What are the Different Day Trading Techniques?

Day trading is the practice of buying and selling stocks in a relatively short amount of time and always within the span of one day. There are many day trading techniques that offer traders different levels of risk and reward. Scalping and trend following are among the easiest and most popular day trading techniques. Contrarian investing and news playing are less precise methods that can offer bigger potential earnings.

Scalping is one of the day trading techniques that offers a simple way to gain day trading education while making actual investments. Compared to other day trading techniques, this only requires a keen watch of market prices. The basics of scalping include purchasing a high volume of stocks at a low price and then immediately selling those stocks when the price goes up, even by a small fraction. The idea here is that the high volume will yield large earnings with a minimum of risk because stocks are being sold so quickly.

Trend following is another way of day trading without getting too involved with the complexities of the market. This technique require paying close attention to news and the market prices. A trend is any stock price that is continually moving up or down. A trader can purchase stock that he or she thinks will continue to move up and make money or wait until a valuable stock drops to an acceptable level to purchase. This method requires a sharp instinct for trends and often does not follow any economic rules of trading.

Contrarian investing is similar to trend following except it involves predicting when the trend will end and the stock will turn in the other direction. This method requires traders to watch rising prices and sell the moment they predict the value will drop. Conversely, this technique requires traders to follow dropping values and purchase when they feel prices will begin rising. This method carries a high amount of risk because there is never a guarantee that prices will reverse.

News playing is a similar way of predicting how a stock will perform based on media focus. This happens when a trader purchases stock that has been declared a good investment by one or more financial media commentators, and the stock is sold when it is determined to be bad. This is also one of the risky day trading techniques because there is no guarantee that a positive or negative comment in the media will alter a stock price.