What is Day Trading?
Every trade an investor makes, be it shares, forex pairs, or bonds, has an entry point – the time you buy – and an exit point – the time you sell.
Unlike traditional Buy and Hold investors who worry about the holding period, the entry and exit points are clear for the genuine day trader. Everything happens in a day.
Of all the high risks associated with investing in share markets, the shortened time frame makes day trading the mother of all risky approaches.
Successful day traders will tell you they have two goals for their trading day. To own not a single share at both the market open and the market close – and to end the day with a profit.
Top Australian Brokers
- eToro - Social and copy trading platform - Read our review
- IC Markets - Experienced and highly regulated - Read our review
- Pepperstone - Trading education - Read our review
There are several trading strategies, with some considerations common to all.
Requirements Common to Day Trading Strategies
Any guide on day trading strategies for beginners should cover the three requirements essential for every day trading targeted investments and the strategies for trading them.
Day traders search for stocks with high volatility – a veritable roller coaster of up-and-down moves intraday. A measure of volatility is the Beta Value of a stock compared to the overall market. Beta values are listed on the better financial websites. Values higher than 1.0 indicate the swings in the price of a stock are higher than the market average.
Next up is liquidity – or how fast a day trader can get in and out of a trade. Stocks of high interest to the mass of the investing community have more liquidity than under-the-radar start-ups. Day traders cannot sit around and wait for an order to be placed due to a lack of liquidity.
Trading volume is an indicator of market interest and liquidity. Most financial websites list the ninety-day and sometimes the ten-day trading volume. Day traders should compare a target’s trading volume against a comparable stock.
News Trading Strategy
One could make a strong case that News Trading is one of the best day trading strategies for beginners and arguably the best day trading strategy without exception. Investors with experience in trading stocks know that news moves stock prices. Good news can produce a lightning-like uptick in the share price. Bad news produces the reverse movement, frequently with lightning speed.
Before the market opens for the day, the strategy is simple – read the day’s economic news. As with every day trading strategy, Australian websites specialising in stock coverage are essential reading.
The impact of news on stocks in some sectors can be more predictable than others. A positive outcome on a clinical trial for a drug or other medical treatment affecting a large segment of the population is likely to send a share price higher.
As with all the best day trading strategies, the skill involved is gauging the timing of the BUY and SELL. Buying in too late and selling too early can cut into the day trader’s profit.
Momentum Trading Strategy
Momentum trading and News trading frequently go hand in hand; if the news is genuinely of breakout character, the sign to look for in momentum trading is large spikes in trading volume. Some guides will tell you the challenge with momentum trading is determining an entry and exit point. One could make a strong argument that is the challenge in every day trading styles, regardless of strategy.
Momentum trading requires laser-like focus and control, keeping your eyes trained on your trading platform’s price tracking charts. It also requires cold-blooded emotional control with no regrets should you sense the momentum is fading and close out a position only to see the trend reignite.
Scalping Day Trading Strategy
This strategy requires nerves of steel and the ability to process large amounts of information quickly. The scalper’s philosophy is that a series of small profits from a large number of trades can make for a profitable day. Some experts claim that scalping can be the most profitable and, therefore, one of the best day trading strategies. A good scalper needs the ability to focus on multiple trades simultaneously, requiring a more sophisticated trading platform.
All day trading strategies require the trader to set target prices for entering and exiting a trade. Some may choose to use automated stop/loss settings in their trading platform.
Day Trading Australian Shares
The challenges of successfully employing the best day trading strategies are many, and they begin with finding target shares.
Guides to day trading may seem overly concerned with the strategy’s techniques and not the day trader’s background. There are more sophisticated day trading strategies than analysis, but all day traders would benefit from a solid understanding of technical analysis.
Technical analysis for day traders includes charting tools for spotting momentum movements about to begin and those about to end, plus volatility and trading volumes.
As good a resource as technical analysis can be, you still have to find stocks to analyse. Australians are blessed with two powerful sectors where news is essential to astute investors.
First, we have a robust biotechnology/life sciences sector where the announcement of an upcoming clinical trial, preliminary results, and regulatory approvals can push stocks rapidly upward. Country approvals, contract signings, and new drugs and treatments in the company’s pipeline can also affect stocks.
The other sector is the mining subsector of the broader materials sector. We are a mining country; here, investors can watch for a dizzying array of price-moving mining news. Discovery of a new prospective target for explorations and development is one. The commencement of field studies and drilling campaigns in a prospective area is another. Positive drilling results, solid resources and mine life estimates are more. Finally, there are offtake agreements where suppliers agree to buy whatever the company mines before it is out of the earth.
Best Australian Day Trading Platforms
There is no such thing as a “best” Australian day trading platform. The choice depends more on the characteristics of the day trader and the strategies they choose. Since all-day trading strategies can require more trades than a Buy and Hold investor would make, brokerage fees are a top concern.
That is especially true for the Scalping strategy. A secondary concern is the sophistication of the trading platform. A platform needs to allow the day trader to monitor multiple trades as quickly and efficiently as possible. Sophistication should not mean confusing complexity.
Brokerage houses typically offer trial periods and even “free” trading practice periods to allow the day trader to assess the platform’s capability.
Thebull.com.au maintains a complete list of the best Australian brokerage houses.
Here are some highlights.
eToro offers zero commissions on stocks, low trading fees on US and global stocks, and a platform capable of multiple trades – stocks, ETFs, and forex. The platform is rated as easy to learn but is not a favourite among technical analysis traders.
InteractiveBrokers is often rated as the best broker for day traders due to low fees and innovative trading platforms; however, the platform may take time to learn.
These two are consistently ranked at the top of Australian brokerage aggregator sites. Both have a low minimum for opening accounts and provide multiple educational tools. Newcomers to day trading would benefit from experimenting with both.
Summary
Day trading, as its name implies, involves buying and selling stocks or forex pairs in a single day. The number of stocks traded depends on the strategy used and the trader’s capabilities. The research involved in selecting day trades is extensive, including more than just basic familiarity with technical analysis charting tools.
Finally, a day trader needs to be a special breed of investor who can maintain a rigid focus on open trades and make quick decisions on when to close. Trading the news is one of the best day trading strategies for beginners. Sectors on the ASX with stocks that lend themselves to day trading include biotechnology, life sciences and mining. Stocks in both are very susceptible to sharp movements based on events, and both have ample news to share with the market.
