The majority of new traders that are now starting out in trading are looking towards using either a scalping or day trading strategy. These sorts of strategies have been published a lot more than any others have and so people come in with the impression that they are the two go-to strategies to try out, after all, putting on multiple trades a day will increase your chances of winning rather than once every few days or one per week.
Trading shorter timeframes means that you can get in and out a lot quicker, make some profit, and then still have time for your social life or work, so it is far easier to fit it in around your everyday life and the other things that you are already doing. Unfortunately, it doesn’t always work like this, putting on more trades does not mean that you will be successful, especially if the work behind each trade has not been put in.
If you go to a shooting range if you take your time with each shot and only get three shots out, but they all hit the target. You would have done far better than you would have to unload a full automatic magazine of 20 bullets but didn’t bother actually aiming it. This is similar to how trading works, you need to carefully aim and analyse your trades, and not just simply quickly fire a load of trades out there in the hope that you will make some profits.
Having said that, these shorter-term trades certainly can be profitable and some people make a lot of money from them, it is just important that you are able to bring down your expectations and to ensure that you put proper trade management in place before making any trades. So we are going to look at some of the things to consider before you make the decision to trade in one of these styles.
Your Account Balance
Many people are now coming into trading thinking that they can turn $10 into $10,000 in a short period of time, this is not their fault, it is the fault of the thousands of people who exaggerate or outright lie about their results, bringing in more people who wish to emulate those results, even though we know it will never happen. So just because some brokers allow you to open up an account with just $10 it does not mean that you should. In fact, it has been recommended that you will need a balance of at least $1,000 if you wish to be successful. This is even more important if you are planning on using one of these quick-fix or multiple trade strategies, every single trade will reduce the leverage that you have available, too many open trades can cause an account to blow without even having traded in the negative, so be sure that you have enough capital to survive the strategy that you are planning to use.
Commissions and Transaction Costs
Traders are always going on about spreads, looking for the brokers with the lowest spreads because that will give you the most profit, the problem is that this is not the complete truth. Yes, lower spreads do mean that you make more per trade, but those brokers with very low spreads add a transaction cost otherwise known as a commission onto their trades. The standard commission going around is currently around $6 per lot traded, so to make our examples clear we will be trading 1 lot each time. So a broke with a low spread, let’s say 0 pips but has a commission of $6, a trader will see that they currently have a profit of $5 so it looks good, they close it expecting to make that $5, but then they are left with -$1, what happened The trader simply did not understand that a commission would come out once the trade closed. In terms of pips, there is no point having a strategy that takes 1 pip profit each time if there is a 1.2 pip spread, it just won’t make any money. So consider your broker’s charges and compare it with your strategy to ensure that you will actually make money on winning trade.
There are a lot of different strategies out there, there will be some that suit your own style of trading and some that will certainly not. You need to be able to identify what your storing points are as well as your weak points and then take a strategy that best suits your own style of trading. The strategy also needs to be able to suit your psychology, if you are an impatient person, then there is no point in going for long trades. However, if you are someone with not a lot of time on their hands, the slightly longer-term day trades can allow you to put on a trade, go away and then come back later to update it. Just ensure that you are choosing a strategy that suits you and that it is one that you will be able to maintain over a longer period of time (we are looking at months to years).
We touched on this very briefly above, but trading psychology takes a big role when it comes to shorter-term trading styles such as scalping and day trading. The expectation from a lot of traders is that they will be able to come in and make some very quick and very easy money. This is the expectation that is being put out there by some brokers and a lot of scammers. This is just not the case when it comes to being successful at trading. There is a lot of money to be made, but it is the expectation and the pressure that people put on themselves to become profitable quickly that gets them into trouble. If you are trading a short term strategy like scalping, then you will do a lot of your trading in a short period of time, if you are easily distracted during that time then you will be destined to make mistakes and some losses, so prepare yourself, ensure that you understand what it is that you need to do and what your strategy requires of you. Focus on your trading and lower your expectations to be more in line with reality rather than your dreams.
So those are some of the things that you should consider when taking on one of the shorter term trading strategies. Of course, there are many other things and factors that have an effect, preparation is one of the key things as well as having an understanding of your own abilities and what the strategy actually requires and offers. Take your time to learn, take your time to master the strategy and you will put yourself in a fantastic spot for being successful in the future.