Popular Techniques
There are many strategies that can be learned by day traders. Some of the more popular techniques used by day traders are:
- Trend following: This strategy assumes that the stock being traded will continue its current direction, either moving up or falling down. The idea is to buy a security that has been moving and follow the momentum of the trade.
- Contrarian investing: This strategy assumes the stock can no longer continue trading in its current trend and is due for a reversal. The contrarian investor buys stocks have been falling or shorts one that has been rising because they expect the trend will change.
- Range trading: The buyer looks for stocks that have been trading in a range and are either rising off a support level or falling from a resistance level. The idea is to buy the stock at a low price in the range and sell it when it gets higher in the range, or short the stock at the high portion and buy it back when it drops.
- Scalping: This technique exploits the small gaps in the bid-ask spread. These trades usually require quick movement that permits the day trader to capture profits quickly. These trades sometimes last less than a minute, as the trader takes advantage of the market's volatility.
There are many other strategies and techniques that can be used when day trading. Because of the volatility and risk involved with day trading, all strategies should be practiced until proficient by using paper trades. A good stock market education should be the basis of any day trading career, as it will provide the foundation fundamentals that can help build for success.
