Day Trading Explained For Beginners!

Summary

In this educational video, David Jones from Capital.com explains day trading, a short-term trading strategy where positions are closed by the end of the trading day to avoid overnight risks. He discusses the pitfalls, such as missing out on significant market moves due to a short-term focus, and offers insights on trading various markets like stock indices, forex, and commodities. Jones emphasizes the importance of risk management, using orders to manage time effectively, and choosing a trading style, whether following trends or going against them. He concludes by cautioning against the assumption that day trading is the only profitable approach, highlighting the potential of longer-term market trends.

Takeaways

• 😌 Day trading is a high-pressure activity that involves buying and selling financial instruments within the same trading day.
• 🚫 It's considered one of the most difficult ways to start trading due to the intense focus and quick decision-making required.
• 🌐 Day traders avoid overnight risk by ensuring no open positions at market close, which can be appealing but may also miss out on significant moves.
• 📈 Traders can day trade various markets, including stock indices like S&P 500, NASDAQ, DAX, and currency pairs like GBP/USD and EUR/USD.
• 📊 Timeframes for day trading can vary, but longer timeframes like 10-minute charts can help filter out noise and reduce the stress of constant monitoring.
• 📉 Traders can adopt different styles, such as following trends or fading them, depending on market reactions to news or economic announcements.
• 🛑 Risk management is crucial; even in short-term trading, significant moves can occur, necessitating the use of stop losses to manage risk.
• 🔄 Day traders can use orders to enter or exit trades, which can help automate the process and reduce the need for constant vigilance.
• 📚 The video emphasizes the importance of education and understanding market behavior, suggesting that day trading might not be suitable for everyone.
• ⏰ Most traders lose money, often due to short-term focus; the video suggests considering longer-term trends and strategies for more sustainable trading success.

Q & A

What is day trading?

Day trading is a form of trading where a market is bought and sold during the day, with all positions closed by the end of the trading day to avoid overnight risk.

Why is day trading considered difficult for beginners?

Day trading is considered difficult for beginners because it involves making quick decisions, managing risk effectively, and dealing with high levels of market volatility, all within a short time frame.

What are the common pitfalls of day trading?

Common pitfalls include being too short-term focused, not managing risk properly, and trying to predict every small market movement, which can lead to stress and poor decision-making.

Which markets are popular for day trading?

Popular markets for day trading include stock market indices like the S&P 500 or NASDAQ, foreign exchange markets such as the pound against the dollar, and commodities like oil.

What is the significance of not holding overnight positions in day trading?

Not holding overnight positions in day trading means that the trader is not exposed to risks that can occur when the market is closed, such as unexpected news or events that can affect market prices.

How does the time frame for holding trades affect day trading?

The time frame for holding trades in day trading can vary from a few minutes to several hours. It's important for traders to decide on a time frame that suits their strategy and risk tolerance to avoid excessive noise and volatility.

What trading styles are mentioned in the script for day trading?

The script mentions two trading styles: following trends, where traders get into a position early and try to ride the move throughout the day, and going against trends, where traders may take the opposite view after a significant market reaction to news.

How can orders help in day trading?

Orders can help in day trading by allowing traders to set buy or sell points in advance, which can be executed automatically when the market reaches those levels, reducing the need to constantly monitor the market.

Why is risk management crucial in day trading?

Risk management is crucial in day trading because even though trades are held for a short period, significant market moves can occur that can lead to large losses if not properly managed with stop losses and position sizing.

What advice does David Jones give for improving day trading performance?

David Jones suggests improving day trading performance by focusing on a suitable time frame, choosing a trading style that fits the trader's approach, using orders to manage entries and exits, and most importantly, adhering to strict risk management practices.

Outlines

00:00

📈 Introduction to Day Trading

David Jones from Capital.com introduces the concept of day trading, emphasizing its difficulty as a starting point for traders. He explains that day trading involves making short-term trades within a single day without holding positions overnight. The appeal lies in avoiding overnight risks, but it can also lead to missing out on significant market movements. David suggests that new traders often focus too much on short-term gains, which can be problematic. The video aims to educate viewers on day trading, its common pitfalls, and strategies to improve performance. He also encourages viewers to subscribe for more educational content.

05:02

🌐 Markets and Time Frames for Day Trading

The video discusses various markets suitable for day trading, including stock market indices like the S&P 500 and NASDAQ, as well as foreign exchange markets and commodities like oil. David highlights the importance of choosing the right time frame for day trading, ranging from one-minute to 15-minute charts, and stresses the need to filter out market noise. He also touches on different trading styles, such as following trends or going against them, and the use of orders to manage trades without constant monitoring. Risk management is emphasized as crucial, with the reminder that most traders fail due to neglecting it.

10:03

📊 Day Trading Strategies and Risk Management

David demonstrates day trading strategies using examples from the NASDAQ, currency pairs, and oil commodity. He explains how to identify trends and support/resistance levels on charts to make informed trading decisions. The video also covers the use of orders to enter trades at specific price levels, which can help manage time and enforce trading discipline. David reiterates the importance of risk management, including setting stop losses, even for day traders. He concludes by cautioning against the assumption that day trading is the only profitable approach, as longer-term trends can also offer significant opportunities. The video wraps up with a reminder to subscribe for more trading-related content.

Keywords

💡Day Trading

Day trading is a form of trading where positions are opened and closed within the same trading day, typically not holding any positions overnight. This approach is highlighted in the video as one of the most challenging ways to start trading. It is characterized by short-term transactions and is often associated with high risk due to the need for constant monitoring and quick decision-making. The video emphasizes the appeal of day trading as a way to avoid overnight risk, but also warns of the potential pitfalls, such as missing out on bigger market moves due to a short-term focus.

💡Risk Management

Risk management is a critical aspect of trading that involves strategies to limit potential losses and protect profits. In the context of the video, risk management is mentioned as a common downfall for traders, especially day traders who might overlook it due to the short-term nature of their trades. The video suggests using stop losses as a form of risk management, which is crucial for day traders to prevent significant losses in case the market moves against their positions.

💡Overnight Positions

Overnight positions refer to trades that are left open when the market closes and are carried over to the next trading day. The video explains that day traders avoid these by ensuring all trades are closed by the end of the trading day, thus eliminating the risk associated with market movements when the market is closed.

💡Volatility

Volatility in trading refers to the degree of variation in the price of a security or market over time. The video discusses how day traders can benefit from high volatility as it presents more opportunities for quick trades and potential profits. However, it also carries the risk of significant price swings that can lead to losses if not managed properly.

💡Market Indices

Market indices are statistical measures that show changes in a segment of the stock market or the entire stock market. The video mentions popular market indices such as the S&P 500, NASDAQ, and the FTSE 100 as markets that are often day-traded due to their liquidity and the potential for significant price movements within a day.

💡Foreign Exchange (Forex)

Forex, or foreign exchange, trading involves the buying and selling of currencies. The video points out that Forex markets are popular among day traders because they are available 24 hours a day and offer high liquidity and volatility, which are key factors for day trading strategies.

💡Commodities

Commodities are basic goods used in commerce that are interchangeable with other goods of the same type. The video uses oil as an example of a commodity that can be day-traded due to its volatility and the potential for significant price movements within a day, which presents both opportunities and risks for traders.

💡Support and Resistance

Support and resistance are concepts used in technical analysis that refer to price levels at which an asset's price tends to stop and reverse. The video explains these concepts as part of the day trading strategy, where traders might look for opportunities to buy at support levels or sell at resistance levels.

💡Trend Following

Trend following is a trading strategy where traders buy into an upward trend and sell into a downward trend, aiming to profit from the continuation of the trend. The video discusses this as one of the approaches day traders might take, where they might decide to 'buy the dip' in a rising market or 'sell the rally' in a falling market.

💡Orders

Orders in trading are instructions given by traders to brokers to buy or sell a security at a specified price or better. The video suggests using orders as a way to manage day trades more effectively, allowing traders to set buy or sell orders at specific price levels without needing to constantly monitor the market.

💡Stop Loss

A stop loss is an order placed with a broker to sell a security when it reaches a certain price. The video emphasizes the importance of stop losses in day trading as a form of risk management to limit potential losses if the market moves against the trader's position.

Highlights

Day trading is one of the most difficult ways to start trading due to its short-term nature and the need for constant attention.

Day trading involves making trades within a single day and closing all positions by the market's close to avoid overnight risk.

Popular markets for day trading include stock indices like the S&P 500, NASDAQ, DAX, and FTSE 100, as well as forex and commodities like oil.

Day traders can use different time frames, from one-minute to 15-minute charts, depending on their trading strategy and tolerance for volatility.

Traders can be trend followers, trying to ride market movements, or contrarian, looking to trade against the prevailing trend.

Using orders can help day traders manage their time and reduce the need to constantly monitor the market.

Risk management is crucial for day traders, with the use of stop losses to limit potential losses on trades.

Day trading is not the only way to trade; long-term trends can offer opportunities for profit over days, weeks, or months.

The NASDAQ 100 is used as an example to illustrate day trading, showing how to identify trading opportunities within a day's session.

Currency pairs like GBP/USD can exhibit significant volatility, making them popular for day trading despite being 24-hour markets.

Commodities such as oil can have substantial price swings, offering potential for short-term profits but also highlighting the need for risk management.

Support and resistance levels are important concepts for day traders to identify and use in their strategies.

Day traders can use longer time frames like 10-minute charts to filter out noise and avoid over-trading.

Leaving orders can help enforce discipline and take advantage of price levels that are expected to act as support or resistance.

Most traders lose money due to poor risk management and an overly short-term focus, emphasizing the importance of a strategic approach to day trading.

The video concludes with a reminder that day trading is not the only trading strategy and that longer-term trends can also be profitable.

Transcripts

when people first get involved in

trading one of the things they might

consider doing is day trading but i'd

say this is probably one of the most

difficult ways of starting trading so i

thought let's do a video explaining what

day trading is and how you can avoid

avoid the common pitfalls

[Music]

hello i'm david jones from capital.com i

thought we'd do another educational

video um talking about day trading so

day trading explain for beginners i

think when people who haven't traded

before or who have had little exposure

to trading think about it um they think

that trading is all about sitting in

front of a screen 12 hours a day jumping

in and out

and trying to make some money and really

that's that that's day trading you know

it's fairly

short-term trading so i thought let's do

a video explaining what day trading is

um the common pitfalls the common

mistakes

um i think you know an overall theme

with trading is that people tend to be

far too short-term and i think if you're

going to start day trading that's

clearly one of the problems but i

thought let's go through all of this and

perhaps give some pointers on uh if

you're starting day trading or you are a

day trader

ways of improving your performance um as

usual if you're watching this video and

you haven't subscribed if you could

click on subscribe it does help support

and grow the channel and means we can

continue to push out lots of different

content like this educational content

and also content on the various markets

we cover throughout the week right let's

get into it um so topic number one

what is day trading well in its purest

form day trading is trading a market

in and out during the day

but no overnight positions so at the

close of the market the day trader

doesn't have any trades open and starts

the next day

uh afresh so

the appeal of that one of the appeals is

the fact you don't have any overnight

risk so if something

crazy happens when markets are closed

you're not subjected to a shock

when the market opens again the downside

is as we'll talk about as we go through

this um you can miss out on some of the

bigger moves by being too short-term

focused

so when we're talking about day trading

um what markets should you trade

in theory anything if the market's open

during the day you could try day trading

it if you wanted to i mean

popular markets tend to be

stock market indices so

the s p 500 or the nasdaq uh in the us

here uh in in europe we have the dax the

german stock market index is always a

popular one or the ftse 100. and for me

i must admit if i had to day trade an

index i would focus on uh the us markets

in terms of volatility and liquidity

also of course foreign exchange markets

uh are always popular

to the main ones pounding against the

dollar euro dollar dollar yen

those sort of markets but then there's a

whole host of other fx markets you can

trade and commodities oil is the one i

think that perhaps jumps out at me

because that is a market where normally

we have quite decent uh volatility

throughout the day perhaps

more volatility than it's seen in some

of the other commodity markets so

there's some some headline markets to

think about when trading

um so day trading i said right at the

start is in and out the same day no

overnight positions but that still means

you could have variable time frames

throughout the day you might want to sit

there and watch one minute charts you

might want to sit there and watch 10

minute charts or 15 minute charts um so

again it's important to think about

how long you want to hold trades for and

how much noise and volatility you're

going to put up with personally me i'd

be looking at 10-minute charts but we'll

have a look at that when we get uh on

the platform

then it's what sort of trader are you

going to be are you going to try and

follow

trends throughout the day so perhaps get

into a position early on and try and

ride that move throughout the day or are

you going to take the view that you're

going to go against trends if the market

has

an extreme view in the extreme reaction

uh following a major news announcement

let's say like interest rates or

non-farm payrolls the market might go

down for example

and you might take the view well

actually that move is overdone so you're

going to go against those initial moves

so there's a couple of different ways of

trading and we'll take a look on the

platform

you can use orders as well you know you

don't just because you're day trading

you don't necessarily need to be sat in

front of the screen 12 hours a day if

you know there's a certain level where

you want to buy oil perhaps 50 cents

lower than where it's trading now you

can use an order to take some of the

stress away and just sit there and it

gets filled if the order gets fit hit

then of course there is the

all-important risk management the

downfall of most traders and let's not

forget most traders lose right the

downfall of most traders they don't pay

attention to risk management just

because you're short-term trading

doesn't mean you can't have a big move

against you uh throughout the day so you

need to still think about stop losses

where am i going to get out if it goes

wrong and think about how you can

maximize your profits but let's take a

look at some of these points let's jump

on the platform and take a look and try

and explain day trading a bit more by

looking at some of these markets

so let's start things off with the idea

of day trading i'm going to look at the

nasdaq this is the nasdaq 100 so i

thought

show you the idea of you know what day

trading is all about so the idea is

in and out during the day but no

overnight positions so if i look on the

nasdaq the nasdaq's a 24-hour market but

the trading day this is yesterday's

trading day

runs from about here on the chart and

then if we jump through to the close

then that's up here so you can see lots

of volatility throughout the day even

though it trades overnight a lot of the

time the volatility will not be the same

sort of level depending on what's

happening in the world but the idea is

to trade within the trading hours for

that market and end the day with no

overnight positions so when it comes to

which markets to trade let's stick with

the nasdaq for now if i take this chart

out slightly i mean we've had quite a

lot of volatility this week so this is

the last

three days or so so looking at the

nasdaq as an example of a stock market

index the market has gone from almost as

low as 12 000 to

about above 12 900 so lots of volatility

just over these last few days so again

as a day trader an opportunity there for

plenty of trading opportunities

the opportunity to make and lose money

of course so that's you know one reason

indices appeal

um

we do get fairly decent swings

throughout the day and it's markets that

people are familiar with

and if we look at a currency pair this

is pounding against the dollar same sort

of period so again over the last few

days has gone from about

119.50 to as high as 122.40 so we've

seen

nearly a 300 point move in pound against

the us dollar over the last few days so

another example uh as to why

currencies are popular markets i mean

currencies are true 24-hour markets

anyway um but again if we're day trading

we probably don't want to be carrying

any overnight risk but you can see we

get some sudden moves quite a lot of

sideways moves doing this though which

could be frustrating if you're sat there

watching the market then a sudden move

again and the market goes sideways but

but again with with currency markets we

do have a level of volatility which of

course is what we need when trading

and then finally i thought we'd look at

a commodity i used i talked about oil um

a few minutes ago

this is oil again over the last few days

the time of recording has gone from as

low as about 93.65

to as high as uh

99 so again

big move here five and a half dollar

move in the price of oil uh over recent

days so so another market that appeals

to people

as a way of trying to make short-term

profits via day trading

so let's talk about the time frame let's

stick with oil for now so i've got a

five-minute chart here and within this

five minute chart i think we can see

things such as trends we can see that on

the 28th of july the market slipped to

95.50

and it came back to it a few hours later

that was good support

and then if we jump forward it came back

to it again uh in the early hours of the

next morning so we see this idea

of support and resistance if you're

familiar with that you know in the chart

in the five minute chart now i can make

this a shorter term chart if i flick

this over to a one minute chart

there's that old support that we had uh

down around 95.50 we have a lot more

noise of course on the chart because

every minute the chart is drawing a new

candle it's completely up to you what

time frame you want me i

i rarely go below well i don't go below

five minutes for me five fifteen ten

minutes they're my preferred time frame

i don't wanna be looking at a one minute

chart but perhaps your approach is

different but i think for me the

slightly higher time frames work to try

and filter out some of the noise uh in

the market and not getting caught up

sort of chasing the market all day long

one of the points i talked about is your

trading style are you a

trend follower or are you looking to go

against the trend if we look at this is

the nasdaq from a couple of days ago we

saw the market push higher in response

to an interest rate decision and then

start to back off you may have taken the

view then well actually this market has

overdone the reaction to an interest

rate decision and you look to sell short

you're fading the trend or another

approach would be well actually the

market is trading higher so what i'm

going to do is buy the dip the market

did dip and again over the next 24 hours

has pushed higher so it's really

important you can make money and lose

money both ways think about am i going

to try and go with the broader trend for

the day or over the last couple of days

or are we gonna wait for perhaps an

extreme move in the market like we had

here where the nasdaq fell uh a couple

of hundred points in fairly short order

and used that as an opportunity uh to

say the mark is overreacted and like i

say both approaches

completely valid but i think it's

important to decide which box you fit in

as a day trader the other thing you can

do of course is to leave orders so if

you look at a currency pair so here's a

five minute chart of euro us dollar so

so we've seen the euro trade is low it's

about 101.90 uh so far this morning it

was a few hours ago so i think well

actually maybe if it comes back down

here again i want to be a buyer at the

moment it's about 15 20 points above

that so what i can do

if i click on buy i can actually leave

an order to buy

if the euro

gets back to that old level so the point

here is

making the platform do the work for you

you can see the blue line

there on the chart so that if the euro

drops that level i'm gonna buy in

because i might be expecting

the level to act to support so i don't

need to sit here and watch the market

okay so using orders is i think a

a clever way of trying to free up the

time and enforcing the discipline of

sticking to levels the other part of

discipline of course

is to use a stop loss so again just

because you're day trading don't use it

as an excuse to forget about risk

management so i might want to be a buyer

of the euro if it gets to uh 101.90 but

if the market falls to 101.60 i want to

come out the trade so having a stop loss

and risk management for uh for all of

our day trades i think is a very

sensible approach and to wrap things up

i would just say let's not forget most

people lose money trading and

one of the reasons people lose money is

by being too short-term so do not assume

that day trading is the only way to

trade you know we've seen some great

trends in markets that run for days

weeks and sometimes months so having to

sit there and figure out where it's

going to go in the next hour isn't

necessarily the cleverest bit of trading

but i thought i'd just do this quick

video on explaining how day trading

works

that's it for this quick update on day

trading explained i hope you found it

useful there's a whole load more

educational content

on our youtube channel so take a look at

that but for now from me davidjones and

capital.com we'll leave things there

good luck with your trading

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