Intraday trading strategy (or day trading) is a trading strategy in which the movements experienced by asset prices throughout the day are used to find investment opportunities in short-term volatility.
What is Intraday Trading?
Day trading, or intraday trading, is a trading strategy that, in essence, is based on using the movements that occur in asset prices throughout the day to obtain a profit through buying and selling. In other words, it is a very short-term trading strategy, based on buying assets throughout the day, using daily volatility, and, at the end of the day, selling them.
When we invest in the stock market, we can buy a stock and wait a month to sell it, once it has yielded returns. In the same way, we can believe in the future of a company and buy stocks too, in the future and when the company takes off, sell them. However, and to understand it very simply, in day trading we do not wait weeks, months, or years. In day trading, trades are opened and closed in the day, using the volatility of asset prices throughout the day to enter and exit the market, obtaining, in passing, a return.
A market in which we often find traders using this strategy is the foreign exchange market, also known as the Forex market. In the same way, day trading of cryptocurrencies is also very common. Due to the high volatility of this type of asset, traders try to take advantage in the very short term using the opportunities that arise day by day.
👉 Do you want to discover other types of trading? Visit our next article: What is trading? | Operation and how to start
Features of the intraday trading strategy
Day trading, as a trading strategy, presents a series of features that differentiate it from other types of strategies.
Although we have mentioned some, let's see the main ones:
- Focused on the very short term: Day trading is a strategy focused on the very short term. Trades are opened and closed throughout the trading day.
- The predominance of technical analysis: Since we make the decision to buy or sell within the same day, the analysis used is usually technical, since fundamental or value investing requires more time to have an objective valuation.
- Predictions and forecasts: The day trader uses predictions and forecasts, or in other words, anticipates what will happen in the market to enter and exit at the right time.
- Requires more attention and dedication: Since we have the time of a day, we must be very attentive to those changes that occur to take advantage of the opportunities.
- Requires experienced and knowledgeable traders: Since there are many, and very varied, positions we take in the market, the day trader requires more knowledge and experience to avoid situations that could harm him, his portfolio, or his capital.
- “Lower risk”: Many intraday traders consider that there is less risk in day trading due to the fact that the operations are kept open for very little time. However, in minutes the price of an asset can collapse, so this statement could be questioned.
- Very focused strategy: Since we are talking about a strategy that is developed on a day-to-day basis, we usually find it in markets that remain operational 24 hours a day, such as the foreign exchange market or the cryptocurrency market.
Intraday trading strategies and technical analysis
When we talk about day trading, it is very common to talk at the same time about technical analysis.
This is because using value investing, fundamental analysis, quantitative analysis or other types of analysis is impossible when we want to open and close the position on the same day. To get an idea, we cannot value a company, with all its particularities, in two hours; we would need, at least, weeks. This is one of the characteristics of the swing trading.
For this reason, technical analysis is used, as it allows us to visualize the market behaviour more quickly and make decisions more agilely.
With chartist analysis, or what is the same, the analysis of the graphs, we can quickly see the movement of prices, analyse future prices and, based on that, make decisions.
For this reason, day trading and technical analysis go hand in hand.
Day trading in the Forex market
Day trading is a widely used strategy by investors who operate in the foreign exchange market, also known as the Forex market.
This market, taking into account its particularities, is an interesting market for day traders:
- First of all, we are talking about a market that is operational 24 hours a day. Unlike the stock market, which is only operational in the morning.
- Secondly, the foreign exchange market is a market that presents volatility. Unlike stocks, for example, which are more stable.
- Finally, the Forex market is a market in which technical analysis is widely used. An analysis that, as we said, is very linked to this type of trading strategy.
For all these reasons, it is very common to find day trading in this market.
Day trading of cryptocurrencies
Just like in the foreign exchange market, the cryptocurrency market is a market that never closes throughout the day. That is, it is operational 24 hours a day.
In addition, the cryptocurrency market is a very volatile market, and we can see sharp movements throughout the day that could allow us to obtain a benefit from them.
For this reason, it is very common to find day traders in the cryptocurrency market, just like in the Forex market. These particularities of this market allow day traders to apply their strategy and find opportunities that lead to returns.
What are the most important factors to consider when day trading?
The most important factors to consider when day trading include the asset you are trading, the market conditions, and your risk tolerance.
What resources can day traders use?
There are a number of resources available to day traders, including online trading platforms, educational materials, and trading forums.
What are the risks of day trading?
The potential risks of day trading include the high level of risk involved, the potential for losses, and the need for a high level of skill and experience.