment

As a crypto day trader, you can avoid significant losses by trading within your limits. While you need to risk making a profit, you should know how much you could risk and only invest what you can afford to lose.

- Not Conducting Sufficient Research

It’s a costly mistake to enter crypto day trading without adequate research on the market and your targeted investments. Instead of buying signals from self-proclaimed crypto traders found on social media platforms, you should do your research and analyze various strategies for crypto day trading before you jump in. Having basic trading skills and knowledge to carry out fundamental and technical analysis is equally important, as this could help avoid being misled by fake signals.

Crypto Day Trading — Advantages and Disadvantages

By implementing effective strategies, beginners may day trade to benefit in various ways. These benefits cover the following:

- Potential for High Returns: Day trading in crypto can be highly lucrative, potentially earning substantial profits quickly.

- Profitability due to High Volatility: The high volatility of the crypto market can provide traders with numerous opportunities to make profits through price fluctuations.

- Flexibility: Crypto day trading is highly flexible, allowing traders to enter and exit trades anytime, depending on their preference.

- Low Barrier to Entry: Crypto day trading requires little capital, making it accessible to many traders.

However, there are certain drawbacks to resorting to day trading as well. These consist of the following:

- High Risk: The high volatility of the crypto market also means that day trading is hazardous, and traders can lose substantial amounts of money if they make bad trades.

- Emotional Distress: Day trading can be an emotional rollercoaster, as traders experience the highs of profits and the lows of losses daily.

- Time-Consuming: Day trading requires significant time and attention, as traders must constantly monitor the market and make quick decisions.

- No Guarantee of Profits: There are no guarantees in day trading, and traders can never be sure they will make a profit, no matter how much research and analysis they do.

The Best Crypto Apps & Exchanges for Beginners

Although investors must do their own research and may find exchanges suitable to their preferences and trading strategies, here are a few exchanges, in no particular order, which excel with reference to the supported assets, the platform fee, payment methods, and security concerns.

- Binance

Binance offers a wide selection of trading options with a low fee and easy deposit and withdrawal of crypto. However, there are some regulatory concerns with Binance in some countries.

- Huobi

Huobi offers one of the highest levels of cybersecurity in leveraged and margined trading. However, the registration process might be complex for some users, and there is also a low limit to the withdrawal amount.

- Kraken

Kraken offers its users a large variety of assets while ensuring a lower fee structure for advanced traders. However, the options for funding accounts are limited.

- Coinbase

Coinbase has a great track record and a volume of over $2 billion. Although it offers quick and easy crypto withdrawals, the fee is high compared to competitors.

- Crypto.com

Crypto.com allows traders to earn a higher interest rate than most other competitors. Users may even use a VISA card to spend crypto and earn awards. However, the fee is high for low-volume traders with poor in-app live support.

The Bottom Line

Day traders might gain or lose a lot of money, making it a risky career. Notwithstanding the case, it is undeniable that they play a crucial role in the market by maintaining efficient and liquid markets. Investors will always find day trading interesting, but anyone interested must first acquire the appropriate knowledge, resources, and money.

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