Earning money through day trading is easiest when you’re using financial leverage. This means that even if the price moves by a very small value, you can achieve a large profit. On the other hand, the leverage also exposes the trader to greater risk. This is the reason why risk management is a key element to success in day trading.
As you can see, risk management is key because it allows you to properly protect capital by setting stop loss defensive orders that limit losses. Usually, a stop loss is set based on support and resistance levels.
This means that in order to make a profit from day trading, you need to adapt your strategy to take into account all factors related to risk management when making decisions - the level of entry into transactions, the exit level, and the stop loss level. Moreover, you need to know when important macroeconomic data is published.
Significant macroeconomic readings can cause increased market volatility, especially when data is much worse or better than expected - this can have a huge impact on open positions. During this time, the investor is exposed to price slips, where the stop loss level will be realised at the market price - it may differ from the target place where it was set.
On the other hand, if the market moves in the forecast direction after the data, the investor can earn much more by leaving open positions. Day traders usually have a set plan of what they should do before publishing data and often close their positions early. Very often, day traders open several positions a day that sometimes last for only a few minutes.
Yes, this method is called scalping. Scalpers hold positions for only a few minutes, and in some cases even a few seconds. What you should consider is the fact that these types of strategies usually require more experience and restrictive rules related to capital management, as well as a great deal of discipline.
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XIII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.