Day trading on eToro: why is it not for everybody? - Toro Demo Trading (2024)

Day trading on eToro might seem like an adrenaline-pumping endeavor fit for Hollywood movie scenes. While the reality may be a bit different, it’s undoubtedly a high-stress and risky trading strategy. So, before you dive headfirst into day trading on eToro, let’s break down the basics and explore the pros and cons of this popular trading approach.

📊 What is Day Trading?

Day trading involves opening and closing all of your trading positions within a single day to capture price movements of assets that happen within relatively short timeframes. Day traders don’t hold positions overnight, mitigating the risks associated with holding assets for more extended periods. They typically engage in multiple trades throughout the day, making success on each trade, which eventually add up to a significant sum if executed successfully.

🌅 Swing Trading vs. ⏱️ Day Trading

Swing traders are similar to day traders, but their trading time horizon tends to be relatively longer, lasting up to a couple of days or even weeks. Day traders, on the other hand, have a very short-term outlook and trade based on current events and market trends, taking advantage of short-term volatilities.

📈 Pros and Cons of Day Trading

Before you decide if day trading is the right strategy for you, it’s essential to understand its advantages and disadvantages.

👍 Pros

• Potential for quick, high returns.
• No overnight risks, as positions are closed by the end of the trading day.
• Can capitalize on short-term market movements.
• Offers a dynamic and engaging trading experience.

👎 Cons

• Requires constant monitoring and quick decision-making.</
• Highly stressful and demanding, needing emotional control and self-discipline.
• Substantial risks, as preferred assets for day trading are often highly volatile.
• Trading costs can add up quickly due to the frequency of trades.
• Requires a thorough understanding of market trends and analytical tools.

🎯 Preferred Assets for Day Trading

Day traders typically focus onassets that are liquid, volatile, and traded in high volumes. These characteristics allow traders to enter and exit positions quickly, which is crucial for day trading. Some preferred assets include:

• Stocks and CFDs
• Currency pairs
• Commodities
• Cryptocurrencies

Certain market sectors, like technology and finance, also generate more significant price movements due to their sensitivity to news and inherent uncertainty.

Day traders also focus on stocks with high volatility so they are able to make success off price fluctuations with a right type of strategy and tools. Assets that tend to be more volatile are assets like stocks and CFDs, currency pairs and commodities. Certain market sectors also tend to generate greater price movements, such as the technological and financial sectors as they are very sensitive to company, industry and global news, as well as these industries are considered to be inherently uncertain. You can always filter on the type of assets or markets on eToro platform, as shown below.

🌍 Why is it not for everybody?

As you might have realized from the title, day trading is not an easy solution for everybody. There are many risks and difficulties associated with using this strategy and here are only some of them:

1. The types of stocks daytraders tend to prefer are usually extremely volatile and the direction of their price movement is hard to predict and make a success on. There is always a chance that markets will turn against you and you will end up in losses instead of gains you were hoping for. Successful traders spend a lot of time researching and monitoring and still sometimes face losses.
2. Day trading often relies on leverage as a tool for increasing returns, since day traders tend to open many small trades over a day. This is a very powerful tool that needs to be used with caution as it can increase your losses the same way it could increase your gains.
3. The amount of stress and psychological pressure involved in daytrading is very substantial and requires a lot of emotional control and self-discipline. Losses are inevitable even for the most skilled traders and one needs to learn to accept and manage them. Unlike the buy-and-hold strategy, day trading needs constant monitoring of your trades and always looking out for new opportunities. Sticking to your strategy becomes more and more difficult if you are not able to manage your emotions and losses well.

🔍 Analytical Tools for Day Trading

To succeed in day trading, you’ll need a good understanding of various analytical tools to help you identify trends and determine entry and exit points.

Some popular indicators used by day traders include:

Relative Strength Index (RSI)

Average Directional Index (ADX)

Moving Average Convergence Divergence (MACD)

Bollinger Bands

🧩 Day Trading Strategies

There are several day trading strategies to choose from, depending on your goals, risk tolerance, and trading style. Some common strategies include:

• Scalping: This fast-paced strategy focuses on making small success from numerous trades throughout the day, using leverage to amplify gains. Quick execution and timing are crucial to avoid significant losses. (Note: Scalping is not allowed on the eToro platform!)
• Buy the Dips: This strategy involves identifying entry points for assets that decline in price in the short term but are expected to rise again. Traders buyduring the dip and sell when prices recover.
• Price Averaging: With this strategy, you start by investing only a portion of your intended trade and then add more in increments over time. This approach aims to achieve a lower average price for your assets compared to purchasing them all at once.

💡 Tips for Day Trading Success

Here are some tips to help you succeed in day trading:

1. Build your skills and knowledge: Understand the fundamentals of trading and develop a strategy tailored to your skills, knowledge, and goals. Learn how your chosen markets move, what news affects them, and how to perform technical analysis.
2. Practice and refine: Before risking real money, use a practice account to hone your skills and perfect your strategy. Focus on a few assets and master the techniques needed to identify chart patterns, entry and exit points, and risk management.
3. Stay disciplined: Develop a trading plan and stick to it. Consistency is critical to achieving long-term success in day trading.
4. Manage risk: Use stop-loss and take-profit orders to manage your risk and protect your capital. Remember that leverage can amplify both gains and losses, so use it cautiously.

📚 Keep Learning and Adapting

The world of day trading is constantly changing, with new market trends, tools, and strategies emerging all the time. To stay ahead in this fast-paced environment, it’s essential to:

• Stay informed: Keep up-to-date with the latest market news, industry developments, and trading strategies. Follow reputable sources and experts in your chosen markets.
• Network with other traders: Connect with other day traders to share insights, experiences, and strategies. Join online forums, attend webinars, or participate in local trading groups to expand your network and learn from your peers.
• Continuously improve your skills: Never stop learning and refining your trading skills. Consider taking courses, reading books, or attending workshops to further your education and stay ahead of the curve.
• Adapt to changing conditions: Be prepared to adjust your strategy and techniques as markets and conditions change. Flexibility is key to long-term success in day trading.

🎯 Final Thoughts

Day trading can be an exciting and potentially lucrative venture for traders who are willing to dedicate the time, effort, and emotional discipline required to succeed. By understanding the ins and outs of day trading, conducting thorough research, and developing a solid strategy, you’ll be better equipped to navigate the challenges and capitalize on the opportunities that day trading presents. Remember, practice makes perfect, and ongoing education is vital for long-term success. Good luck, and happy trading!