Day trading is a trading style where you never keep positions open over night. Every position that you open during a trading day should be closed before the trading day is over. 

Since day traders do not keep positions open over night, they tend to focus on profiting from small price changes. This is different from longer-term investments where you keep a position open for a long time and expect a serious price increase to take place over that time. 

Several different day trading techniques have been developed in order to make substantial profits from small price movements. If you are interested in day trading, it is a good idea to learn a bit about several common day trading techniques instead of just jumping on the first one you find out about. 

Ideally, open a free demo account with a broker online and use play-money to test-drive the various techniques without risking any real cash. That way, you will find out a bit more about your preferences. One of the keys behind successful day trading is finding a technique that suits you  – both your strengths and your weaknesses 

Below, we will therefore take a look at a few common day trading techniques. 

Profiting from the daily pivots 

This is a technique where the trader aims to make a profit from the daily volatility of the asset. In essence, you buy the asset when it is in the lower part of its price range for that day and sell it when it is in its higher range for the day. Seems easy, but knowing when to buy and when to sell is of course difficult. 

Scalping 

This is a much faster trading style than the one described above. A scalper doesn´t buy low and wait for the price to increase substantially before selling. Instead, a scalper opens up a large number of positions and then closes them again very rapidly. High-liquidity is very important for the scalper, since positions are held open for just a few seconds or minutes. 

The scalper doesn´t make much money from each individual profitable trade, but the large number of trades means that the daily income can be substantial.

Scalpers tend to do well in stagnant markets that many other day traders avoid. A scalper doesn´t need clear trends, since scalping was invented to profit from tiny up and down price movements. A good scalper can exploit tiny price gaps created by the bid-ask spread. 

Trading on news 

News have a tendency to cause volatility on the market, with the price moving both up and down in a rather unpredictable fashion. Successful day traders who ”trade on the news” have found ways of making a profit from this volatility. 

Trading on the news will require you to keep abreast of when important news will be released, such as corporate earnings reports. Many news-traders also keep an eye on news such as governmental policy changes which can impact interest rates, a certain industry, etcetera. 

Following the trend 

If you follow the trend, you buy when the price is going up and sell when the price is going down. The underlying assumption is that prices that have been rising for a while will continue to rise, and prices that have started to fall will continue to fall. 

Contrarian trading 

This is the opposite of following the trend, but the technique still requires you to identify trends since you will be trading against them. When prices are going down, you buy assets, assuming that the trend will reverse before the day is over. When prices are going up, you short-sell, assuming that the trend will reverse before the day is over. (Short-sell comes with an extra element of risk, so some contrarian day traders simply focus on trading when prices are going up and refrain from short-selling.) 

Fading

Fading is a strategy based on identifying an asset that has gone through rapid price movements upwards and then short-selling it. The assumption is that when an asset has gone through rapid price  increases, it is overbought and early buyers are ready to start taking profits soon. When they start taking profits, the market changes will scare quite a lot of other traders with open positions and they will begin selling too. The price goes down and you profit from your short-selling.