Day trading of financial instruments such as stocks, futures and forex currencies demands quick response to ever changing market conditions. As with any other trading style, in day trading it is more important to preserve your capital from huge losses than to make huge profits from market. A day trader should be aware of fundamental forces and factors which drive the market up and down. Below are some of those important market factors.
- Performance of Oversea markets: Every market responds positively or negatively to changes in other markets. The opening hours of US and Canadian stock markets are greatly influenced by the performances of European and Asian markets which have (almost) finished trading for that day.
- Domestic and Overseas Economic News and Data: Day trading includes profiting from very small price changes, and thus any big or small news about a company, market, person, policy change and government can greatly affect any profit making opportunity.
- Opening Hour Trader Rush: Opening hours of almost all markets is characterized by greater trading volume and volatility. Almost every trader, including individual and institutional traders, wants to react to the news that they have at market openings. There are days where the first hour trend is corrected later on the day and there are also days where the first hour trend is propagated later.
- Price Changes of Futures Contracts: Spot prices of stocks and currency pairs keep a relationship with futures prices, and vice versa. Whenever the futures price increases, the spot price also increases. Futures trades starts before stock trading and price changes of index futures can be taken as a major indicator of stock market trend changes.
- Analyst Reports and Ratings and Economics News: These are the major factors which contribute to the price changes after the first hour rush. Most traders try to go with the market and to quick respond to reports like company performances and to rumors.
- The trading volume decrease at middle hours: The volume of trades decreases greatly at noon hours and the market moves sidewise; usually because of the shortage of new news and reports. Many times prices of instruments (slightly) decrease during these hours.
- Afternoon Position Closing: Once the market approaches closing, many traders especially day traders, begin to close their open positions to reduce/avoid overnight position holding risks. The scenario is more evident in Friday afternoon hours.
As the forex market is continuous and is global, there is no such opening and closing hour rushes. But there is high volatility increases and decreases during trading hours of European, American and Asian markets.