After you established that your trading style is day trading, you can now think of a strategy around it and how to make it work best for you.

In this and next article, we will talk about the four most popular day trading strategies. Going through each one of them will help you understand their concepts and differences.

Afterward, you can simply implement one that suits you the best.

Day trading strategies

Because day traders must be very focused and strategic, for them it’s a necessity to build up an appropriate strategy. Day traders can choose different time frames for opening and closing

positions - from a couple of minutes to a couple of hours. As a result of that, they have developed lots of strategies. Among the most popular are: scalping, news trading, reverse trading and range trading.

1. Scalping

The fastest form of trading is scalping. A scalper (a trader who uses the scalping trading strategy) prefers short moves, that occur frequently, to the long ones. When scalping, your trades last from a couple of seconds to a few minutes maximum. Positions are opened and closed on a timeframe of minutes to seconds and profits are taken quickly. The idea is to open a trade and close it as soon as the market moves in your favor. Thus, this strategy implies opening several small positions with small price movements and having more opportunities to trade on. Scalping aims to ‘scalp’ a small profit from each trade. Big wins aren’t the goal.

Traders locate trading opportunities by looking for small price changes in the market. Precise timing and prompt execution are essential when scalping. This type of trade is profitable for some traders, but also has its own share of risks. A scalp trader is like a marathon runner because he/she needs to capitalize quickly on available opportunities.

To execute the strategy effectively, a trader must be able to spot trends in the market, anticipate upticks and downswings, and be able to understand the psychology behind a bull and bear market. Effective scalpers must also be able to read and interpret short-term charts. They must often make decisions based on stock charting that is within 1- to 5-minute intervals.

Scalping means going against traditional trading instincts. Traditionally traders want to hold onto stocks that are rallying, if at least in the short/medium term. Scalping goes against the traditional instinct, and a scalper will sell their position even if the stock is on a large uptick.

The scalper may jump back into the security at a later point that day or week, but they generally have the discipline to exit a stock even if they are experiencing significant gains. Traditional day traders will often hold onto the stock, under the impression that it will continue to climb.

The market must be highly liquid and the trader must trade with tight spreads. As a result, scalping is mostly used for trading major currency pairs (EURUSD, GBPUSD, USDJPY and USDCHF).
 

Scalping example

One of the simplest and most common forms of scalping involves buying a substantial amount of shares, waiting for a small tick upwards, and unloading the position as soon as profitability is reached. Traders can place 10 to 100+ trades in one day in order to make even the tiniest profit.

For example, a trader enters a limit order to buy 5000 shares of YYZ at a price of $0.98, which happens to be the closest support level. Once YYZ falls to 0.98, the trade is executed and the scalper monitors the price movement on a 1-min chart.

A minute later, the stock has bounced to 1.02 off the support level and the scalper’s equity has increased from $4,900 to $5,100. The trade is quickly closed for a $200 gain, regardless if the price movement continues to look favorable. The scalper makes $200 in a minute and moves on to the next trade.

Scalping attracts traders because it exposes them to less risk and offers greater numbers of trading opportunities. In addition, traders are able to fight greed since they target very small returns.  

Not all brokers allow Scalping because it’s either illegal in some countries or technically faulty for the broker.

*We have included this strategy for informational purposes only. Scalping is not allowed when trading with Limit Prime.
 

2. News Trading

Many short-term traders base their decisions solely on technical analysis and price charts, regardless of which markets they are trading. It's common for traders to completely ignore fundamental factors and instead follow price trends, analyze support and resistance levels and weigh up various signals from technical indicators.

However, fundamental analysis​​ is just as important in the modern trading world as technical analysis. News releases such as earnings reports and changes to interest rates and inflation can significantly impact the markets. Trading on news releases can, therefore, prove vastly beneficial to traders and can significantly strengthen their trading strategy by adding economic announcements to their purely technical and charting approach.

Traders who rather wait for the announcement of some important events and news than check the charts are called news traders. These events and news are related to big companies or the government and can be about: company earnings, new products, unemployment, interest rates, inflation, and so on. News traders know how much some news can affect the market (or only a certain asset) and in which direction they can move the prices (upward or downward).

The biggest challenge for news traders is the time of entry, that can be immediately after the release of big news or the moments before the announcement happens. Accordingly, these traders must be good at picking the right time for opening and closing positions.

Nevertheless, news traders must firstly keep track of the market after the announcement of big news and then try trading the news by themselves.

With the appearance of big events (news), movements in the market are often very quick and surprising. This means that stop-loss and limit orders are not as desirable as trading live, because great losses can occur.

There are two main categorizations of market news: scheduled and unscheduled.

Scheduled news trading

Scheduled announcements are news releases that traders and investors are already aware of in advance. They do not necessarily know the details of the announcement but they will know when it is due to occur.

Some key scheduled news events that traders will keep an eye on include economic data (such as interest rates, retail sales, inflation and employment reports), company earnings and election updates. Here you can check the latest news regarding all scheduled market news that could be relevant for traders.

Unscheduled news trading

Unscheduled news occurs unexpectedly and as a result may catch traders off guard. Market participants will react by adjusting their trades or exiting the market, causing a significant swing or trend reversal. In some cases, unscheduled events can occur in the form of a black swan event.

Black swan events are rare, unpredictable and hugely impactful on the market. Previous such events have included the 9/11 terror attacks, the global financial crisis of 2008, the Coronavirus pandemic of 2020 and the Ukraine invasion of 2022. These events can be tricky to navigate because it’s not easy to distinguish the short-term panic from the long-term correction that usually follows.

Major shifts in global supply and demand is also an important consideration. Brent and crude oil, in particular, are closely followed in trading news, as they can act as significant drivers of world market movements.

If the demand for oil suddenly dropped today, for example, market participants could see a significant drop in price due to excess supply. This scenario would present a good opportunity for traders to capitalize on.

Which markets are best for news trading?

Previously, news-driven trading was commonly used in the forex market. Today, however, news from one country can have a significant impact on many other markets, including commodities, stocks, indices, cryptocurrencies and even the futures market and binary options.

A particular advantage of a news trading strategy in the forex market is that you can trade any time: 24 hours a day and five days a week. The strategy can therefore present frequent opportunities to trade, especially when news relating to the most popular assets is released. These include USD, EUR, GBP, JPY and the liquid pairs derived from those currencies.

Scheduled news events can also have a significant impact on markets. For example, company earnings announcements can influence the trading performance of stocks and shares. Similarly, macroeconomic data and political events can drive the performance of major stock market indices, such as the S&P500, ASX200 or NASDAQ100, as well as commodities such as gold, oil and gas.

US news releases are particularly influential on day trading activities. Some of the best US trading news websites include CNBC, Bloomberg and Fox Business.

Of course, you should also look out for other major regions which can affect your news-based trading strategies, including Japan, India, the UK, Germany, Russia, Australia and South Africa.
 

Conclusion

Day trading is one of the most popular trading styles among traders all over the world. But, even between them, there are differences in the strategies they use.

Scalping is the quickest and thus the most intense way of trading. Scalping means opening and closing diverse positions within a few minutes. We associate it with trading in the Forex market.

News trading strategy is one of the earliest day trading strategies. Here, traders listen to what’s happening in the markets and on that account they plan their trades. They prefer fundamental over technical analysis.

These are two out of the four best day trading strategies we have prepared for you.

Find out about trend and range trading in the next article.

 

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