What is day trading?
Day investing, or day trading, is a financial strategy in which a trader buys and sells assets such as stocks, currencies, or futures contracts within the same trading day. The goal is to take advantage of short-term price fluctuations to make a profit. Traders often make multiple trades daily and rely on technical analysis to make decisions.
This strategy requires constant monitoring of the markets, as well as skills and experience to manage risk effectively. Intraday investing involves high risk due to short-term price fluctuations and the use of leverage. However, if done correctly, it can bring significant profits quickly, but it also requires discipline and agility.
History and development of day trading
In the Early period (Before 1970), important US stocks were traded mainly on the New York Stock Exchange (NYSE). The trader contacts the broker to route the order to a specialist at the NYSE who will match the buy and sell orders. The brokerage commission is fixed at 1%, making the trade profitable only if it exceeds this level.
In 1975 the US Securities and Exchange Commission (SEC) made fixed commission rates illegal. Brokers began offering reduced commission rates, making day trading more viable. Before the early 1990s, financial settlement periods were longer, allowing stocks to be bought and sold within the same settlement period. Settlement time is reduced (T+3) to reduce market risk and increase liquidity.
The NASDAQ virtual stock exchange was born in 1971, allowing trading orders to be transmitted electronically. ECNs such as Instinet, Archipelago, and Island emerged, offering after-hours trading services and better prices to large institutions. From 1997-2000, day trading became popular with the boom in technology stocks and ECNs. After the tech bubble burst in 2000, many inexperienced investors lost money quickly.
Steps to start day trading Australia
To start day trading Australia successfully, below are the basic and important steps you need to do.
Determine your goals and trading strategy
Before starting, clearly define your profit goals and the level of risk you accept. Choose the right trading strategy, such as trend, reversal, or news trading. Clear goals and strategies will help you maintain discipline and make smart decisions during trading.
Choose a trading platform
Choosing the right trading platform is very important. Look for platforms that offer real-time market data, technical analysis tools, and risk management features. Ensure the platform is easy to use, reliable, and has reasonable trading fees to maximize profits.
Open a trading account
After choosing a trading platform, you must open a trading account with a reputable broker. The account opening process often requires providing personal information, verifying identity, and depositing funds. Ensure you understand the broker’s terms and conditions before trading.
Prepare trading capital
Determine how much capital you are willing to invest and can afford to lose. Day trading requires more capital to take advantage of short-term price fluctuations and margin requirements. Manage your capital carefully and do not use all your savings for trading to avoid excessive risk.
Learn and become familiar with trading tools
Get familiar with the trading tools and software on your platform. Learn how to use charts, technical indicators, and order placement tools. Understanding these tools will help you analyze the market effectively and execute trading orders quickly and accurately.
Set up a trading plan
Create a detailed trading plan that includes entry, exit, and risk management rules. This plan should be based on your trading strategy and strictly followed. Having a clear plan helps you maintain discipline and avoid being influenced by emotions when trading.
Track and record transactions
Record details of your trades, including time, entry/exit price, volume, and reason for the trade. This tracking helps you analyze the effectiveness of your strategy and draw lessons from successful and failed trades. At the same time, it also helps you improve your trading skills and adjust your strategy when necessary.
7 Day trading strategies
If you are a beginner, apply the 7 day trading strategies below, you can effectively seize opportunities and minimize risks.
Leverage
Using leverage allows traders to control large assets with a small amount of capital. Leverage increases profit potential but also increases the risk of loss. Managing risk carefully and using leverage appropriately to avoid large losses is important.
Scalping
Scalping is a short-term trading strategy that uses small intraday price fluctuations. Traders quickly execute many buy and sell orders to make small but continuous profits. This requires quick reactions and extreme concentration.
Momentum
This strategy is based on capturing strong trends in the market. Traders buy when prices rise and sell when prices fall, taking advantage of current momentum. Monitoring momentum signals and knowing when to exit a trade is important.
Reversal
Reversal focuses on identifying reversal points in price trends. Traders will buy when the price reaches the bottom and sell when the price reaches the peak. This requires high technical analysis skills and recognising accurate reversal signs.
Range Trading
Range trading is a strategy based on price fluctuations within a certain range. The trader buys at the low end of the range and sells at the high end. This strategy is effective in markets without clear trends.
Breakout
Breakouts focus on trading when the price breaks through a key resistance or support level. Traders expect the price to continue moving strongly toward the breakout. High trading volumes and sharp price fluctuations often accompany this.
News-based Trading
This strategy takes advantage of important economic news and events to execute trades. Traders analyze the impact of news on prices and quickly enter orders to profit from short-term price fluctuations. This requires constant news monitoring and quick reactions.
Advantages of day trading
Why is day trading considered an attractive option in today’s stock market? Let’s take a look at the special advantages of trading this way.
Take control of your personal finances
Day trading allows you to make your own decisions and manage your investments without relying on the guidance of others. This helps you better control your financial situation and adjust your strategy quickly based on market fluctuations.
Ability to react quickly to news
Day traders can use news and economic events to make quick trading decisions. This helps them capture profit opportunities from short-term price movements created by news, which long-term investors may miss.
Time flexibility
Day trading offers time flexibility, allowing you to choose trading times that suit your schedule. You can trade full-time or part-time, depending on your goals and abilities.
Develop analytical and decision-making skills
Engaging in day trading helps you improve your technical and fundamental analysis abilities. You learn how to read charts, use technical indicators and make quick decisions based on market data, improving your trading skills.
Potential for quick profit
Day trading provides the opportunity to make profits in a short period by taking advantage of small price fluctuations. With good strategy and skills, you can make quick profits. However, it should also be noted that the risk of loss also increases.
Disadvantages of day trading
Below are the difficulties and challenges investors often encounter when conducting day trading.
Be prepared to suffer serious financial losses
Day trading is highly risky, and you can suffer serious financial losses. Rapid and unpredictable price fluctuations can lead to large losses, especially if risk is not well managed. This requires you to be able to withstand financial risks.
Full-time work is extremely stressful
Day trading requires extreme concentration and constant monitoring of the market. The pressure of having to make quick decisions and process a lot of information in a short time can cause stress and affect mental and physical health.
Depends a lot on borrowing money
Many days, traders use leverage to increase their profits, which means they borrow money to trade. Although it can increase profits, it also increases the risk of loss. If the market goes against your expectations, you may have to repay a large loan amount.
Fees and taxes
Day trading can incur many costs, including trading fees, commissions and taxes. These costs can accumulate and significantly impact your bottom line. In particular, short-term transactions are often subject to higher tax rates than long-term investments.
Time consuming and challenging
Day trading requires investing a lot of time to research, monitor the market, and execute trades. This requires patience, discipline and continuous learning. For beginners, adapting and succeeding in day trading can be a huge challenge.
How to limit losses?
Are you seeking ways to minimize your risk when engaging in day trading? Below are some simple but effective notes to optimize your trading results.
Using stop-loss orders
Stop loss orders help you limit losses by automatically selling assets when the price reaches a certain level. This helps you protect your investment and prevent big losses. Stop loss orders are an important tool in risk management and should be set up for every trade.
Follow your trading plan
Creating a detailed trading plan and strictly following it helps you maintain discipline and avoid emotional decisions. The plan should include entry/exit criteria, stop loss and take profit levels, and risk management strategies. Following a plan helps limit unnecessary losses.
Careful capital management
Capital management is an important factor in trading. Do not risk too much capital in a single trade. Instead, allocate your capital wisely and invest only a small portion of your total capital in each trade. This helps minimize risk and protect your account from large fluctuations.
Diversify your investment portfolio
Diversification helps reduce risk by spreading capital across many different asset classes. This ensures that losses from one trade do not impact the overall portfolio too much. Diversification applies to stocks and other asset classes, such as bonds, commodities, and currencies.
Market monitoring and analysis
Continuously monitoring and analyzing the market helps you identify trends and price fluctuations. Use technical and fundamental analysis tools to make smart trading decisions. Regular market monitoring helps you react quickly to changes and minimize risks.
Regularly evaluate and adjust strategy
Evaluate the effectiveness of your periodic trading strategy to identify strengths and weaknesses. Adjust strategy based on actual results and market changes. Flexibility and a willingness to adjust help you optimize profits and limit losses in the long term.
Frequently asked questions (FAQ)
Below are some frequently asked questions surrounding day trading:
Is day trading popular in Australia?
Day trading is quite popular in Australia, with many individual and institutional investors participating. The Australian stock market, especially the Australian Stock Exchange (ASX), offers many opportunities for day traders thanks to its high liquidity and price volatility. The growth of online trading platforms and rapid access to financial information has fueled the popularity of day trading.
What is the best day trading platform Australia?
Below is the best day trading platform Australia:
- Tiger Brokers: Offers competitive trading fees and a friendly interface.
- IG: Stands out for its technical analysis tools and excellent customer service.
- CMC Invest: Competitive trading costs and many analysis options.
- Webull: Trades without commissions and offers many analytical tools.
- Interactive Brokers: Low trading costs and access to many international markets.
How to day trade in Australia?
First, determine your trading goals and strategy, making it clear and specific. Next, open a trading account and choose a suitable trading platform such as Tiger Brokers, IG, CMC Invest, Webull, or Interactive Brokers.
Then, learn how to use tools and analyze the market effectively. Managing risk and placing stop-loss orders to protect invested capital is very important. Finally, practice and adjust your strategy to improve your trading skills and optimize profits.
Day trading offers quick profit opportunities and requires participants to have the skills and experience to handle short-term fluctuations intelligently. Hope this article from Replus is useful to you!
