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Day trading is a fast-growing investment method among Australians drawn to its potential for quick profits and the thrill of making fast trading decisions in real time. However, it requires discipline, knowledge, and a solid understanding of the Australian market.
If you’re new to day trading, remember this is a high-risk sport. Very few day traders break even, and even fewer succeed.
This guide will cover principles of day trading, popular risk management strategies and assets that
(Related: Is MetaTrader 4 Better Than MetaTrader 5?)
What Is Day Trading?
Day trading involves buying and selling securities within the same trading day.
The aim is to generate profits by taking advantage of short-term price movements in the Australian financial market, usually through multiple trades throughout each day.
In day trading, you rarely keep your positions open overnight to avoid the risk of changes in the market while you sleep — as well as avoid interest fees paid on leveraged trades.
Important!
If you’re a night owl, you may choose to day trade in international stocks. As a reward, you get access to markets with higher trading volumes.
Is Day Trading High-Risk?
While the upside can be large, day trading carries significant risks due to the unstable nature of the markets and investors’ inability to exit positions at the right time.
(Related: Guide To Investing In Shares For Absolute Beginners).
For instance, leveraged trades and contracts for difference (CFD) are common tools of the day trader —yet reviews by the Australian watchdog ASIC have shown that most retail investors who use CFDs face heavy losses.
Important!
Some economic experts havebranded day trading as gambling. Without effective risk management protocols in place, it almost certainly is.
What Affects Success In Day Trading?
A range of factorscan affect your success (or lack thereof) in day trading, including the following:
- Market conditionsand volatility.
- Trading volumeand liquidity of stocks.
- Economic newsand announcements.
- Psychology and emotionsof the trader (that’s you).
- Your trading style, plus choice in broker and market.
(Related: How To Invest In Index Funds In Australia).
How To Start Day Trading In Australia.
Are you planning to start eyeballing graphs and trading “from the gut”? Please don’t. This step-by-step roadmap will outline the principles that most professional day traders use.
1. Create A Big Picture Strategy.
Successful traders start by understanding their “why”. They know spending hours in front of stock charts isn’t always fun. In those moments, being clear on your goals helps them maintain focus.
Consider this:
- Experienced traders all emphasise the intense amount of research, testing, concentration and patience required to refine strategies and spot patterns. Does that sound like you?
- While you may be able to use orders to set up some trades in advance, sometimes you’ll need to act with urgency to execute and adjust trades. Do you have that kind of flexibility?
Moreover, you must decide what you’re willing to lose in pursuit of your goal – because without risk, there’s no return.
Important!
Many day traders lose more trades than they win, because they’re comfortable with a reward-to-risk ratio that puts them ahead overall at the end of the day.
Three significant factors to consider are:
1.What are your investing goals?
- Outlineboth short-term and long-term objectives.
- Ask yourselfwhat you want to achieve through trading: is it earning X dollars, building a retirement fund, or developing passive income?
- Set specific, measurable goalsthat align with your financial aspirations.
2.What is your risk tolerance?
- Ask yourselfhow much capital you are willing to risk on each trade.How much can you afford to lose and still maintain your other financial commitments?
- Be honestabout your risk tolerance level; overestimating your ability to handle risk or mentally deal with inevitable losses can lead to poor trading decisions and bigger losses.
- To determine your risk tolerance, consider your investment goals(short or long-term investment preference) and current financial situation.
- A risk management planshould include parameters for position sizing, stop loss placement, and maximum allowable drawdown to limit potential losses and protect your trading capital. Do you have these measures in place?
3.Do you have a mind for numbers/analysis?
- Are you mathematically savvy enough to analyse the numbers and understand complex technical analysis tools?
- Can you confidently review data, interpret charts and their underlying parameters, and test results to understand performance?
(Related: Is Ethical Investing Right For You?)
2. Research Eligible Markets For Day Trading In Australia.
Successful trading in any form requires extensive research before beginning. By researching, you can make an informed decision about the best market to trade in.
The most popular are:
- Shares: Australia’s most popular market for day trading, with many publicly traded companies offering opportunities for short-term trades.
- Indices:These allow more significant exposure to the market than just one company; you will be speculating on the performance of a group of securities.
- Forex:These foreign currencies can be highly leveraged. Currencies are popular due to being highly liquid and because forex markets are available 24/7 on weekdays (but look out for forex trading scams).
- Cryptocurrencies: Bitcoin, Ethereum, Cardano and Solana have gained popularity recently, with high volatility and the potential for significant gains or losses.
Choosing the best market for you will depend on your experience level, appetite for risk and trading goals.
Expert Tip.
Yes, you can day trade crypto, even though crypto markets never close.
3. Learn And Adopt Trading Strategies.
The next step is to explore the range of trading strategies available to ensure you comprehend the mechanisms and risks involved.
Then, decide which strategy, or mix of strategies, best aligns with your goals and risk tolerance.
The five most common strategies used in the day trading world include:
1. Trend Trading.
Trend trading involves identifying and trading in the direction of a prevailing trend.
Traders use technical analysis toidentify trend lines and indicators, determining the strength and direction of the trend.
That’s because trends follow what people are actually doing, which means there’s evidence of genuine momentum. But all trends can end, so you’ll need to develop skills in identifying significant changes.
Real-Life Example.
If the trend is up, a trend trader might buy a stock or other asset in the hope that it will continue to rise.
2. Swing Trading.
Swing trading involves holding positions for several days to a few weeks to take advantage of short-term price fluctuations.
Yes, this is technically an exception to “day trading” – because you hold positions for much longer than a day.
Swing traders aim toprofit from market swings instead of long-term investments. It requires patience and discipline, as identifying and executing profitable trades can take time.
Swing traders use technical analysis to identify potential swing trades and set stop-loss orders to manage risks.
Real-Life Example.
A swing trader might buy stock in a dip and sell it when it has peaked.
3. Scalping.
Scalping entails making modest profits on several trades by buying and selling swiftlywithin seconds or minutes.
Scalpers are renowned for their rapid reflexes and capacity to complete deals at breakneck speeds.
Their goal is to profit from minor price swings.
An important consideration for enacting a strategy that relies on lightning-fast trades is investing in a powerful personal computer (good CPU and RAM) and reliable internet.
Real-Life Example.
Buying a stock and then immediately selling it when the price increases by a small amount, repeating the process multiple times throughout the day.
4. Mean Reversion.
Mean reversion is a day trading strategy where traders identify stocks trading above or below their average price and take positions inanticipation of the price returning to its mean.
The strategy requires a deep understanding of market fundamentals and patience, as prices can take time to return to their mean.
Real-Life Example.
If a stock’s price currently trades below its historical average, a day trader might buy it, expecting it to rise eventually.
5. Money Flows.
Money flows are a popular day trading strategy that involves analysing the movement of funds into and out of specific stocks or markets – and taking positions accordingly.
Money flow traders aim to profit from market sentiment and the direction of institutional money.
Real-Life Example.
A trader could buy shares of a company experiencing a surge in demand due to positive news.
Start with paper trading or practice/demo accounts that simulate trades without risking your capital. Test and refine your preferred strategies using a demo account for as long as needed to gain confidence that it will work effectively in live markets.
4. Understand The Factors That Impact Day Traders.
Various factors can impact trading markets, including liquidity, volatility, and trading volume – all of which affect your chosen strategy.
1. Liquidity.
Liquidity refers to the ease with which an asset can be bought or sold in the market.
- In highly liquid markets,assets can be easily traded without significantly affecting their price.
- In contrast, low liquidity markets can make buying or selling assets difficult, leading to wider bid-ask spreads and slippage.
2. Volatility.
Volatility refers to the degree of price movement in a market over a given time.
- Significant price swingscharacterise high-volatility markets, while low-volatility markets have smaller price movements.
- Volatility can affect the profitabilityof a day trading strategy, as high volatility can lead to more significant profits or losses, while low volatility can limit profit potential.
3. Trading Volume.
Trading volume is the number of shares traded in a market over a given period.
- High trading volume can indicate high market activityand can make it easier for day traders to enter and exit positions quickly.
- In contrast, low trading volume can make it difficult for day traders to buy or sellpositions at their desired price, leading to wider bid-ask spreads and slippage.
5. Open An Account To Day Trade On Live Markets.
After deepening your knowledge of strategies and the market factors that impact day trading, it’s time to open a trading account and start trading on live markets.
The first step is to choose areputable online brokerorshare trading platformthat meets your needs.
Be sure to:
- Look for a broker or platformthat offers competitive fees, a user-friendly interface, reliable execution, and a wide range of financial markets to trade.
- Prioritise brokers that enable you to execute the strategies and types of trades/orders you want. Can you short stocks? Use CFDs?
- Ensure that a reputable financial authoritysuch as theAustralian Securities and Investments Commission (ASIC) regulates the broker or platform.
Below is the list of popular brokerages for day trading beginners in Australia:
- eToro: A user-friendly UI and social trading features allow beginner traders to share investment insights and copy the trades of more experienced traders.
- CommSec:The most popular trading platform in Australia by user numbers. Backed by the Commonwealth Bank of Australia, it offers a good range of investment products, including Australian and international shares, options and ETFs.
- IG:A very comprehensive trading platform with a focus on CFDs, it offers day traders advanced charting tools, customisable alerts, and relatively low trading fees (especially at high volumes).
- SelfWealth:A low-cost brokerage platform that offers flat-fee trading on Australian shares. It features a social trading network that allows day traders to share investment insights and track the performance of other traders (It’s not as comprehensive as the copy trading features of eToro).
- Plus500:Another CFD trading platform with global reach. This is a good bet if you want to trade primarily on forex and stock CFDs.
6. Practice Live Day Trading With Your Chosen Strategy.
Once you have established a day trading plan and tested it thoroughly on a demo account, the next step is practising live trading with your chosen strategy.
Whilst it can be daunting, there are some steps you can take to minimise risk and improve your chances of success.
- Implementyour day trading strategy consistently and patiently in live markets.
- Stick to the rulesand guidelines you set for yourself in your trading plan.
- Avoid making impulsive decisions based on emotionsor market noise.
- Stick to your risk management planfor unexpected events, such as sudden market movements or technical glitches.
A day trader’s typical day might include:
- Taking time to review data/stats, breaking news, company announcements and other market events that could influence prices.
- Placing multiple trades, with both long and short positions, in line with your strategic approach.
- Closing open positions before the close of trade.
- Updating a record of your trades to help you evaluate your wins and losses, such as a spreadsheet.
(Related: How To Invest In Futures).
Can You Day Trade The Australian Dollar?
The Australian dollar is a popular currency for day trade but can also be one of the most volatile. Its price action is closely related to other commodities.
Factors that affect the AUD are:
- Australian news and economic data.
- RBA interest rate decisions.
- Retail sales.
- Inflation, trade, and mining data.
The most popular Aussie pairs are AUD/USD, AUD/NZD, and AUD/EUR.
When Is The Best Time To Trade In Australia?
- The Australian stock market opensat 7:30 am and closes at 16:00.
- Between 7:30 am and 10:00 am,there is a pre-open (or pre-market).
- The regular sessionstarts at 10:00 am and closes at 16:00.
Australians can participate in some markets (cryptocurrency and forex) thanks to 24-hour currency exchanges.
Expert Advice.
If you use a traditional broker, opt to trade early in the day when there is substantial volume.
When Is The Best Time To Trade The AUD?
The best time to trade the AUD depends on several factors.
As a commodity-based currency, the AUD tends to be most active during high commodity prices, particularly for metals such as gold and copper.
The AUD is commonly paired with currencies such as the USD, JPY, and EUR, so consider the trading hours of these markets when determining the best time to trade.
Economic data releases, such as employment figures and GDP reports, can also impact the value of the AUD, so traders should pay close attention to these events and follow market trends.
What Are The Factors That Affect The AUD?
Several critical economic data move the Australian dollar.Some of the most common include:
- Inflation data:This guides what the RBA will do. Unlike other countries, Australia publishes its inflation numbers per quarter.
- Wage growth:The RBA focuses on monthly wage numbers. High wage growth can indicate that the RBA will increase interest rates.
- House price index data:This illustrates the strength of the Australian housing market and the overall economy.
- The ABS:They publish retail sales monthly; strong sales indicate a stable economy.
- GDP:The quarterly GDP report shows the strength of the Australian economy.
(Related: How To Invest Money In Australia).
Are You Ready To Day Trade?
We’ve compiled a checklist below to ensure you’re ready to start your day trading journey.
Knowledge And Education.
- Have you researchedand studied the basics of day trading?
- Have you learnedabout technical and fundamental analysis?
- Do you understandthe risks and potential rewards of day trading?
Trading Plan.
- Have you developeda clear and concise trading plan?
- Have you defined your goals,risk tolerance, and trading strategies?
- Have you considered your capitaland leverage requirements?
Trading Tools And Platforms.
- Have you chosena reliable, registered brokerage platform?
- Have you testedthe platform and practised using it?
- Have you identifiedand set up the necessary trading tools, such as charting software and real-time news feeds?
Risk Management.
- Have you establishedrisk management strategies, such as stop-loss orders?
- Have you calculatedand set appropriate position sizes to manage risk?
- Have you identified potential riskscenarios and prepared contingency plans?
Psychology And Emotions.
- Are you preparedto handle the emotional and psychological stresses of day trading?
- Do you have the disciplineto stick to your trading plan and avoid impulsive decisions?
- Have you consideredhow you will manage stress, anxiety, and other emotions that may arise during trading?
Time and Availability.
- Do you have enough timeavailable to devote to day trading?
- Have you established a routineor schedule that allows you to focus on trading during market hours?
- Have you considered the impact of other commitments,such as work or family obligations?
Frequently Asked Questions About Day Trading.
Here’s what most beginner day traders want to know.
Is Day Trading Legal In Australia?
Yes, day trading is legal in Australia, but you must follow the regulations and guidelines set forth by theAustralian Securities and Investments Commission (ASIC).
What Is ASIC’s Role?
ASIC has steadily increased the amount of regulation in the industry. In 2020, it passed MiFID II-style regulations that impacted the sector, reducing the maximum leverage that online brokers can offer.
From March 2021, ASIC introduced an order that restricts FCD leverage offered by brokers to a maximum ratio of 30:1.
Is It Possible To Day Trade The ASX 200?
Yes, it is possible to day trade the ASX200, the Australian Securities Exchange benchmark index. Most share trading platforms offer it.
How Much Do You Need To Start Day Trading In Australia?
The capital required to start day trading in Australia depends on the broker you use and your chosen day trading platform.
Some brokers require a minimum account balance of $500 or less, while others may require a higher minimum balance of $10,000 or more.
Important!
Keep in mind that brokerage fees are often inversely proportional to the trading volume. Traders who move significant ($500,000+) amounts of money often pay 5X less fees than people who trade a few thousand dollars each day.
How Much Do Day Traders In Australia Make?
Day traders who trade stocks with smaller capital earn comparatively less than those with more money.
Day trader income levels vary widely; not everyone trades full-time or long-term—many newcomers fail and discontinue.
Experienced and professional day traders can easily earn high six-figure salaries.
Can Day Trading Be A Full-time Job?
Yes. But it’s not for everyone. Successful day traders are people who can think logically, are great at maths and can separate themselves from impulsive emotions.
What Are Some Common Mistakes To Avoid In Day Trading?
Common mistakes to avoid in day trading include over-trading, failing to set stop-loss orders, chasing losses, trading stocks without doing research, not following a trading plan, and letting emotions dictate trading decisions.
When mistakes happen, learn from them and continuously improve your trading strategy.
Jody
