Day trading overview: pros, cons, best assets, best time to trade

A trader monitoring price charts of assets

Day trading is the practice of making short-term stock market trades that last no longer than one trading session. Some day traders are extremely active, executing a large number of trades per day, known as scalping. Others, however, may be satisfied with only a few positions per day.

The most popular day trading markets are stocks, forex, and futures contracts. It is a difficult activity, but it can be extremely profitable. However, few people can do it profitably in the long run. 

This guide will provide you with a breakdown for day trading, allowing you to be better prepared for this activity.

What is day trading?

Day trading (or intraday trading) is a trading strategy that involves opening and closing positions on the same day. Day traders typically aim for positions that last several minutes to a few hours, taking advantage of small price movements during the trading day, allowing them to execute a large number of trades in a single day. 

Day trading is a type of trading in which you buy and sell instruments while only holding the position for one session. You close positions opened during the day prior to the market's close. The goal is to make a small profit on each position and compound the gains over time.

Previously, trading required a significant amount of capital. Nowadays, competition is fierce, and every broker strives to provide the lowest fees with the smallest minimum deposits. 

With the rise of online brokers that provide free stock trading, day trading in this market is becoming more popular.

To optimise this system of repeated buying and selling, day traders use leverage, which allows them to maximise their gains quickly with a small initial investment. 

Leverage and derivative products allow you to borrow money from your broker to increase your exposure and multiply your profits.

Given the volume of transactions, investors must be cautious about fees and need strong day trading strategies and tips to profit in the long term. 

How does day trading work?

Day traders frequently seek to profit from both upward and downward fluctuations. They may sell a stock short if they believe the price will fall in the short term, or buy the instrument if they believe the price will rise. They may repeat their operations several times per day.

Example of Day Trading:

Economic indicators are frequently released in the early trading hours. For example, a day trader may monitor the release of European economic indicators such as the German manufacturing PMI.

On the day of the PMI release, the trader opts to trade the EUR/USD pair as soon as the Frankfurt market opens at 8 a.m. Paris time. They will buy or sell the currency pair according to the following scenarios:

If the figures are worse than expected, they sell the currency pair, anticipating a drop in EUR/USD in the hours after the announcement.

If the figures are better than expected, they buy EUR/USD, hoping for an increase.

If IHS Markit's figures are worse than expected, resulting in a drop in EUR/USD, the day trader seizes the opportunity to short the currency pair.

Steps For Day Trading

Day trading necessitates some trading experience, but the operation of this strategy is relatively straightforward. Learn the steps for day trading below:

  • 1. Select an asset class for day trading

    Day trading is most commonly used in volatile markets with high liquidity and fixed closing hours, such as the stock market. However, due to its high volatility, the cryptocurrency market (which is open around the clock) attracts a large number of day traders. 

    You can absolutely day trade cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), as long as you close your positions before the end of the day.

    The following asset classes are available for day trading:

    • Indices (S&P 500, Dow Jones, Nasdaq, etc.)
    • Stocks (Visa, LVMH, Adobe).
    • Commodities, including gold, oil, and wheat.
    • Leveraged derivative products, including futures contracts, CFDs, and turbos.
    • Forex (EUR/USD, USD/CAD).
    • Cryptocurrencies (such as BTC and ETH)

    These various asset classes, discussed in greater details below, present trading opportunities, but it is critical to select an asset class that you understand and master.

  • 2. Take positions on the same day

    After deciding which asset class to day trade, you must analyse the market and identify the assets on which to open one or more positions. 

    To identify assets, you will most likely need to investigate the macroeconomic context and conduct technical analysis.

    Some day traders capitalise on asset volatility at the stock market's opening, whereas others prefer to identify trends in more volatile assets, such as Bitcoin.

  • 3. Be liquid by the end of the day

    To follow the day trading strategy, you must close all of your orders, whether winners or losers, and be completely liquid by the end of each trading day.

How to limit losses in day trading

Although this is comprehensively dissected on our day trading tips and strategies page, to limit losses, you must define stop-loss orders. Define how you will manage the risk in your trades. 

The strategy entails establishing two stop losses:

  1. Place a real stop-loss at a price level that aligns with your risk tolerance. This is essentially the maximum amount of money you can lose per trade. 
  2. When your entry criteria face significant threats, create a mental stop-loss plan. This means that if the trade takes an unexpected turn, you will immediately close your position. 

Regardless of your choice, the exit criteria need to be sufficiently specific for testing and replication. Furthermore, it is critical to establish a maximum daily loss that you can bear, both financially and psychologically. Furthermore, always follow your trading strategy and boundaries.

So, once you've established how you enter trades and where you place your stop loss, you can determine whether the potential strategy fits within your risk tolerance. 

If the strategy puts you at too much risk, you must modify it in some way to mitigate the risk. And if the strategy is within your risk tolerance, testing begins.

How much capital is required for day trading?

The amount of capital you have is not the most important factor in trading, particularly day trading. 

The most important thing is to practice good money management and increase your trading skills. You only need a few hundred euros to start day trading.

Advantages and disadvantages of day trading

The benefits of day trading outweigh the disadvantages. One of the primary reasons for day trading is to reduce the duration of your position's exposure to market risks, particularly outside of trading hours.

  • Advantages

    1. Independence: Day traders can work from home, eliminating the constraints of traditional office jobs. They are responsible for their own performance. You can specify the hours when you will look for opportunities and when you will take breaks, but this requires discipline. 
    2. No risk when markets close: One of day trading's most significant advantages is the ability to close positions at the end of the day. Thus, there is no risk of loss outside of trading hours. Day traders, compared to swing or position traders, are less vulnerable to gaps or sudden losses.
  • Disadvantages

    1. Overtrading is one of the most common issues for beginners, as it significantly raises trading costs and can reduce gains or amplify losses. 
    2. Time-consuming activity: Day trading can take several hours per day, which can be difficult to manage if you work full-time.

What to know before day trading

Liquidity, volatility, and the optimal trading time are all important considerations for successful day trading.

  • 1. Liquidity

    Day traders rely heavily on liquidity. It refers to how easily a trader can place orders without slippage. Slippage can cause you to buy or sell at a significantly different price than you requested. 

    In addition, a lack of counterparties may make it difficult to place large orders. If the instrument you're trading isn't very liquid, day trading will be difficult to profit from. 

  • 2. Volatility

    Volatility indicates the rate at which an instrument's price fluctuates. Most day traders prefer volatile instruments that allow them to capitalise on intraday trends.

    However, it all depends on your trading strategy. If your strategy is based on trading range markets, a low-volatility environment is probably more appropriate.

The best markets for day trading

Which markets are suitable for day trading? To be able to day trade, go to markets that meet the following two conditions: the market must be volatile and have significant liquidity.

You will be able to successfully day trade if you visit a market that meets these two conditions. You must be able to capitalise on volatility when placing stock market orders to buy or sell. 

Furthermore, you must be able to sell your assets, such as stocks, at any time. In a non-liquid market, you will be unable to sell your shares when you want.

Several markets meet these two criteria, including commodities, indices, stocks, cryptocurrencies, derivatives, and forex.

1. Forex

Forex is suitable for traders who want to trade during the day or at night, depending on their availability. 

With a daily trading volume of approximately $6.6 trillion, Forex is a highly liquid market. Major currency pairs are ideal for day trading. On these instruments, order execution is usually instant.

Forex provides some variety in terms of currency pairs to trade. Day traders can choose from approximately twenty fairly liquid currency pairs. This market is also the most accessible to new traders.

2. Indices

Indices are baskets of assets. Stocks can represent a sector or a group of companies.

However, it is important to note that indices can be extremely volatile at times, particularly during geopolitical events that shake the markets.

Indices are financial instruments that are difficult for a major market participant to manipulate. An index's value varies in response to the price fluctuations of the instruments it comprises, providing stability.

Furthermore, they provide some diversity. Trading indices allows you to diversify across multiple assets rather than focusing on a single stock.

3. Stocks

For traders looking for quick movements, day trading on stocks to buy is ideal. When there is sufficient liquidity, these instruments become quite dynamic.

However there is a strong disadvantage to this style of day trading, which is discussed in-depth in our tips and strategies page. 

4. Leveraged derivative products

To achieve success with day trading, it is necessary to use derivative products such as CFDs (contracts for difference), options (call and put options), or futures contracts that use leverage to magnify price movements.

Because of their low trading costs, futures markets are ideal for day trading. The most-coveted futures are extremely liquid.

The E-mini S&P 500 is one of the most sought-after futures for day traders. Electronic trading ensures quick execution for all contracts.

Other futures indices available for trading include the E-mini Nasdaq, Russell, and Dow. Other markets, such as commodity futures, provide the volume and volatility required to generate intraday gains.

However, this trading strategy is risky if the market moves against you. To better preserve your trading capital, you should practice good risk and money management, particularly with stop-loss orders.

5. Cryptocurrencies

Day trading in cryptocurrencies is thriving. Cryptocurrencies' high volatility and growing trading volume attract traders seeking quick profits.

Cryptocurrency day traders are less interested in buying cryptocurrencies than in profiting from their fluctuations. As a result, they can rely on the cryptocurrency CFDs provided by most Forex brokers.

When day trading on the cryptocurrency market, you must exercise extreme caution. Bitcoin's price, for example, can fluctuate in value by hundreds of dollars in mere seconds.

What are the tools used in day trading?

Online brokers provide the necessary tools for day trading. Some provide more features than others for technical and fundamental analysis. 

  • 1. Screeners

    Day traders can greatly benefit from technical indicator-based screeners. They can highlight, for example, instruments that are overbought, oversold, or extremely volatile. If you trade multiple instruments at the same time, this tool can be extremely useful.

  • 2. A platform for technical analysis

    Depending on your strategy, a more advanced charting platform may be required when day trading. There are several options available. Most brokers provide MetaTrader 4, a platform that is considered average for technical analysis.

    Professional day traders may benefit more from paid solutions such as TradingView or ProRealTime.

    Most day trading strategies rely on technical analysis, which involves analysing price action and using technical indicators to identify key price zones, moments of price acceleration, reversal or pullback conditions, and confirmation, reversal, or indecision chart patterns.

The best time for day trading

If you want to take advantage of intraday trends, you should trade your instrument at the start of the relevant market. For example, day traders trade Google stock at the start of the US markets. 

On the other hand, your strategy may be more appropriate for low-volatility environments, in which case you should avoid trading during peak hours. Everything depends on your day trading strategy. 

Do you meet the requirements to be a day trader?

The day trading strategy does not suit all types of traders. Therefore, before commencing, ensure that this trading style aligns with your personal preferences.

If you can handle pressure and stress, want to make quick profits, know if you've won or lost, have a high risk tolerance, are available to trade in real-time, understand leverage and margin trading, and have some knowledge of markets and technical analysis, day trading may be a good fit for you.

Demonstrate patience and commitment by adhering to a trading plan and waiting for all setups before taking action. Maintain emotional control to avoid influencing trading decisions.


Day trading is a serious activity that can be extremely profitable if done correctly. In any field, it is critical to specialise in a market or focus on a few financial instruments. Over time, you will become acquainted with the instruments you have chosen to trade.Unlike what we see in movies, traders are humble beings who are always concerned with risk management.

Movies may lead you to believe that successful traders are extravagant and enjoy luxury. However, most of them are humble and understand that their trading strategies could fail at any time. 

Successful independent traders exhibit iron discipline. They plan their lives around the opening hours of the markets where they trade. 

Some traders must work at night to complete their trading sessions. A day trader living in Wellington, New Zealand, for example, must begin their session around midnight if they want to trade the American markets. 

Day trading success is dependent on proper preparation. As a result, it is critical to plan your trading sessions ahead of time and ensure that you do not miss any. 

To become a successful day trader, you must have a well-thought-out trading strategy and keep a trading journal.

Common day trading questions at a glance

What currency pairs should I trade for day trading?

Dominant currency pairs, such as EUR/USD, have the lowest day trading costs.

Which indices should I trade?

The DAX and Nasdaq are very dynamic indices.

What software should I use for day trading?

Brokers offer analytical platforms. Some of the most popular include Trader 4, ProRealTime, and TradingView.

How do I trade successfully?

You must have a trading plan and schedule your sessions..