Navigating the Australian financial markets requires a solid understanding of its unique dynamics. For those keen on learning how to day trade in Australia, this article sheds light on the most lucrative markets, effective strategies, and essential factors shaping the trading landscape down under.

What Markets Traders Choose for Day Trading in Australia?

In the dynamic world of day trading, Australia offers traders a plethora of opportunities across various markets. Here's a concise overview:

Shares

The Australian Securities Exchange (ASX) remains a focal point for day traders. With a wide array of companies representing sectors like mining, banking, and technology, traders have diverse options to choose from. The liquidity and volatility of popular Australian stocks make them a favourite for those looking to capitalise on short-term price movements.

Indices

Index trading provides an opportunity to gain exposure to broader market movements without having to pick individual stocks. The ASX 200, which represents the top 200 companies on the ASX, is particularly popular. Indices offer the advantage of reduced individual stock-specific risks and a reflection of broader economic and sectoral trends.

Forex

The foreign exchange market presents traders with the chance to trade the Australian Dollar (AUD) against other major global currencies. The AUD's status as a commodity currency, influenced by commodity prices and the Chinese economy, provides numerous trading setups. Furthermore, Australia's time zone offers the benefit of trading hours that overlap with major Asian, European, and US markets.

Cryptocurrencies*

The cryptocurrency market*, despite its volatility, has seen growing interest among Australian traders. Given its 24/7 trading hours and significant price swings, day traders find ample opportunities to enter and exit positions. Popular cryptocurrencies* like Bitcoin, Ethereum, and several altcoins have become a part of many traders' portfolios.

Many of these assets can be traded through Contracts for Difference (CFDs). These financial derivatives allow traders to deal with the markets without owning the underlying asset. They've gained traction in Australia due to their flexibility, ability to utilise leverage and opportunities for potential profits from both rising and falling markets.

3 of the Top Day Trading Strategies

Day trading, with its emphasis on short-term trades, demands a clear and actionable strategy. Here's an overview of three day trading strategies that seasoned traders often employ.

If you’d like to see how they work, head over to FXOpen’s free TickTrader platform to find each of the tools used in this section.

1. RSI with Moving Average Crossover

Entry: The Relative Strength Index (RSI) moves back above 30 (indicating potential upward momentum) or dips below 70 (indicating potential downward momentum). After this movement in RSI, a moving average crossover may be used as the signal to enter. For instance, a trader might watch for the short-term moving average (9-period, red in the chart) to cross above the long-term moving average (21-period, blue in the chart) after the RSI goes above 30.

Exit: You can consider exiting when the RSI approaches overbought (near 70) for long trades or oversold (near 30) conditions for short trades or when there's a reverse moving average crossover. It's often suggested to place stop losses above or below a nearby swing point or the slower moving average.

2. Bollinger Bands Compression Breakout

Entry: Bollinger Bands comprise an upper, middle, and lower band. The periods where the bands compress or come close together indicate a period of low volatility. A breakout from this compression, either above the upper band or below the lower band, signifies an entry point.

Exit: Once the price starts to revert back to the middle band or the opposite band, it can be an indication to close the trade. Stop losses are often initially placed above or below the opposing band.

3. Fibonacci Retracement with Pullback to Support/Resistance

Entry: After a notable price move (either upward or downward), you can use the Fibonacci retracement tool to identify potential retracement levels. When the price retraces to one of these levels (e.g., 38.2%, 50%, or 61.8%) and then demonstrates a reversal pattern (like a pin bar or engulfing candle), it's a potential entry point. You may combine this with known support or resistance levels for added confluence.

Exit: Traders often set a target at the previous high or low before the retracement or at the next Fibonacci level. Stop losses might be placed just above or below the next retracement level.

Understand the Factors That Impact Day Trading

Day trading, an intricate dance of buy-and-sell decisions, is influenced by a myriad of factors:

• Macroeconomic Indicators: Data like interest rates, GDP, and employment figures can significantly sway markets. A central bank's decision to change rates can lead to immediate and substantial market reactions.
• Global Events: International happenings, be they political upheavals, trade wars, or unforeseen crises, can create ripples that impact Australian markets directly or indirectly. For instance, a political impasse in a major economy might affect global risk sentiment.
• Market Sentiment: Trader psychology plays a crucial role. News, reports, and even rumours can shift sentiment, leading to buying or selling sprees. Understanding herd behaviour can offer insights into potential market movements.
• Company Data: For stock traders, company-specific news is pivotal. Earnings reports, mergers, or regulatory decisions can result in sharp price swings for the involved company's stock.

Specific Insights for Day Trading in Australia

Building on the strategies and understanding of the Australian trading landscape mentioned earlier, here are specific insights that may aid in day trading within the Australian markets:

• Consider Time Zones: As Australian markets operate in a unique time zone, recognise the overlap with Asian, European, and US trading hours. It might provide opportunities to capture significant price movements.
• Utilise Local Knowledge for Shares: For ASX day trading, knowledge of local sectors such as mining or finance can provide an edge. Familiarity with industry trends can guide trading decisions.
• Commodity Prices and the AUD: The Australian Dollar is often influenced by commodity prices. Monitor trends in gold, iron ore, and other key exports, as they could lead to trade setups in currency pairs involving the AUD.
• Watch International Impact on Indices: The ASX 200 and other indices are impacted by global events. Understand the connection between global economies and Australian sectors for informed index trading.

The Bottom Line

In essence, there are ample opportunities out there for Australian day traders, particularly if you have a broad knowledge of local economics and market events. Whether trading shares, indices, forex, or crypto*, these strategies and insights should help you along the way. However, it’s vital to understand that strategies should be adapted to market conditions and a trader’s approach to enhance decision-making.

For those looking to access the markets discussed here, you can open an FXOpen account. When you do, you’ll gain access to top-tier trading tools, competitive costs, and rapid executions. Happy trading!

*At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.