Day trading
Opening and closing every trade within the same day, so nothing is held overnight. It needs time at the screen, a written plan and tight control of costs.
What day trading is.
Every position is opened and closed within one trading day.
A day trader opens and closes positions within the same trading day. Nothing is held overnight, so no position is open at the daily rollover.
That means no swap, the charge or credit for holding a position overnight, and no exposure to a gap when the market reopens. The moves traded are smaller than a swing trader’s.
Because the trades are short and frequent, costs matter more. Every trade pays the spread, and on some accounts a commission, whether it wins or loses.
How a trading day is planned.
Most day traders follow a routine. The details vary, but the shape is similar.
Check the calendar.
Look at the economic calendar for data releases due that day. Prices can jump sharply around them.
Mark the key levels.
Note the previous day’s high, low and close, and any clear support and resistance. These give the day a frame.
Write down the set-up.
Decide what you are waiting for, with the entry, stop-loss and target, before the market gets there.
Size the trade from the stop.
Choose a position size so that, if the stop fills at its price, you lose the amount you planned to risk.
Close out and review.
Close every position before the day ends. Then note what you did and why, while it is still fresh.
A worked example.
Suppose you have a $5,000 account in US dollars and plan to risk 1% on one EUR/USD trade.
One per cent of $5,000 is $50. You plan to buy EUR/USD at 1.0850, with a stop-loss 20 pips (0.0020) lower at 1.0830.
To lose no more than $50 over 20 pips, each pip must be worth $2.50. One standard lot of EUR/USD, 100,000 euros, is worth $10 a pip, so you trade 0.25 lots.
| Amount | |
|---|---|
| Account balance | $5,000 |
| Risk on this trade (1%) | $50 |
| Stop-loss distance | 20 pips |
| Value per pip needed | $50 ÷ 20 = $2.50 |
| Position size | $2.50 ÷ $10 per lot = 0.25 lots |
| Target, 30 pips higher at 1.0880 | 30 × $2.50 = $75 before costs |
| Spread, if it were 0.8 pips | 0.8 × $2.50 = $2.00 per trade |
The spread is paid on every trade, win or lose. Five trades like this a day would cost $10 in spread, or $200 over 20 trading days.
Spreads vary, and can widen around news, so the real cost can be higher. Each account’s current costs are on the accounts page.
A stop-loss sets the price at which you want out, not the price you will get. In a fast market it can fill at a worse level, so the loss can be larger.
Common day trading approaches.
Four ways day traders look for trades. No approach works every time, in any market.
Breakouts.
Trading a move through a level that has held, such as the morning range or the previous day’s high. Breakouts can fail and fall back inside the range.
Pullbacks in a trend.
Waiting for price to dip within a clear intraday trend, then entering in the trend’s direction with a stop beyond the dip.
Range trading.
Buying near support and selling near resistance while the market moves sideways. This tends to fail once a trend starts.
Scalping.
Very short trades, held for seconds or minutes, aiming at a few pips each. The spread takes a large share of each small move.
Common mistakes.
Where traders new to day trading most often go wrong.
Trading without a written plan. Decide the entry, stop and target before the trade, not during it.
Moving a stop-loss further away to avoid a loss. It turns a planned small loss into a larger one.
Trading more to win back a loss. Revenge trading adds risk at the moment judgement is weakest.
Ignoring costs. Small targets and frequent trades make the spread a large share of every result.
Holding a losing day trade overnight in the hope it recovers. That breaks the plan and adds swap and gap risk.
Day trading on MetaTrader 5.
The tools day traders use most are built into MT5. Some shortcuts are on the desktop app only.
Set up your charts.
Open the instrument and switch between timeframes, such as M5, M15 and H1, from the toolbar.
Send orders with a stop and a target.
On desktop, press F9 to open a new order. Enter your Stop Loss and Take Profit before you place it.
Use one-click trading with care.
On desktop, right-click the chart and choose One Click Trading to show the panel. Once allowed, it places orders without a confirmation window.
Watch your account.
The Trade tab in the Toolbox shows open positions, profit, equity and free margin as prices move.
Close before the day ends.
Right-click a position in the Trade tab and choose Close Position, so nothing is left open at the rollover.
Questions, answered.
What traders ask most about day trading.
01How much money do I need to day trade?
02Is day trading suitable for beginners?
03Which markets do day traders use?
04Do day traders pay swap?
05Can I practise day trading first?
Practise it on a demo.
Run a full day trading routine on a free MT5 demo, from plan to review, before you trade with real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.