To be a profitable Day Trader you will need to have a clear trading strategy.
Your strategy will detail the conditions required for putting on and closing out a trade and also the manner in which that trade execution is conducted. Getting the direction of the markets right is one thing, finessing your trade execution to maximize profits (or minimize losses) is another.
Pre-trade is the time when some of the most difficult questions arise:
- Has sufficient research and analysis been carried out to make your trading strategy a success?
- Is the current market situation one that the strategy was designed to work in?
- Are all or just some of the trigger signals indicating execution appropriate?
- How successful has your trade execution been?
- Have the risk factors associated with the strategy changed?
The list of questions is extensive, and only a few vital questions are included above. Anyway, some of the most important questions will be personal to you. Try to understand your previous trading successes and failures and use them to frame a question to yourself about whether now would be a good time to trade.
Choose what size of position you would like to take. Then reduce it, then break it into smaller pieces and trade them in installments and ‘work your way into the trade.’ Running lower levels of exposure will lead you to a situation where you are managing a trade competently rather than being influenced by your emotions.
Is a particular instrument the best for the strategy? If you’re feeling the markets are due a sell off a short position in an Equity Index CFD would give you exposure to that price move, but you may be willing to take on a single stock risk and go short on a particular company based on your detailed analysis of it?
Different broker platforms have different strengths and weaknesses. They range from the quality of pre-trade diagnostic tools through to terms and conditions of financing. Which platform is best for which trade? Broker Comparison tool.
VWAP (volume-weighted average price)
Understanding and using VWAP can help build positions and close out positions at better price levels. VWAP is the ratio of the value traded to the total amount that is traded over a particular period. It is a measure of the average price at which a stock is traded.
If you are looking to enter into a long position throughout a day, then you’d be ‘buying the dips.’ The principles of VWAP may continue through the life of the trade with positions being adjusted to take advantage of short-term market moves. Positions may be increased or reduced to take profits or to manage risk levels.
Know your product and the market hours that it trades and your investment time horizon. Equity CFDs can only be traded during that instrument’s market hours, and other products like Forex and Index CFDs will have wider spreads at certain times of the day.
Closing out trades
Stick with your strategy. If the trade is profitable, do allow stop losses to be adjusted in your favor to ensure some profits (or at least break even) are secured. Don’t move stop losses away from the market price. Don’t double down.
Analyze your performance regarding trade execution. If you feel you are close to making optimal returns discipline yourself to manage the emotional aspects of leaving some money on the table.