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Techniques of Day Trading

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Day trading, in its basic sense, is the investing or disinvesting of a stock or several stocks within the day. All trading positions will then be closed before the day ends. Traders who participate in this kind of trading are called day traders.

There are several techniques used in this trade to increase profit. They are as follows:

News Trading - This technique relies on the good and bad news. If the news says that a certain stock is taking off with a positive trend, this is taken as an indicator to buy the stock. If, on the other hand, a stock receives bad news, it will be sold. These provide a greater chance of losing or winning the trade because the news carries with it good information on the volatility of the stocks. However, trading news has its disadvantages. For one, depending on the news for a decision alone will cause time lag which most traders can't really afford. Another is that the market does not always work exactly as the news says it.

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Scalping - Also popular for the name of spread trading, scalping is a technique where the trader distributes his stocks on trades with only small gaps. He then establishes and liquidates the trading position, therefore incurring only small profits from each trade.

This style really minimizes the probability of losing however; the rewards are significantly lower due to the time duration and the size of the gap being exploited.

Range Trading - The exact opposite of trending, range trading takes advantage of the pattern created by the consistent falling off and rising up of the stock from its resistance price towards its support price. The trader profits from this style by buying the stock at its lower price and by selling or short selling it at its high price.

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Trending - This works by following the continuous rise and fall of the stocks or trades. The trader will buy the stocks which have been rising or sell them when they start to fall as long as the trend is expected.

Contrarian - This style is not exclusive to day trading. Traders profit from this by observing the stocks that are continually rising and would suddenly move in the reverse positions, and vice versa. The trader will sell the shares that has been rising or buy those that has been falling believing that the trend occurring will suddenly change.

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Techniques in Day Trading