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Day Trading

Updated: Apr 30

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Author: Ifrim Andrei Mihail

Date of publication: 16/02/2022




This post may contain affiliate links, which means I may receive a small commission, at no cost to you, if you make a purchase through a link


Since the pandemic, interest in financial markets has risen considerably. The idea of potentially making money through your device sounds appealing. However, being successful requires education, experience, and discipline. Therefore, this article describes and analyzes the popular trading form of day trading.


Types of trading

· Investing

A position is open for a period of months or years. Investment is on assets for the long term.

· Swing trading

A position is open for only several days or weeks. Then, profit can be made from price swings.

· Day trading

Here, a position is opened and closed on the same day. Thus, risk is not carried to other sessions, since assets can shift drastically after a day.


Day trading

A day trader executes a relatively large volume of short and long trades. This is to capitalize on intraday market price action. Moreover, day traders can also use leverage to amplify returns, which can also amplify losses. By trading on margin, only a portion of the value is needed.


Compared to the other mentioned forms of trading, day trading is more challenging. So, it requires strategy, experience, and discipline. Even with good strategies, a lack of rules will result in losses. Furthermore, large losses can wipe out previous profitable trades. Therefore, one should “plan the trade and trade the plan”.

Day trading stocks

Usually, day traders trade for the first 2 hours of the market open. During this period, the volatility has the highest volume. For example, traders hold positions for minutes or seconds (‘scalping’) or hours (‘intra-day trading’)


Preparation starts in the pre-market. Firstly, traders look for stocks that have catalysts, so they earn reports or news. Additionally, they look for large pre-market volume and high relative trading volume. These stocks move significantly in one direction on a day. However, if a stock releases an earnings report, the day trader considers the forecast. Also, they analyze the stock chart.

· Stocks releasing earnings reports: https://www.investing.com/earnings-calendar/

· Most active sticks in the pre-market session: https://www.investing.com/equities/pre-market


pre-market active stocks chart

The preparation process before the market open

- Find the most active stocks on a stock screener

- Look for earnings reports

- Create a watchlist of stock you want to analyze. Then, prepare a trade plan for the market open.

- Conduct technical analysis on each stock to see if it offers good trading opportunities

- Create a plan based on a strategy (entry, profit, and stopping loss prices)

- Trade the plan and be disciplined


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Data and indicators useful in technical analysis for day trading

When analyzing a stock, a day trader draws and considers several things:


Key price levels

The trader looks at where the price met resistance and where it bounced back and got support. Therefore, the cart is looked at from higher to lower timeframes. Then, the uptrends or downtrends of the stock can be seen and strong key levels can be spotted. In addition, the high, low, open, and close prices of previous sessions can be used as key levels.


Exponential Moving average (EMA)

This type of Moving Average places greater significance on the most recent data points. EMA’s are useful for defining an up-or downtrend and the reaction of the stock price.


Volume Weighted Average price

This line shows the average price the stock has traded over a period, based on volume and price. Therefore, it’s used to establish the trend and make decisions on entry and exit levels. For example, the price can be close to and slightly above the VWAP. Then, the trader may expect that the line will act as dynamic support.


Relative Strength Index (RSI)

The momentum indicator aids the technical analysis. it measures the magnitude of recent price changes. So, it indicates whether the stock is ‘overbought’ or oversold.


Free float of the stock and short interest

This entails the number of outstanding shares available for trading in the open market. Consequently, it defines if a stock is small-cap, medium-cap, or high-cap. Small-cap stock is more volatile when there is a high relative volume being traded. Therefore, it carries more risk. Additionally, the short interest represents the percentage of the free float that has been sold short and not covered. It indicates market sentiment. If a stock has bullish news and high short interest, the price can experience high volatility. Thereby, it contributes to the buying pressure.


Average True Range (ATR)

The market volatility indicator is derived from the 14-day simple moving average of a series of true ranges. Traders prefer higher values of ATR. Consequently, this increases the profitability of the stock.


Average daily volume and overall market sentiment

The daily volume can be compared to the current volume. Meanwhile, the overall market sentiment is determined by looking at the Dow Jones 30. It heavily affects the direction of the stocks.


Level 2 market data as a tool for day trading

Level 2 Market Data is very important for day traders. Traders can see buy and sell limit orders in the order book, market depth, and times & sales. Due to this, the trader can better forecast the behavior of the market. As a consequence, they can identify support and resistance levels.


Money management

Since the market is uncertain, a trader should be accepting of losses. Additionally, getting emotionally affected makes them lose focus. Instead, sticking to a strategy and focusing on the long term, creates a more positive expectancy. Good money management entails only investing 1 to 2% of the account balance on a single trade. Knowing your investment limit and having a plan with entry, target, and stop loss prices helps determine how many shares to open:

1. Consider the amount that you’re willing to risk on a trade

2. Calculate the amount of loss per share that might incur.

3. Calculate the number of shares your position should have. Divide the investment amount by the loss per share that would occur with a losing trade.

Trade management

After the position is opened, you can make further decisions. For example, if the market goes in your favor, you can close a portion of your position to make profit. By making changes during the trade, you can secure some profits and reduce risk.


In conclusion, success in day trading requires one to be educated. The use of tools, strategies, and rules is beneficial. One of the key principles is to be objective. Consider it a business and try to not let emotions impact the trading. By following these tactics, there is a higher chance of being successful.


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