What hey how does day trading work? The pros and cons

Day trading or “daily trading” is added to swing trading and scalping, which are among the different ways to invest in financial markets.

What is day trading? How to become a day trader? What is the value of this style of trading compared to others currently known? What are the advantages and disadvantages? In this article, we reveal everything you need to know.

What is day trading?

In financial markets, it is the act of buying and/or selling shares or financial products with the aim of generating profit. Day trading is the term used to refer to financial product transactions made after one day. Specifically, day trading is equivalent to taking buy and/or sell positions (in the foreign exchange market, for example) that will be closed before the markets close. Therefore, this requires vigilance and precise knowledge not only of the market, but also of the tools used.

How does day trading work?

Like all other styles of trading, the objective of day trading is to take positions in the hope that prices will follow the analysis performed. To do this, the investor must analyze the prices in average "timeframes" (units of time) (D1, H4 and sometimes H1). Thus, you will assess the general trend of the market.

The particularity of day trading is that the investor must place the orders taking into account that they will be closed before the market closes during the day. Therefore, in order to stay true to the principle and possibly make a profit, it will be necessary to put a lot of precision into it.

Furthermore, optimal day trading requires having the right analysis tools, but also connecting to the right source of information.

Day trading: available financial markets

A financial market is a virtual or physical medium in which investors buy and/or sell financial products. The financial market is divided into two: the primary market and the secondary market. Governments, companies and financial institutions issue bonds, shares and other debt securities in the primary market and are bought by so-called primary buyers. They can then freely sell these securities on the secondary market for cash.


Also called the foreign exchange market, Forex is the market in which economic actors meet to buy and/or sell one currency against another at an exchange rate that is never fixed.

With over $7 trillion traded daily, Forex remains one of the largest financial markets in the world . International banks, corporations and individuals are pouring huge amounts of money into it in the hope of making a profit. Therefore, this means that there is enough money for day trading investors as long as they master the rules.

There are three major stock exchanges (Tokyo, London, and Wall Street) whose opening and closing times often alternate. This alternation allows the Forex market to be open 6 days a week (closed from Friday night to Sunday night). This is a considerable advantage for investors of this style.

To finish with this part, the Forex is the market that offers the most possibilities to the day trader. With various currency pairs available and sometimes different economic realities depending on the country, the trader is more likely to make a profit.


Cryptocurrencies are the revolution in financial markets. From the wildly popular bitcoin to the hundreds of altcoins being born almost daily, these financial assets are making new millionaires every day.

It is a new source of investment to practice day trading. The cryptocurrency market experiences significant daily volatility. The speculator who knows how to do it can easily find his place. However, it is a very volatile market that requires prior knowledge before entering it.

The actions

These are a priori the most lucrative and least risky financial products. Stocks are financial assets generated by companies. The price of these assets is set based on demand, but also based on the company's assets.

In concrete terms, when the shares are listed on the stock exchange, they become accessible to anyone who wants to invest in the company. This is where stock trading comes into play, creating permanent fluctuations. For the investor, it is above all about following the information related to the company to make the right buying and selling decisions.


ETFs (Exchange Trading Funds) are financial products that take into account two characteristics. First a fund and then an action that allows you to make financial movements on the stock market.

ETFs, like currencies, real estate shares, or commodities, can be bought or sold on a stock exchange. ETF trading is done through contracts for difference. It is the price of the asset that influences the derivative products that are CFDs.

ETF trading is based on random analysis. That being said, your goal is to choose an option taking into account the analysis on the price of the asset. If a close analysis of the market indicates an increase in the latter, you will go long. Similarly, if the analysis indicates an imminent fall in the asset price, favor a short position.

Some ETFs are more coveted than others and therefore popular. So look at the price of these in the market and make your choice based on this parameter. Basically, you need to understand the type, size, and structure of the ETF you're interested in before deciding on it.

Raw Materials

Raw materials are basic products that are part of the composition of a finished product. In other words, the finished product is obtained after one or more transformations of one or more basic products, which can also be called base products. For example, obtaining a chocolate bar requires the processing of sugar and cocoa. Sugar and cocoa are, therefore, raw materials in the manufacture of chocolate.

When it comes to trading, four categories of commodities can be bought and sold on the market. These are agricultural products, energy products, metal products, and livestock products. In fact, coffee, cocoa, cotton, gold, silver, oil, gas, copper, cattle, and many more can be traded on the commodity market .

Commodity trading is buying and selling commodities on the market within a specified time. Your objective here is to buy the commodities when certain indices tell you that their value will go up and sell them when this takes effect or when other indices tell you that their value will go down.

Like any other market, the commodity market also experiences fluctuations created by various conditions. That is why, we recommend trading a CFD (Contracts for Difference), through a broker. This will allow you to interact in the marketplace without even owning the product being traded.

Indicators to use for day trading

Technical analysis is the most widely used analysis method in day trading. For good reason, making a profit with day trading depends on when you take and close a position. Therefore, traders focus on studying price movement on daily trading charts to identify trends or target areas where prices may react.

To carry out this analysis, there are technical indicators that facilitate your task. They are very numerous, but the most popular are among others:
  • Bollinger Bands;
  • CSR;
  • Moving average;
  • MACD.
Bollinger bands are suitable for a study of the volatility of a CFD market, the RSI is the perfect indicator to measure the strength of the movements. The RSI also has an overbought and oversold zone, which are a great asset for traders. These zones allow you to determine when the market is drying up and is likely to change.

The moving average and the MACD are useful indicators to determine trends in a market. The first allows, in particular, to determine the Forex trend. In addition to market trends , the MACD is also used to set daily trading signals. Choosing the ideal technical indicator for a day trading strategy is up to each trader. To do this, you will need to take your trading plan into account and find the indicator that suits you best for great day trading success.

Who is day trading for?

Day trading is a medium-term trading technique that consists of buying and selling financial assets on the same day. Plus, it's perfect for traders who want to avoid exchange fees. (Swap fees or rollover fees are for brokers and are charged when a trader holds a position overnight.)

It is a trading method that requires experience and requires a lot of attention from the trader, since he has to monitor every opportunity to take optimal positions. The investor who practices daily operations must also be available. Therefore, day trading is more for professional and experienced traders.

The pros and cons of day trading

  • It allows traders to generate very high returns;
  • Day trading offers investors the opportunity to speculate on various financial markets (forex, stocks, commodities, futures);
  • Allows you to get rid of rollover fees charged in case of holding positions overnight;
  • Avoid the risk of price fluctuations, which occur overnight after taking a position;
  • The investor benefits from high liquidity, especially with currency day trading;
  • It helps to avoid the risk of daily price gaps in the stock market.
  • The risk of loss is high, especially when the trader is inexperienced;
  • It is better to have a large capital, because taxes can be difficult to bear;
  • It will be more difficult for a beginner to learn it, because it is a complex trading method that can be difficult to learn;
  • Day trading is not suitable for casual investors.


Day trading is undoubtedly one of the best ways for a trader to "cope" the financial markets. No matter your general trading experience level, this option will allow you to set specific daily goals.

This relieves you of much of the stress that long positions can cause. However, day trading requires regular market activity in order to function over time. You will have to be patient and persistent.

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