These traders use technical analysis to identify trends. Contrarian investing is a market timing strategy used in all trading time-frames.

The Basics

It assumes that financial instruments that have been rising steadily will reverse and start to fall, and vice versa. The contrarian trader buys an instrument which has been falling, or short-sells a rising one, in the expectation that the trend will change. Range trading, or range-bound trading, is a trading style in which stocks are watched that have either been rising off a support price or falling off a resistance price.

That is, every time the stock hits a high, it falls back to the low, and vice versa.

What is The Best Trading Strategy To Earn A Living (Updated )

Such a stock is said to be "trading in a range", which is the opposite of trending. A related approach to range trading is looking for moves outside of an established range, called a breakout price moves up or a breakdown price moves down , and assume that once the range has been broken prices will continue in that direction for some time.

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Scalping was originally referred to as spread trading. Scalping is a trading style where small price gaps created by the bid—ask spread are exploited by the speculator. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.

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Scalping highly liquid instruments for off-the-floor day traders involves taking quick profits while minimizing risk loss exposure. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands. Scalpers also use the "fade" technique. When stock values suddenly rise, they short sell securities that seem overvalued.

Rebate trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue.

Most ECNs charge commissions to customers who want to have their orders filled immediately at the best prices available, but the ECNs pay commissions to buyers or sellers who "add liquidity" by placing limit orders that create "market-making" in a security. Rebate traders seek to make money from these rebates and will usually maximize their returns by trading low priced, high volume stocks. This enables them to trade more shares and contribute more liquidity with a set amount of capital, while limiting the risk that they will not be able to exit a position in the stock.

The basic strategy of trading the news is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits or losses. Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match the tone of the news itself. This is because rumors or estimates of the event like those issued by market and industry analysts will already have been circulated before the official release, causing prices to move in anticipation.

The price movement caused by the official news will therefore be determined by how good the news is relative to the market's expectations, not how good it is in absolute terms.

A Guide to Day Trading Strategies and Systems

Price action trading relies on technical analysis but does not rely on conventional indicators. These traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or not they should take a trade. This is seen as a "minimalist" approach to trading but is not by any means easier than any other trading methodology.

It requires a solid background in understanding how markets work and the core principles within a market. However, the benefit for this methodology is that it is effective in virtually any market stocks, foreign exchange, futures, gold, oil, etc. Market-neutral trading is a strategy that is designed to mitigate risk in which a trader takes a long position in one security and a short position in another security that is related.

The increased use of algorithms and quantitative techniques has led to more competition and smaller profits. Retail traders can buy commercially available automated trading systems or develop their own automatic trading software. Commissions for direct access trading , such as that offered by Interactive Brokers are calculated based on volume, and are usually 0. The more shares traded, the cheaper the commission. Most brokers in the United States, especially those that receive payment for order flow do not charge commissions. The numerical difference between the bid and ask prices is referred to as the bid—ask spread.

Most worldwide markets operate on a bid-ask -based system.

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The ask prices are immediate execution market prices for quick buyers ask takers while bid prices are for quick sellers bid takers. If a trade is executed at quoted prices, closing the trade immediately without queuing would always cause a loss because the bid price is always less than the ask price at any point in time. The bid—ask spread is two sides of the same coin. The spread can be viewed as trading bonuses or costs according to different parties and different strategies. On one hand, traders who do NOT wish to queue their order, instead paying the market price, pay the spreads costs.

On the other hand, traders who wish to queue and wait for execution receive the spreads bonuses. Some day trading strategies attempt to capture the spread as additional, or even the only, profits for successful trades. Market data is necessary for day traders to be competitive. A real-time data feed requires paying fees to the respective stock exchanges, usually combined with the broker's charges; these fees are usually very low compared to the other costs of trading. The fees may be waived for promotional purposes or for customers meeting a minimum monthly volume of trades.

Even a moderately active day trader can expect to meet these requirements, making the basic data feed essentially "free". In addition to the raw market data, some traders purchase more advanced data feeds that include historical data and features such as scanning large numbers of stocks in the live market for unusual activity. Complicated analysis and charting software are other popular additions. These types of systems can cost from tens to hundreds of dollars per month to access.

In , the U. Securities and Exchange Commission SEC made fixed commission rates illegal and commission rates dropped significantly. Financial settlement periods used to be much longer. Before the early s at the London Stock Exchange , for example, stock could be paid for up to 10 working days after it was bought, allowing traders to buy or sell shares at the beginning of a settlement period only to sell or buy them before the end of the period hoping for a rise in price.

This activity was identical to modern day trading, but for the longer duration of the settlement period. Reducing the settlement period reduces the likelihood of default , but was impossible before the advent of electronic ownership transfer. Electronic communication networks ECNs , large proprietary computer networks on which brokers can list a certain amount of securities to sell at a certain price the asking price or "ask" or offer to buy a certain amount of securities at a certain price the "bid" , first became a factor with the launch of Instinet in However, at first, they generally offered better pricing to large traders.

The next important step in facilitating day trading was the founding in of NASDAQ - a virtual stock exchange on which orders were transmitted electronically. Moving from paper share certificates and written share registers to "dematerialized" shares, traders used computerized trading and registration that required not only extensive changes to legislation but also the development of the necessary technology: online and real time systems rather than batch; electronic communications rather than the postal service, telex or the physical shipment of computer tapes, and the development of secure cryptographic algorithms.

A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock. Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread".

The market maker is indifferent as to whether the stock goes up or down, it simply tries to constantly buy for less than it sells. A persistent trend in one direction will result in a loss for the market maker, but the strategy is overall positive otherwise they would exit the business. Today there are about firms who participate as market makers on ECNs, each generally making a market in four to forty different stocks.

Without any legal obligations, market makers were free to offer smaller spreads on electronic communication networks than on the NASDAQ. Another reform made was the " Small-order execution system ", or "SOES", which required market makers to buy or sell, immediately, small orders up to 1, shares at the market maker's listed bid or ask.

In the late s, existing ECNs began to offer their services to small investors. Archipelago eventually became a stock exchange and in was purchased by the NYSE. The ability for individuals to day trade via electronic trading platforms coincided with the extreme bull market in technological issues from to early , known as the dot-com bubble. The following table first lists the most active and liquid currency pairs involving the U. Most day traders will want to confine their dealing activities to these seven currency pairs.