A Guide to Day Trading in Australia

Too often, when people ask me about investing they immediately jump to the idea of day trading. Sitting in front of screens, looking at complex charts and riding the rollercoaster of the markets. Sometimes referred to as the world’s biggest casino, many investors are drawn to the dream of getting rich quick. Unfortunately, not everyone is cut out to be a successful day trader, so let’s take a look at what it takes and who it might suit.

Day traders take advantage of daily market movements and therefore execute trades multiple times a day. Often, day traders have to make quick decisions and study market movements closely. For some, day trading is a daily exercise and for others, it is a full-time job. So, are you suited to day trading? Here are a few questions to ask yourself:

Let’s get right to it. Day trading is more than eyeballing graphs and going with your gut, it’s a highly detailed and numbers heavy analysis of price movements, volume and the underlying companies. When talking about averages, most people struggle to define the difference between mean, median and mode. The standard day trader’s toolbox includes exponential moving averages, Fibonacci sequence and Bollinger Bands. If these concepts put you in a spin and you have no desire to dust up on the details, then day trading might not be for you.

Once day traders have settled on a strategy, or more likely a select few strategies, they then typically wait for the right lead-ins to hit for them to enter a trade. There are three levels of automation when it comes to monitoring and executing your trades that all require lots of time.

Some traders are fully manual, meaning that they will have all the relevant information at hand and will manually monitor the relevant signals to identify when to set a trade up. These traders will need hours to sit at their computers.

Some traders will employ alerts and other monitoring programs to give them a heads up when a certain strategy is coming together and it may be time for a trade. These alerts can happen any time of the day or night. The trader will need the flexibility to drop what they’re doing and manually manage the execution.

Then there are those who employ computers to do the monitoring and execution of their trades. This requires a lot of time upfront to develop the algorithms and then ongoing time to continually monitor and adjust the algorithm. This aims to ensure that the algorithm is performing as expected, as any unexpected results could be very costly.

As the name suggests, day trading could literally become your day job. It will likely require a high level of commitment and time, any less is likely to result in losses.

Day traders spend hours submerged in charts, numbers, economic data and whatever else they think will give them a trading edge. It can be absolutely thrilling when you’ve done all the hard work on developing a strategy and you’ve seen the set-up, executed the trade and exited with a profit. It can also be mind-numbingly boring, repetitive and lonely. If chasing fame and riches are your only motivating factors, then the days and weeks where nothing is happening in the market can be even more difficult.

The day trading world is full of big talk and bravado, with stories of fortune and nerves of steel. The truth is that successful traders tend to be very disciplined about how they exit a position, that is, at what point they sell. Before entering a trade, they will have a clear idea of at what point they take the profits and where they stop the losses, and they will stick to that.

Successful traders also typically have the patience to wait for all their strategic signals to turn positive before entering the market. And they will stick to their strategy rather than try to create value on the fly. Especially when it’s your money on the line, being disciplined is hard but it’s perhaps the most important attribute of a day trader.

If you do decide that this method of investing is right for your circumstances, after considering the great level of risk involved, the next steps to get started would be to:

• Research heavily the markets you can day trade in Australia and understand how these work
• Decide on a strategy
• Practice your desired strategy – preferably on a demo brokerage account or share market game (like the ASX game) before you play with real money
• Open a share trading account to begin trading on live markets
• Keep up to date with trends and financial markets through resources like Canstar’s Investor Hub.

If you’re comparing online share trading companies, the comparison table below displays some of the companies available on Canstar’s database with links to providers’ websites. The information displayed is based on an average of six trades per month. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s Online Share Trading comparison selector to view a wider range of online share trading companies. Canstar may earn a fee for referrals.

In Australia, some of the markets available to day trade in include:

1. Cryptocurrencies – The crypto market is 24 hours meaning it is constantly moving, and a wide range of derivative products are becoming more available.
2. Shares – stocks are a common choice for beginners as there are a huge variety of shares to trade and markets to choose from.
3. Indices – trading indices gives you larger exposure to the market rather than just one company as you are speculating on the performance of a group of shares.
4. Forex – the currencies market is highly liquid and there are a significant amount of currency pairs to trade.

Regardless of the market you are trading in, it is important to remember the speculative and inherently risky nature of day trading. Past performance is not indicative of future performance and it is important to understand the asset class you are engaging with.

Day trading means you don’t keep a trade open overnight, but there are specific strategies you can employ including:

• Trend trading – requires studying the direction of prices of an asset class and buying or selling based on this trend
• Swing trading – taking advantage of short term patterns
• Scalping – taking small and frequent profits with a strict exit strategy
• Mean revision – based on the theory that prices and value measures (such as P/E ratios) move back towards the historical mean
• Money flows – indicates if an asset is oversold or bought based on volume instead of price alone.

Before you decide if day trading is the right investment strategy for you, it’s important to consider the factors that impact day trading, how to choose the day trading strategy, create a day trading plan, learn how to manage risk and monitor your positions.

There is no denying that day trading is full-on and takes a great deal of dedication. Although, if you answered yes to all the above then day trading may be worth considering. If any of the above doesn’t sound like you, then the myriad of other investing options might be a better fit.