Day trading in Australia has grown rapidly in popularity over recent years. Day trading is essentially a strategy where traders buy and sell shares (or another financial instrument) within the same day, although not always. This allows traders to take advantage of short-term price movements. Many Australian day traders buy and sell stocks listed on the ASX, but there are plenty more who trade commodities markets, indices, or US markets. Day traders typically aim to profit from short-term price movements by taking advantage of day-time price volatility.
Technical analysis is a term that is thrown around a lot nowadays, but this a vital technique employed by many a day trader. You will find most day traders typically use technical analysis and charts to identify short-term trends and patterns in the market. They may use various indicators and tools to help them identify potential entry and exit points for their trades, with a typical chart looking like it has been drawn on quite a bit. There will be all sorts of lines that to the initiated look quite random. To a day trader, these are points of interest, and potential inflection.
It’s important to note that day trading is risky, and requires traders to make quick decisions and often take on a significant amount of leverage. To avoid outsized losses, it is essential to have a solid understanding of risk management and position sizing. Day traders on the ASX should also stay up to date with market news, as well as any announcements that can impact stock prices, if that is the market of choice of course.
What is Day Trading?
Day trading is a popular strategy among traders looking to make quick profits by buying and selling assets within the same day, and grew in popularity during the ‘Covid years’ when people were increasingly at home. This type of trading is common practice for traders who want to take advantage of short-term price fluctuations.
Day trading can be risky, and should be approached with caution. To be successful in day trading, traders need to have a solid understanding of technical analysis, risk management, and market trends. Traders will also need to be disciplined, patient, and should avoid letting emotional decisions lead them.
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Any trade that is opened and closed within the same day could be considered to be a day trade, but it is not a hard and fast rule. You can be a day trader who closes out 90% of your positions within the same day, yet ‘swings’ some positions for a few days or longer in anticipation of an upcoming catalyst like an earnings event, or dividend. It would be fairer to say then that you are day trading shares if you take a position that is not intended to form part of your long term investment strategy, but which you fully intend to exit at a certain point in the near future.
There are various day trading strategies that you might want to familiarise yourself with, some that follow events, some that spot patterns, and others that try to game certain times of the day. Trading, like most things in life, brings together a mix of different ways to see things, but if you also understand what they are looking for, it can give you an edge on your own plans, short-term or not.
Why do it?
The short answer is to try to make profits, and more quickly than in some other strategies. The longer answer, and perhaps more appropriate one, is that when there are movements in the market, there are trading opportunities, and people will want to take advantage of those where possible.
One of the advantages of day trading in the ASX is that you can effectively pick from a wide range of stocks to trade, including some of the largest companies in Australia, as well as almost any other financial instrument. This means that you can potentially profit from the price movements of well-established companies, indices, and other assets.
If you have an ‘edge’ of any sort, then opening a position in either direction (short or long), and then closing it out before the move reverses, can lock in a profit. There is also less time exposed to market, which reduces some of the market noise from other markets. It can happen where a strong buy that jumped in Australia gets impacted overnight by a US market move, and an otherwise profitable position turns negative. Closing out a position avoids that. In short, if you are not keeping open any positions (or trades) overnight, there are less likely to be any seismic shocks that could impact your account whilst you sleep.
These are three key aspects of day trading:
- Technical analysis evaluates financial assets by understanding statistical trends, chart patterns, and other indicators derived from historical price and volume data. It is used to identify potential buy and sell signals in the market, with support and resistance levels likely plotted out as a starting point. If you are getting in to day trading, you will want to know a lot more about technical analysis.
- Risk management is the process of identifying, assessing, and controlling potential risks associated with trading. It involves setting stop-loss orders, diversifying portfolios, and using position sizing to manage the potential losses that can occur when trading financial assets.
- Market trends refer to the overall direction of the market, which can be characterized as bullish (upward), bearish (downward), or sideways (range-bound). Traders use market trends to determine whether to buy or sell a financial asset and to identify potential entry and exit points for their trades. This is where things like moving averages of different length come into play.
How is Day Trading Taxed in Australia?
In Australia, day trading is subject to capital gains tax (CGT), unless you are specifically classed as a share trader, which most will not. This tax applies to the profits earned from buying and selling financial assets that is not part of your business activity. This is a relatively complicated topic
For the calculation of your CGT, any gains or losses from your day trading are aggregated with your entire income pool and the rate used is dependent on the respective income tax bracket your income falls into. In effect, although it has a different name, and is often taxed differently in other countries, in Australia, CFT is part of the income tax system, and net gains are usually taxed at the marginal rate of your other income.
As this is a relatively complicated topic, if possible, it is a good idea for day traders to consult a tax professional to ensure that they are compliant with Australian laws and regulations regarding day trading taxes. You will want good advice on whether you are a share trader, or actually considered a share investor, as this has significant differences.
The Best ASX Stocks for Day Trading
In order to make profitable trades, day trading in the ASX requires a good understanding of both the market’s liquidity and volatility. If what you are trading does not move enough, then you run the risk of seeing a trade close in the negative simply due to trading fees.
If you are day trading shares on the ASX, choose from those that have the deepest liquidity pools. This is because these stocks have high trading volumes and tight bid-ask spreads, allowing you to enter and exit positions at the lowest cost and therefore maximize any opportunity to profit. You do not want to see a handful of ‘would be profitable trades’ undone by spreads and fees.
When selecting ASX stocks for day trading, it’s important to consider the volatility of the stocks, as this affects the potential profit and loss of a trade. Highly volatile stocks can be profitable for day traders, but they also carry higher risks. Conversely, less volatile stocks may have lower profit potential but are less risky.
Some of the best ASX stocks for day trading are also included in the top 50 companies listed on the ASX 50 index. These stocks are typically the most liquid and volatile. Some examples are:
- BHP Group (ASX:BHP)
- Commonwealth Bank of Australia (ASX:CBA)
- CSL Limited (ASX:CSL)
- Rio Tinto Limited (ASX:RIO)
- Telstra Corporation Limited (ASX:TLS)
- Wesfarmers Limited (ASX:WES)
- Woolworths Group Limited (ASX:WOW)
That being so, there will be trending sectors that gather a lot of trading interest from time-t0-time, such as tech, or defense, with new interesting names entering and exiting the list of most traded day to day. You can check the average daily volume, or ‘most popular’ shares lists for other ideas.
In summary, day trading in the ASX requires careful consideration of liquidity and volatility factors, especially when selecting stocks to trade. By choosing stocks with deep liquidity pools and high volatility, traders can increase their chances of making profitable trades.
Additionally, having access to a reliable ASX day trading platform with low latency (time to execute the trade) is essential for executing trades quickly and efficiently. It is also important for traders to practice proper risk management techniques, and to continuously educate themselves on market trends and news that may impact their trades. The platform needs to support and provide this.
Finding a Day Trading Platform
When it comes to day trading, having access to a reliable trading platform is essential for executing trades quickly and efficiently.
When choosing a day trading platform, it’s important to consider factors such as reliability, speed, and ease of use. Traders should also look for platforms that offer real-time market data and advanced charting tools, as well as access to a range of financial instruments and order types.
It is also helpful to be aware of the implications outside of stock trading, and to understand that there may be differences between what makes a great daytrading platform, vs an app for stock trading more generally speaking. eToro, IG Markets, AvaTrade, and CMC Markets, are all excellent options for Australian day traders and provide reliable and feature-rich platforms for executing trades.
You will find in our review of the best Australian day trading platforms that different accounts are rated higher for different types of day trading. For example, a platform that is rated highly for trading forex, might not also be the most optimal trading account for shares, or indexes, even if all are intended as day trades. What may seem like small differences when starting out can really amplify as you progress. Getting that decision right first time around can save some time in future.
eToro – Strong choice for beginners
eToro is a popular choice for day traders due to its user-friendly interface and social trading features. The platform allows users to copy the trades of other successful traders, making it an ideal choice for beginners. Additionally, eToro offers a range of assets to trade, including stocks; it is a versatile platform for day traders.
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Day Trading in Australia FAQs
What is Day Trading?
Day trading is a popular strategy that involves (ideally) making quick profits from short-term price movements. Trades are typically opened and closed within the same day.
Is Day Trading a form of Gambling?
No, day trading is not a form of gambling, though it can be approached that way if in the wrong hands. Both involve risking money, but trading is fundamentally different to gambling. Gambling relies purely on chance, whereas trading relies on knowledge, analysis and strategy.
How to Start Day Trading?
Day trading requires a good understanding of technical and fundamental analysis, risk management, and market trends. Practicing on a demo account with a regulated broker is a great way to learn the skills you need.
Can I Make $1,000 a Day with Day Trading?
Yes, it is possible to make $1,000 per day from day trading. However, it requires a very large amount of trading capital. If you stick to good risk management principles as you should, such as risking no more than 1% of your capital per trade, it would require many trades per day, and a hefty balance. This daily amount is far beyond the reach of most people, with a more realistic target being 3-5% of your trading capital in profit per month.
How Much Should I Risk Per Trade?
A good guideline for day trading is to to risk no more than 1% of your total capital per trade. It is also advisable to have in your account 10 times your daily profit goal. If you have an account balance of $500 this would mean risking no more than $5 per trade, with a daily profit goal of $50.
