Day Trading Strategy

Day Trading is a way of trading in which a trader opens and closes a trade within the same trading day. A trader buys a financial instrument and sells it on the same day or a trader short sell a financial instrument and buys back on the same day before the day closing.

The duration of the day can be different for different financial markets for example Forex Markets are open for trading 24 Hours a day therefore a single day in forex is equal to 24 Hours of trading whereas Stock Markets are generally open for 6 Hours & 30 minutes for trading, therefore, the time for trading in a Stock Market is 6.5 Hours in a day.

This means if you are day trading in Forex, you can open and close a trade in 24 Hours. Contrary, if you are day trading in Stock Market you have to open and close a trade within 6.5 Hours of the trading session. Gold is traded for 23 Hours a day which means a single day in Gold Trading is of 23 Hours. A day trader has to close all his trades before the market closes to reduce the risk.

How does Day Trading Strategy work?

A typical day trading strategy involves buying and selling the currency pairs within the same day for short profits and trying to accumulate those profits consistently. A day trader tries to detect short and quick market moves to make multiple profitable day trades.  

Generally, day traders are more inclined towards volatile currency pairs. Medium to high volatility in a currency pair is perfect for day trading. A day trader tries to extract maximum profits from the price fluctuations happening over the day in a currency pair.  

If we observe the price of any financial security over a day, we will notice there are four moments where the prices are important for traders. These are

  • Opening Price
  • Low Price
  • High Price
  • Closing Price

The price of any currency pair moves up and down throughout a trading session. There is a time when the price of a currency pair is at the lowest point of the day and a point where it is the highest. A day trader capitalizes on the difference between the lowest price and the highest price. A day trader is interested in a currency pair that have high fluctuations between the low price and high price so that the probability of making multiple profitable trades is high.

Day Traders look for currency pairs that have a high level of liquidity because day trading is time bound trading activity. A day trader must close the trade before the end of a trading session. Quick and timely execution of trades is key and this makes the currency pairs with high liquidity ideal for day trading.

High liquidity can control the volatility in the currency pair which results in the smooth movement of the prices in one direction. Low liquidity can cause the prices to move up and down drastically.

Analysis and Expertise for Day Trading

Day Traders generally use aggressive technical analysis for day trading because day traders need to close the trade within a day. Indicators especially oscillators that respond to price movements fast and immediately are utilized by day traders for developing day trading strategies.

Traders use a combination of technical indicators while doing the technical analysis of currency pairs for day trading. Fischer Transform, Williams %R, and Stochastic are a few oscillators that are used widely along with a trend indicator like a moving average or MACD. The traders can change the indicators depending on the strategy that is being followed.

Many day traders also use trend lines along with support and resistance approaches. Day traders observe the daily timeframe charts and hourly charts for the execution of trades. The support and resistance approach gives good results on the daily and hourly timeframes as the prices tend to bounce back suddenly as they hit the support or resistance.

No matter whether the main trend of the currency pair is long or short but the probability is relatively high that the currency pair would bounce for a while from strong support or resistance.

Day Traders very rarely use Fundamental Analysis for day trading because a trader has to make trading decisions quickly in a limited time of a daily trading session. Fundamentals take a long time to change and also the impact of fundamentals on prices takes some trading sessions to be fully absorbed. Fundamental Analysis is good for longer time frames and swing trades.

Day Traders can utilize the News and Events effectively and that news can be based on the fundamentals. For Example, the changes in the interest rates from the central bank can allow day traders to make some quick profits.

Strict stop loss is required for day trading to minimize the losses if the trade goes against the plan. Day Trading revolves around the idea to make small multiple profitable trades in a day and then accumulating that profit to make further profitable trades. If only one trade goes against the plan in a loss and the loss is not cut immediately it can cause major damage to the trading account. It can take many trades and days to recover the loss.

Using a trailing stop loss is another way to maximize the profits on the trades. Once a trade starts to go in profit, a trader can set up a trailing stop loss to get out of the trade immediately in case the currency pair moves in the opposite direction. It is also a good strategy to buy a healthy volume and then offload the currency pairs on every new high in small chunks.

Benefits of Day Trading

Low Risk

Day traders close all their traders before the trading day closes and do not hold a position overnight. This strategy reduces the risk of holding the trades overnight as the next day market can open with a big gap on either side.

Quick Returns

By developing a winning strategy and executing profitable trades, a trader can make quick returns daily and these returns can be compounded daily as a trader increases exposure to the market.

Flexible Trading Time

A trader can select a flexible time slot during any time of the day or a night to do day trading. The major edge of Forex is its availability of trading 24 Hours a day.

Drawbacks of Day Trading

High Commissions

When a trader is trading daily it means trades are being executed every day. This would increase the cost of brokerage commissions. These commissions can eat up your profits frequently.

Research and Planning

Day traders typically spend less time on research and planning for new trades because they are trading very often. This can lead to the repetition of the same mistakes again and again.

Market Conditions

Markets continuously change due to socioeconomic conditions. Bad news political or economic can cause the markets to collapse in minutes. Bad news can affect the day traders within no time impacting losses. Moreover, day traders frequently lose money in range bound sessions as the prices are not moving in any direction.


Day trading can be very demanding and tedious. It can cause stress whenever huge losses are incurred. The biggest drawback the day traders witness is the urge to trade daily. Market conditions change frequently so do the emotions of human beings. It is very difficult to control emotions daily. Day trading requires a practical working strategy with strong discipline.

Contrary to other trading strategies, day traders can earn profits more quickly and on regular basis. These frequent and quick profits can be compounded over time and can be converted to a healthy amount over a month.