Initially, only banks and other financial companies had access to the information involved in this type of trading. Little by little, and mostly thanks to services on the Internet, traders who work on an individual basis were also allowed to access such things as the exchanges and market information. This allows them to make extremely low cost trades.
There are five primary techniques and strategies used in this type of trading. Although different traders prefer different techniques, they are all used with the main goal of making a profit in mind. The first of these strategies is trend following. It follows the assumption that financial markets that have seen a steady, consistent increase will keep going up as they have been. The opposite is also true, meaning that if a stock has been consistently falling, it will continue to do so. Clearly, just as the name implies, this technique is based solely on financial and stock market trends.
Contrarian is another technique used in day trading. It is a timing technique. It operates in direct opposition of trend following. Therefore, contrarian trading follows the philosophy that if a stock or financial instrument has been increasing consistently, it is bound to see a reverse. Conversely, if an instrument has been falling steadily, then contrarian trading assumes it is soon due to rise. In short, day traders who follow the contrarian philosophy will usually buy into a market that has been decreasing. They hope to sell it high when it ultimately begins to rise. When a stock is already rising, day traders following this philosophy generally short sell it. They do so because they anticipate it will soon fall.
Range trading involves keeping an eye on a stock that rises off of a support price and/or falls off of a resistant price. That means that when a market hits a high point, it declines back to the low point. Conversely, if it hits a low point, it will rebound up to a high.
Scalping involves the exploitation of differences, or gaps, between the bid and the ask. It is a form of very quick trading which generally takes place within a span of minutes.
Another technique in day trading is called rebate trading. Profit and revenue are dependent on the ECN rebate of an instrument. It involves the trading of stocks with a low price and a high volume.
Lastly, there is news playing. As the name suggests, it is dependent on stock news. So, if a day trader has word that a stock is doing well, he or she will buy it. If on the other hand there is news a stock will be taking a dip, then the trader short sells it.
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