Tag Archives: Rockwell Trading

What is a Day Trader?

What is a day trader?  You hear people discussing being a day trader on the news or television program. But you still do not have a clear understanding on what a day trader does. A day trader participates in the purchasing and selling of stocks on the same day.  The process for succeeding in day trading is based off the profits made throughout the day’s sales. In order to make a profit, different strategies need to be implemented. The strategies often require the day trader to think and act quickly in order to make a profit or to stop a large loss.

Trend Following

Trend following is a strategic approach to investment; a day trader must have up to date information on the market to act in an immediate, informed manner. A day trader will follow the current market trend to determine if the prices are going to rise or fall. The strengths or weaknesses of the companies are not as important as the current financial trends within the particular market.

Trend following is all about the different strategic moves needed to make a profit in the market. The moves will depend on the current trends and the effect on the market. A day trader can utilize a market for short, medium or long term moves. By analyzing the market atmosphere, a day trader can determine if the stocks will continue to rise for a gain or fall for a loss.

Trend Fading

Trend fading is considered to be a risky strategic approach to day trading. When this type of strategic approach is done correctly, the payout or profits can be high. The trick in trend fading is the ability to know when to sell or buy.  In trend fading, you are taking a risk against the main trend which numerous others could be following. A day trader would actually sell the stocks while the price is rising in hopes the trend stops. When the trend stops rising, begins to fall the strategic approach has been a successfully implemented.

The day trader could also use trend fading to purchase the stocks as the prices are falling.  Other day traders may be quick to sell stocks if the value declines. The strategy behind the falling price purchase is the hope the stocks will turn around; going against the prevailing trend. If the lower priced stocks rally after a considerable decline; the result would appear in a larger profit margin.

Scalping

Scalping is a strategic move involving immediate turnaround. The strategy involves selling the stocks right after the value rises from the trade purchase. The quick selling of the stocks that are showing a profit is a limited price change. The theory behind this strategic approach is smaller, profitable moves will gradually catch up to any type of larger profitable gain.  Scalping often helps in preventing larger losses.  The quick selling is an exit strategy when the stock values start to decline.

When applying the right strategic approach, a day trader can make profits through the buying and selling of stocks. Using the strategic approaches to the day trader’s advantage will result in profits.  You still may be asking yourself what is a day trader; the simplest answer is a person who purchases and sells stocks in hopes of a profit.  The critical details of the strategic approaches to being a day trader makes the job more complicated.  The complications may result in a large payout.

 

Day Trading Strategies – Basics

Day trading can be a path to financial independence, but it needs to be undertaken with proven approaches that support strong decisions. Whether you’re new to the financial markets or you’re already an experienced investor, it’s essential to leverage time-tested day trading strategies that can lead to success.

Trend following, fading and scalping are three examples of such strategies. Before you begin your day trading endeavors, you should learn how to apply these approaches with confidence, day in and day out.

Day Trading Strategies: Trend Following

Trend following draws on historical patterns. It uses average stock prices, as tracked over a period ranging from several days to several weeks, then uses those trends to make entry and exit decisions. By definition, day trading has a very short entry/exit horizon, and as such, it’s vital to predict ebbs and flows with as much accuracy as possible.

However, it’s important to remember that there is no single indicator which will always work in every single case. Traders who have mastered the art of trend following tend to use one or more of four specific indicators to identify stocks that have the greatest likelihood of generating a favorable return. Those indicators are:

  • Moving averages. This approach uses specifically determined time frames to pinpoint a stock’s average value over a given period, then identify when it has risen above or fallen below that average. These insights help day traders determine which stocks are likely to move up or down in the days ahead.
  • Moving average convergence divergence (MACD). MACD is used to determine a given stock’s momentum, which can be upward or downward. It uses a 0 value as its baseline, and MACD analyses that return a value above 0 usually signal upward momentum, while those returning a value below 0 typically indicate a downward trend.
  • Relative strength index (RSI). RSI analysis assigns a value between 0 and 100 to a given stock, aiming to identify when a stock is being overbought, and thus overvalued. Stocks that are overvalued usually fall or “correct” in value, and RSI scores of 70 or higher tend to indicate that such a correction is imminent.
  • On-balance volume (OBV). Trading volume can be a very valuable tool in predicting where the price of a given stock is heading. Generally speaking, rising OBVs correspond to upward-trending prices, while falling OBVs indicate downward-trending prices.

Day Trading Strategies: Fading

Fading is a high-risk, high-reward strategy that seeks to capitalize on rapidly rising and falling prices. Also known as “fading the market,” this approach sees investors buy a stock when its price is going down in the hopes of earning a profit through a subsequent rally, or rise, in its value.

Day traders may also use fading to try to fill market orders in other indices that brokers cannot or will not match. This is a more advanced approach, which requires significant experience to master.

Day Trading Strategies: Scalping

With scalping, investors try to extract or “scalp” many small profits by making a large number of safer trades within the space of a single day. In day trading, scalpers can capitalize on price fluctuations of just a few cents, or fractions of a percentage point, by buying and selling large volumes of shares. Scalping requires a rigid exit strategy, demanding that investors leave positions quickly once they’ve earned a small profit.

If you’re interested in learning more about these day trading strategies, Markus Heitkoetter of Rockwell Training offers both basic and advanced instruction in these and other proven tools. Investors of all experience levels are invited to benefit from his expertise.