Day trading in the UK

Day trading is a short-term strategy​ that traders use to buy and sell financial instruments with the aim of closing out positions by the end of the day. This strategy in the UK has increased in popularity over recent years.

Technology has played a big part in this – thanks to fast broadband and mobile connections we have a wealth of real-time market information at our fingertips. This has led to many more people accessing the markets through day trading, in other words, placing trades throughout the day to try and profit from volatility as market prices go up and down.

But what strategies can you use? Should you keep it simple, or use something a bit more complicated?

Many day traders use technical analysis​ by analysing price charts, such as candlestick charts, and would recommend a 'clean' approach to their trading strategy. These traders prefer not to load their charts with lots of different indicators in order to try and second-guess direction. Rather, they will focus solely on price; this is often referred to as 'price action trading​'. When trading in this way, you still have some key reference points based on what has happened previously, to help you plan future trades.

For some, the previous day’s high and low are important levels to watch when it comes to planning a strategy for that day. This is actually quite logical: yesterday's high marked the point where sentiment changed and the sellers came back into the market, pushing the price lower. The market consensus, therefore, was that the price was too high. And of course, the previous day's low shows where the buyers regained confidence as they felt the market was undervalued – they voted with their wallets and bought. These levels could be important if they come into play again, and can provide the cornerstone of a day trading strategy.

Although some day traders prefer to use a price action method, some will choose to apply simple and effective technical indicators onto their price charts in order to help predict price movements, trends, and reversals. Here are some of the most popularly used trading indicators:

Our award-winning day trading platform​​**, Next Generation, comes complete with technical indicators, social trading commentaries and updates from our professional market analysts. This makes it easier for beginners to get started with our platform, as you will never be short of tips or strategies for the financial markets.

We also offer trading via the internationally-recognised MetaTrader 4 platform, for those who are already familiarised with the software. It is important for you to choose the best day trading platform for your trading style, so we have put together a guide to compare our trading platforms​ in terms of prices, features and tools. Learn more by clicking on the link.

Day trading strategies differ from longer-term trading strategies in that they focus more on profiting from shorter-term movements in the market, as opposed to moves that take place over a number of days or weeks. These types of traders need to be continuously focused, as markets can move suddenly in the short term. Short-term strategies are particularly effective in volatile markets, such as for oil trading.

Some intraday strategies include:

On the morning of 22 April, the UK day trader could look at the previous day’s high and low in the popular GBP/USD forex pair. During the previous day, when the price dipped back to the 1.4300 level, the buyers came back in. Of course, there was no way of knowing what would happen on 22 April, but there was a reasonable chance that 1.4300 could end up being an important level for that day's trading. The expectation would be for buyers to step back in again ahead of that 1.4300 mark.

As shown in the chart, this is exactly what happened. There were actually two occasions over the course of a couple of hours where the GBP/USD rate slid back towards that level, trading down to 1.4320. The trader would consider buying here as there had been demand on the previous day.

Another big advantage of using absolute support and resistance levels​ like this to plan trades is the all-important management of risk. Day trading is of course all about trying to make profits, but it's just as important to limit losses when things do not go as planned. If the GBP/USD rate slid below the 1.4300 level then clearly something has changed and the trade could be exited for a small manageable loss.

Discipline is one of the most important attributes that experienced traders have in common. Keep a watchful eye on your bad habits, and look to resolve them as soon as possible. You are trading in a disciplined way if you decide on a carefully considered set of rules to govern your trading decisions, and then follow them. Find ways to stop yourself from breaking your rules and look to address it if it is becoming a problem. As a day trader, it's a good idea to re-evaluate your rules at the end of each month, due to the shorter time frame of this style of trading.

Money management​ is essential. In fact, it is one of the essential elements of trading over any time frame. Certainly, if you are planning to trade for many years to come, you are going to need to apply successful money management strategies. There are whole books dedicated to this topic, containing many different approaches, and you need to take the time to find a method that you're comfortable with. The risk/reward ratio is important. Remember, it doesn't matter if you win 90% of the time if your losses are much larger than your wins. What's important is that your wins are larger than your losses.

Never forget to use stop-loss orders​ to manage your risk when you are placing your orders to enter the market. This is your insurance. You need to be aware of exactly where your stops should be prior to entering the trade. This is a good habit to have and will help protect yourself from trades that go against you. Standard stop losses can be prone to slippage when price gapping occurs, however, guaranteed stop losses will always close out positions at your chosen level.

Our day trading software is also available on-the-go with our award-winning mobile app**. This is suitable for both mobile and tablet devices on iOS​ and Android​, making trading more simple and easy wherever you may be. Features include mobile-optimised charts and customisable layouts, as well as full order ticket functionality.

To start day trading on more than 11,500 instruments within the financial markets, open an account with us. Visit our trading costs page for more information about spreads, margin rates, commission fees and overnight holding costs, which are all things a trader should take into consideration before opening any positions.

You may also wish to strengthen your understanding of technical analysis through our chat patterns guides, including the following:

Day trading is a common short-term trading method as it focuses on small movements in price and doesn’t run the risk of any overnight gapping. Many traders rely on price charts and technical analysis to form their particular day trading strategy, however, whichever strategy is chosen, they must be able to follow several principles. These include using risk management tools and being able to stay level-headed in spite of the fast-paced and high-risk market environment.