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Why Day Trading Is Difficult- Trader’s Approach

Word “Intra” means inside or within. So when you bet on intraday price action you claim to know what is going to happen on that day. People lose money in intraday because they fail to understand the real meaning and level of difficulty involved in day trades.

In intraday trading, you have to estimate the next move of price action in the form of the candle by reading past data. That is to say, on the daily chart what candle is formed yesterday has a lot to say about what candle may form tomorrow considering current trend and the distance of price to support and resistance.

Why Intraday trading is difficult?

First of all, let us understand what does term intraday trading mean. You all might be knowing the very famous definition of intraday given by the market. “When you are bound to square off all your positions on the same day of the trade it is called intraday trade”.

Now that is not all, the above definition does not say at all why intraday trading is difficult and how to do intraday trading at all?.

Traders make money in intraday!! is it a myth or reality?. If traders really make money in intraday then how they do it. Where they take to buy and sell calls. Because it is seen whatever you apply on intraday trading you will gain the first few days and overall you will book loss or be standing at the point of break-even.

What is the hack, why intraday trades are so difficult to do that almost all knowledge seems subsided against price action of intraday and how can someone do it successfully or is it a total loss-making machine?

To understand the intraday trades, you have to understand my definition of intraday and after reading this definition you will surely understand how difficult is it and how one should do trading in intraday. So keep yourself tuned till the end of this article. I have tried to demonstrate the lived challenge of day traders in this article.

Word “Intra” means inside or within. So when you bet on intraday price action you claim to know what is going to happen on that day. People lose money in intraday because they fail to understand the real meaning and level of difficulty involved in day trades.

In order to know how the price action is going to behave on a particular day, you need to know two important things in the price action of the stock.

  1. The current trend of price, whether it is uptrend and downtrend.
  2. What is the candle formed yesterday on the chart?

Point 1, tells you about what is the current trend for the stock. Having this knowledge will help you to find out how near you are to the resistance or support. Based on this knowledge you tend to bet either bullish or bearish.

Point 2, carries all the difficulty for day traders and it is only because of this point day trading is always difficult. But if you understand this micro-level thing you can be a very good day trader.

So in intraday trading, you have to estimate the next move of price action in the form of the candle by reading past data. That is to say, on the daily chart what candle is formed yesterday has a lot to say about what candle may form tomorrow considering current trend and the distance of price to support and resistance.

In nutshell depending upon the price action and its proximity to support and resistance and yesterday’s candle, You need to estimate the next move of price action in the form of candle OHLC. So to be a day trader you should develop art to predict the price action based on the above points.

This literally means that day trader has to estimate what candle is going to form after reading past candles and trend of price action. There may be fluctuations in accurate estimation and due to this price deviation you get stop out may times.

Now you might be thinking that it is really difficult to predict what candle is going to form for today based on past data and there may be some deviation in your estimation. This deviation of your estimation will be directly proportional to your loss.

So does it mean, you can never make money in day trading? No, it is wrong. it simply means that if you cannot predict each candle of the chart then you cannot day trade successfully. To beat this difficulty you need to be very smart and sharp then only you can be a day trader.

Wait!! what do I mean by sharp and smart?. Practically, I meant is that you have to develop some hunting system and techniques based on indicators and chart patterns on the daily chart. which can give you big room for price action movement when these patterns are formed in the chart and you get the signal to enter into the trade at lower time frames.

Let’s take an example to understand it better.

Below is the chart of reliance industries in the daily timeframe.

Arrow pointing downwards depicting the price action on the daily chart and the candle formed is almost a spinning top.

Square wave marked in red above spinning top candle is showing the average true range of stock price. So it looks like price action is approaching near to resistance. after long downtrend price bounced and was approaching near to average true range.

Here in this case, can you predict what candle may form next on the daily chart being a day trader?

Day Trading -Game of Possibilities

Let us understand as below what are all possibilities for the price as per this candlestick(spinning top). But the truth is eternal only the next candlestick will showcase whether the price will touch the average true range or just move downwards from the open or low of the spinning top candle. which is near to 21day moving average and ATR.

  1. There is a possibility that price may touch ATR in the first half of next day and then make a shooting star (in lower timeframes) near ATR or 21-day moving average and move downwards and may cause a bear day.
  2. The second possibility is that the next candle can open below low or open of yesterday’s candle(spinning top). In this case, it may move downward till low of yesterday’s candle in the first half of the next day and may approach till ATR by the end of the day. it can cause a bull day eventually.

Now here comes the classic question, what next candle is going to do first?, hitting ATR and then close below the open price or open low and close high than the older candle.

Confusing right? This is why day trading is difficult because in this case, even price was bouncing after a big downturn you cannot guarantee what candle is going to form the next day after spinning top. This part makes day trading difficult but there is a piece of good news!!.

Even if the price was moving up after a big downtrend. after spinning top, reversal was expected but it is not necessary that on the next candle only reversal will happen and being a day trader you need to know very clearly where to enter and where to exit and at the beginning of the day

You have to estimate candle Is going to make will be green or red? Why ? Because of two reasons.

  1. If it is a green candle you are expecting on the day price will rise and you will go long for the day.
  2. If it is a red candle you are expecting on the day price will fall and you will go short for the day

The puzzle does not end here, now comes the most difficult part of day trading is to read what will happen first? rise and fall or fall and rise of the price.

To know the answer you have to look into lower timeframes say hourly or two hourly based on this candle for the day you may take a call

Whether to go long or short for the day. After confirmation on lower time frames, you can know the answer to this question. Still, this part of price action is very random and there are chances of getting stopped out due to the random nature of price action. In this case, you can just minimize the risk but cannot avoid it completely.

And due to this random-ness day trading is difficult because being a day trader you need to estimate the next candle precisely and predicting each candle is not as easy as it sounds due to the randomness of the market.

Instead what is clearly visible is that stock is still in a downtrend as there is no major sign of reversal here on the daily chart, hence the reason for bounce could be a short covering.

Day Trading-Trader’s Approach

Meanwhile for the same chart on lower timeframes price action would be making higher lows for the piece of bounce on the daily chart. Hence price movement towards downside on the daily chart will be a buying opportunity on lower timeframes and to minimize your risk.

So what happened the next day? price did a downturn!!. See the red candle after the spinning top candle.

How the chart looks like a bottom phishing in lower time frames for the bounce visible on the daily chart. But whether it will really be a bottom phishing or short opportunity. This you need to tell after the price reaches to support.

You have to predict what candle may form next after prices approach nearing to support.

Due to the above discussed reasons and different probabilities, day trading is difficult.

So does this mean you should not do day trading? No, it simply means when you are able to understand the price pattern and all data making sense to you to predict the next candle then only take day trade.

It is also advisable to look for reversals on lower timeframes and then exit near to resistance on daily. In this way, you will only day trade for those many days where the price reaches near to resistance.

When price reaches near to resistance and shows a sign for reversal on the daily chart take a pause and be cautious and wait for the next candle to form if you are not so sure or find out some other trade or do not do day trading on such days.

I hope you understand now, why day trading is difficult and how you can do day trading.

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