Day trading as a trading style, can potentially

provide certainty to retail traders

 Day trading as trading style | Contents

Contents

Proprietary trading firms intelligence and preference. ..................................................................................1

Day trading as a trading style, can potentially provide certainty to retail traders.......................................1

Risk control, a major attraction of day trading.................................................................................................2

News event trading example...............................................................................................................................2

Preferred time frames tend to work well in all conditions..............................................................................2

Features and benefits of day trading.................................................................................................................2

Price action for day traders is an essential observational skill.......................................................................3

Examples of day trading opportunities for day traders which occurred during Friday May 31st 2019....4

WTI oil.....................................................................................................................................................................4

USD/JPY..................................................................................................................................................................5

Gold........................................................................................................................................................................5

US 30/DJIA..............................................................................................................................................................6
 Day trading as trading style | Page 1

Day trading as a trading style, can potentially

provide certainty to retail traders

In the second instalment of our FXCC series of ebooks on trading styles, the subject of day trading is covered. As
a style and method of trading, day trading is one of the most popular styles of trading and possibly the style of
trading which the majority of retail traders expect to eventually engage in, or move up to, once (and if) they can
change their employment and finally dedicate themselves full time, to the occupation and industry. As a style and
method, it’s the trading style that many individuals, before they become retail traders, will conjure up as an idea
of what trading represents. They’ll imagine traders using their keyboards and PCs, to manually engage with the
market, in the form of an intellectual contest.

Proprietary trading firms intelligence and preference.

An example of day trading’s place and popularity in the retail trading industry, is illustrated by it being the preferred
method of trading that proprietary trading firms offer to retail traders, in order to share the rewards from a self
employed, joint, trading arrangement. Unlike text book scalping, which is arguably the preserve of high frequency
institutional level traders, who will require technological support and speeds unavailable to retail traders, day
traders can thrive as retail traders working with proprietary firms, based on using their edge, time after time.
They’ll also be compelled to trade within the prop. firms’ parameters, in order to limit the potential losses, for
both parties.

Proprietary firms are generally founded by experienced traders, it’s worth noting that their preferences towards
daily trading methods and traders to support, across a wide spectrum of securities; FX, indices, commodities and
individual stocks, could be an indication of what trading style actually works best, for the majority. Prop. firms
have the data to back up these decisions, they wouldn’t have a preference for day trading/traders, unless they had
positive expectancy in the outcomes, over the long term.

Unlike swing trading, proprietary firms can pinpoint the exact performance metrics of their partners, who use day
trading styles, at any given time. This ability to establish the daily profit and the exact profit or loss relating to a
specific trade, is one of the long standing appeals of day trading.

RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss.
It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to
lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary.
 Day trading as trading style | Page 2

Features and benefits of day trading.

Day traders can bank their profits, or limit their daily losses, on any given trading day, as their trades are generally
conducted on an EOD (end of day) basis. They’ll typically trade economic calendar events and breaking news,
whilst using basic technical analysis, in order to evaluate the prevailing market conditions, session to session.
Not holding any trades over, helps many traders with their: money management skills, their method and their
psychology. You’re no longer concerned during your leisure hours, how the markets are performing, as your day
ends so does your trading. You then start with a clean slate, each and every trading session and day.

Day traders tend to work in harmony and in tandem with the data and events of the day, they’re generally working
in tune with the market, as the daily ranges or trends change, whilst remaining highly visible. They’ll use any
alterations in technical readings, combined with any relevant, underlying fundamental analysis, to make their
decisions.

As individuals, traders like to know what they’re earning on a daily basis and with day trading you know exactly
what you’re taking out of the market, during each session and every trading day. With swing or position trading,
despite running a continual profit and loss total, you can’t establish your exact profit on a trade, until you’ve
actually closed it. Therefore, if you’re trying to extract a regular and predictable salary from the markets, day
trading can make the ideal choice, over and above all other styles.

Risk control, a major attraction of day trading.

You know with day trading, that if you’ve perhaps incurred a trading loss of 1% during the previous day’s sessions,
it’s not a damaging experience, you can write the loss off and attempt to recover the marginal loss and any
possible drawdown you’ve suffered, during the next sessions. This reveals another benefit regarding day trading,
in terms of the peace of mind day trading can engender.

That control over risk is another highly appealing aspect of day trading, your risk per trade and your risk per
session, can be easily and efficiently capped, with the effective use of stops. You’ll also have greater control of
the margin you require, to ensure you’re managing to comfortably trade within the broker’s leverage conditions.
In FX trading in particular, traders might choose to only trade one FX currency pair and (or) the major pairs only.
They may also prefer to only trade the high impact calendar events during each session. For example; rather than
set out to trade EUR/USD each day, they’ll look to trade any, or all major currency pairs, displaying daily bullish or
bearish price action. Alternatively, they may begin to prepare themselves to trade the currency pairs which are
relevant to an upcoming news event, such as; trading the latest interest rate decision made by a central bank.

News event trading example.

A highly topical example during the week beginning June 2nd, would be if the central bank of Australia, the RBA,
decides to cut the interest rate from 1.5% to 1.25% on Tuesday morning. Day traders might put themselves in a
position to trade the AUD/USD, based specifically on this decision. And when the analysts’ consensus is for a cut,
a hold could represent a surprise, therefore, the FX market could react to whatever decision the RBA announces,
hold or cut. Despite the announcement being scheduled for broadcast in the Sydney-Asian session, many Western
Hemisphere traders may choose to trade the event, by either ensuring they’re awake, or by the use of standard
market orders, or through using their EAs (expert advisors).

Preferred time frames tend to work well in all conditions.

There are undoubtedly several time frames (TFs) which work extremely well for day traders. TFs such as the: 1hr,
30 minute, and 15 minute, tend to be the frames many traders will scale in and out of, in order to make their
trading decisions. Close on all the economic calendar events and data releases globally, are scheduled for release
on the hour, or half hour. Therefore, the logic of using frames of 15 minute intervals and up, in order to determine
bullish or bearish price action, is sound.

RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss.
It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to
lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary.
 Day trading as trading style | Page 3

Correlations also prove extremely useful when day trading, as they can become pronounced and easily identifiable,
as changes in sentiment can be quickly revealed, across a wide spectrum of securities. For example, a common
negative correlation in FX markets can be illustrated; USD/CHF might rise, as EUR/USD falls. In risk off conditions,
WTI oil may fall in value in concert with equity market indices, whilst the value of gold might rise, as safe haven
assets gain appeal.

Price action for day traders is an essential observational skill.

Scalpers have to make lightning quick decisions regarding market orders, traders who day trade markets such
as forex, also have to make quick decisions, although they can afford extra time in comparison to scalpers, to
take confirmatory actions, before activating their orders. However, the competent analysis of standard, text-book
price action patterns, is absolutely crucial for day traders. Typically they’ll look for candlestick reversal patterns
by way of dojis and hammers, they’ll also look for engulfing patterns and any other formations which indicate a
continuation of strong market sentiment. It’s essential, therefore, that retail day traders become highly efficient at
identifying the most common and popular candlestick patterns.

In the following series of examples only the one hour time frame will be used, which is often the preferred TF for
many day traders. The day trading method and strategy is fairly straightforward and requires the minimum of
rules and discipline to adhere to. Long trades are taken in bullish price action conditions, short trades taken when
and where bearish price action has developed. Both conditions are illustrated by the securities being above, or
below the support, or resistance levels. In such conditions, when volatility and liquidity levels are high, the critical
decisions traders will have to make generally concern entry and exit points, how many positions to take in relation
to their overall risk and margin requirements, determined by leverage limits etc.

RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss.
It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to
lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary.
 Day trading as trading style | Page 4

Examples of day trading opportunities for day traders which

occurred during Friday May 31st 2019.

During the last trading day of May, risk off sentiment became apparent across a broad range of markets; equity
markets, oil, gold and forex were all impacted, as investors sought out safe haven refuge from the market
maelstrom, which began during the Asian session on the Friday morning. Renewed trade war rhetoric between
China and the USA, added to President Trump’s announcement; that he was weaponising tariffs to be applied
on Mexico’s imports, to punish the country for its social policy regarding immigration, caused global market
sentiment to slump. The price action which developed during Friday’s trading, was driven by the concerns over
global trade, therefore, any fundamental calendar events or data releases published during the day’s sessions,
ranked subordinate to the overwhelming geo political/economic situation.

What follows is a description of four securities; WTI oil, USD/JPY, XAU/USD (gold) and US30 (DJIA). All four securities
were typical of the clearly identified price action patterns, which day traders can attempt to profit from, using
the minimum of technical analysis. Heikin Ashi bars are used in preference to standard candlesticks, as they
can clearly indicate price action characteristics more clearly. Whatever method of price indication is used, the
requirement is to identify a rapid change in market behaviour and trade the momentum. You might prefer to stay
in the trade until the end of the day, have predefined targets as you execute your entry order, or limit the trade
length per session.

WTI oil.
Oil traditionally sells off during overall bearish market conditions, the general consensus is that any contraction in
commercial sentiment, leads to a lack of demand for energy. There can be contradictory factors to this situation;
markets might sell off during times when oil producing countries are threatened, subsequently, the price of
oil rises due to supply concerns, whilst equity markets slump. During the morning session on Friday May 31st,
oil began to fall, initially through the first level of support. Once the New York session developed, the bearish
sentiment and defined price action increased, as price slipped through S2. The security ended the day down circa
-5.5%, the largest session fall witnessed during 2019.

RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss.
It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to
lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary.
 Day trading as trading style | Page 5

USD/JPY.
Yen is traditionally and historically considered to be a safe haven currency. During times of market doubts, the
currency and its associated pairs, experience increased speculative activity, as investors seek out refuge from
market tumult. On Friday May 31st, yen reacted more quickly to the market sell off, than WTI oil previously
mentioned. FX markets are 24hr markets, oil markets tend to follow similar trading times to traditional equity
markets in the Western Hemisphere. USD/JPY sold off sharply during the Asian session, as markets absorbed
the previous evening’s news; surrounding increased Chinese tensions and the application of tariffs on Mexican
goods, imported into the USA. Price fell through the first two levels of support, the sell off continued during the
London-European session. The slump gathered pace during the New York session. The day trading opportunities
were considerable.

Gold.
As a classic safe haven asset and security, gold tends to rises in times of market doubts. Similar to other commodity
securities such as oil, precious metal commodities tend to rise and fall more in tandem with the market behaviour
and timing of equity markets. Gold rose by circa 1.45% during the day, breaching the $1,300 per ounce handle for
the first time since early May and posted a daily high not printed since mid April.

RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss.
It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to
lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary.
 Day trading as trading style | Page 6

US 30/DJIA.
Futures markets for the DJIA and other USA market indices had fallen prior to the New York session opening, once
New York opened the market sold off sharply, as the major USA market indices closed the day and month out, by
posting their second worst monthly metrics for May, since the 1960’s. The security had remained below the daily
pivot point and the first level of support, before selling off sharply during the New York session.

RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss.
It is possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to
lose. So please ensure that you fully understand the risks involved. Seek independent advice if necessary.
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RISK WARNING: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves substantial risk of loss. It is
possible to lose all the initial capital invested. Therefore, Forex and CFDs may not be suitable for all investors. Only invest with money you can afford to lose. So
please ensure that you fully understand the risks involved. Seek independent advice if necessary.