More on Types of Day Trading.

Range Trading

Range trading, sometimes referred to as channel trading, is a day trading strategy that starts with an understanding of the recent price action.

A trader will inspect chart patterns to identify typical highs and lows during the day while keeping a close eye on the difference between these points.

For example, if the price has been rising off a support level or falling off a resistance level, then a trader might choose to buy or sell based on their perception of the market’s direction.

This is known as “trading in a range“, where each time price hits a high, it falls back to the low.

And vice versa.

A day trader who is using this strategy and is looking to go long will buy around the low price and sell at the high price.

A day trader who is using this strategy and is looking to go short will sell around the high price and buy at the low price.

Most range traders will use stop losses and limit orders to keep their trading in line with what they perceive to be happening in the market.

A stop loss order is a point at which a position is automatically closed out if the price of the security drops below the trader’s entry point.

A limit order is the automatic closing of a position at the point where the trader perceives a profitable run could end.

Range trading requires enough volatility to keep the price moving for the duration of the day, but not so much volatility that the price breaks out of the range and starts a new trend.

But if the price does break out, there’s a strategy for that as well…

Breakout Trading

Breakout trading is when you look at the range a pair has made during certain hours of the day and then place trades on either side, hoping to catch a breakout in either direction.

This is particularly effective when a pair has been in a tight range because it is usually an indication that the pair is about to make a big move.

Your goal here is to set yourself up so that when the move takes place you are ready to catch the wave!

In breakout trading, you determine a range where support and resistance have been holding strongly.

Once you do, you can set entry points above and below your breakout levels.

As a rule of thumb, you want to target the same amount of pips that makes up your determined range.

News Trading

News trading is one of the most traditional, predominantly short-term focused trading strategies used by day traders.

Someone who is news trading pays less attention to charts and technical analysis.

They wait for information to be released that they believe will drive prices in one direction or the other.

This information could be a report releasing economic data, such as unemployment, interest rates, or inflation, or simply breaking news or random presidential tweets.

To do well with news trading, day traders tend to have a solid understanding of the markets in which they’re trading.

They develop the insights to determine how the news will be received by the market in question in terms of the extent to which its price will be affected.

They will be alert to various different news sources at the same time and know when to enter the market.

The drawback of news trading is that events that cause substantial movements in prices are usually rare.

More often than not, the expectations of such events are factored into the price in the run-up to the announcement.

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