Day trading is a worthwhile activity, but you must know what you are doing. There is a technique (more than one actually) that will help you succeed at day trading, but you have to first learn what it is.
For example, there are many day trading strategies for the beginning trader (our Zero to Hero guide). When you know what they are, day trading will be much more rewarding and fun because you will be winning.
These strategies are crucial to know if you want to be a successful day trader. Every pros has at least a few favorite strategies that he falls back on again and again. What works for one person may not work for another, though, so it pays to learn as many as possible in the beginning.
As you gain more experience as a day trader, you'll get to know additional strategies, including variations on the ones highlighted above.
Before too long, you'll have a selection of strategies that will help you achieve long-term success as a day trader.
Basic Day Trading Strategies
There are a few basic rules that will help you achieve ongoing success as a day trader. They apply to all day trading strategies!
The most important one is to not allow yourself to be ruled by emotion. Emotions have no place in any successful strategy (and can destroy your dream!). So-called gut reactions only lead to trouble. One of the reasons that emotions are bad news for day traders is that they can make you deviate from your chosen strategy.
This brings us to our second rule, which is to stick with your game plan. No matter which strategy you are following, you need to see it through. Persistence is key.
Finally, you must be able to recognize and understand trading indicators. Otherwise, it is impossible to achieve success with any of the most effective strategies.
» Best Technical Indicators for Day Trading
The Best Trading Strategies for Day Traders
There are dozens of trading strategies! Avoid becoming overwhelmed by learning these four basic strategies first:
- News Trading: When a major news event occurs that affects the stock market, savvy day traders spring into action. Using this strategy is as simple as keeping up to date with current news stories and moving quickly to buy or sell as needed. How to do it in the right way.
- Range Trading: This is where in-depth research and patience really pay off. Learn the normal high and low range of a specific stock and always trade within it.
- Pairs Trading: As the name implies, this strategy involves trading in pairs. Choose a category, and then go short on a weak stock and long on a strong one. By making these trades simultaneously, you dramatically increase your odds of achieving remarkable profits. For example, here you find the best Currency Pairs.
- Contrarian Trading: Despite what the current momentum of a stock suggests, this strategy requires you to trade against it. Many beginning day traders struggle with this strategy, but more seasoned traders know that it's a terrific way to make some serious money.
Related » Pro Trader Routine
How to create good day trading strategies
A common challenge among new traders is on how you can create a good day trading strategy. Here are some of the things you can do to create a working strategy.
- Consider the type of trader you want to be - For example, do you want to be a full-time trader or part-time trader. Also, do you want to be a day trader or a swing trader?
- Decide the assets - You should also select the assets that you will be trading. Examples of assets are stocks, currencies, commodities, and ETFs.
- Find pros and cons of the approach - We recommend that you try to find pros and cons of this trading. Reading books and watching videos can help you find a good strategy. You can also consult someone who has been in the business for years.
- Use a demo account - You should then move to a demo account to create and test your trading strategy.
The Strategies On the Move
Day trading is all about energy. When We first started implementing trading strategies, we learned that the only way to be good at it is to find stocks that are on the move. Thankfully, there is a stock that is making a 20 or 30 percent move every day.
We have to find those stocks before they begin to move, and we have discovered that these stocks have some technical indicators in common before they begin to move.
First, we must ask ourselves what we expect from strategies that are on the move. It’s necessary for the stock to be moving. If they are moving sideways, we cannot work with them. Therefore, the stock must be moving up or down. Stock scanners locate these stocks very well.
Then, we can trade the stocks when they are at extremes. This means that the stock is doing something that it hasn’t done all year and that the price action is very clean.
Day Trading Strategies and What You Need to Find
When you use these strategies, you find that there is something similar about stocks that are moving. We can scan 5,000 stocks and look for similar criteria. This will give you up to 10 stocks each day. These stocks may move 20 to 30 percent in a day, and this is how We make us living.
- The first criteria: The float must be under 100 million shares.
- The second criteria: The daily charts must be strong. That means that the stock does not have resistance nearby and it is above the Moving Averages.
- The third criteria: The High Relative Volume is at least two times above average.
- The fourth criteria: This is optional. There will be a fundamental catalyst. A fundamental catalyst may be an announcement made by the FDA. If the stock is moving without a fundamental catalyst, it is known as a “technical breakout.”
How We Find Stocks for Our Strategies
We use stock screeners to scan the market for the criteria that we listed above. The stock scanner is highly necessary for putting these strategies into effect, because this let us know that something is happening.
Then, We can check the candlestick chart to find an entry point on the first pull back. A majority of buyers get into the market here, and the stock moves up sharply. As the price begins to move up quickly, you must be able to find the best entry point at the time that it is happening.
We do this by performing our own scan, where we receive several trade alerts every. We never have to look through the charts manually, because the scanner allow us to see all the stocks in their current positions.
Stock scanners, probably, are the only must-have tool you should use to find the best stocks. But having a stock watchlist can also give you a nice advantage.
How to refine your day trading strategy
Creating a trading strategy is not enough. You need to refine it in a certain period, typically a few months before you apply it in real trading. Therefore, you need to refine the strategy well, because market conditions are constantly changing.
Some of the things that you can do to refine your strategy are to spend a few months working also in the demo account, or look at how other pros approach the markets.
Doing this will help you identify its pros and cons without risking your own money.
Different strategies for different styles
There are different types of market players, from those who prefer to invest for the long term to those who focus on shorter time frames such as a few days, hours or minutes.
In addition to this macro difference, there are others that contribute to further fragmenting the types of traders.
The most important one is surely the one that differentiates the analysis phase of a company/sector before opening the trade. Many traders like to use technical indicators, tools that are in turn divided according to the needs and what we want to analyze (trend and volume, to name two).
Others prefer to analyze news while still others rely heavily on the visual study of charts (but the various techniques can also be combined).
Day traders often find chart patterns to be a proven tool for finding entry and exit points for investments. Reliability is improved if the chart patterns are used in combination with technical indicators such as the commodity-channel index (CCI), the rate of change (ROC), the relative-strength index (RSI) and the moving average.
Experienced day traders may also use a variety of other technical indicators (but not too much at the same tiem). This is a famous trading strategy known as price action.
As mentioned, technical indicators are vital tools for day traders. These indicators show interesting trends that can be used by a smart trader to realize a solid profit from following complex changes in the stock market.
Carefully watching momentum indicators such as the moving average, RSI, ROC, CCI and others over brief periods of furious activity holds the promise of improved profits for virtually any short-term investor.
Naturally, knowing exactly when to enter and when to exit from an investment opportunity is the biggest factor in day-trading profitability. A competent day trader will study longer-term market trends to gain an understanding of what shorter-term changes may mean.
Investment instruments typically exhibit demand and resistance zones. Examining a strong demand zone for a particular investment usually will reveal a good entry point for taking a long position.
Likewise, examining a strong resistance zone usually will show a good entry point for taking a short position. Paying close attention to such details can significantly reduce the risks and increase the potential upsides for your investments.
- Best time Entry One of the most important strategies is the right time entry. The most efficient day trading entry tactic is sturdy support and getaway of strong resistance. The lowest risk entry point with the highest return opportunity is when the stock price hits strong support demand zone.
- Happy Exits Your bank account can grow much larger if you use the right methods for your day trading. Keep in mind that your profits do not actually exist until you sell an investment to take the profits. Unrealized profits from holding on to an investment can disappear at any moment.
Strong-resistance, Fibonacci-number, 50MA or 200MA exit strategies all have been successfully used to sell investments in a timely fashion.
Short term vs long term trading
Quite a few people seek to make money with day trading strategies, but such activities are highly risky. Investing for the long term by buying and holding investment instruments can make a lot of sense.
This is true especially after studying the history of a specific company or industry sector and the market potential of its associated services and products, but day traders tend to only look briefly at a company or investment vehicle before deciding to buy or sell.
Many industry experts think this is not much better than common gambling (but is not!), which is why the Securities and Exchange Commission has tried to protect small-fund investors by placing a number of restrictions on how they are allowed play the stock market in this manner. One of the well-known adjustments is the PDT rule.
Successful Day Trading Strategies
The following trading strategies explain how to reduce your risks and increase your chances of making money with day trading using the right tools as real time news and ToS.
Picking the Instruments
You should begin by deciding on your favored instruments for investment . You can choose stocks, indexes, ETFs, options, commodities or futures. Each instrument has its own quirks and risk levels.
If you prefer to focus on an entire economic sector such as commercial real estate, then choosing sector-related ETFs is your best bet. Please note that most ETFs show low beta, which means that large changes in the stock market will produce smaller changes in those ETFs. High-beta ETFs that change a lot when the stock market rises or falls are better for day trading.
You have to be careful when picking your trading strategy.
In any case, you should decide up front which instruments will work best for your preferred levels of risk.
Stop-Loss Orders Day trading
Without stop-loss orders is like walking on a tight wire without a safety net. A serious fall can hurt you badly. Before you accept an investment, set up a stop-loss order to prevent the possibility of losing all your money before you realize what is happening.
Moving averages and pivot points are good indicators for stop-loss orders. This is a very popular way to develop your trading strategy.
Real Time News
One of your most important tools for seeking profits and avoiding losses is a reliable source of real-time news. Impressive numbers of stock-market traders jump every day on the latest news as the basis for deciding to buy new instruments or to sell their current holdings. This means that even a few seconds may make the difference between making money and losing money.
Events that instantly affect the stock market may include a report on general economic activity from a government or private agency, a press release about a company’s current earnings, a policy change at the Federal Reserve, a product or commercial-service announcement, a significant political development in a major trading country or a sudden natural disaster.
Subscribing to a penny-stock news-reporting service can be useful, but the quality and reliability of such services may vary greatly. Some day traders set up a suite of custom searches at a major search engine that returns a steady stream of relevant news.
» How to do News Trading
Time Over Sales
Closely monitoring real-time sales data is critical. If unusually large orders for an instrument appear at the current asking price or above it, then you can take advantage of this by entering longer positions.
Waiting for the strong demand behind this behavior to further increase the instrument’s asking price can result in a hefty profit. Likewise, seeing unusually large orders at the current bid price or lower quite likely means it’s time to enter short positions and to abandon longer positions for that instrument.
This sort of potentially profitable event does not happen often, but patiently waiting for such opportunities is the most likely path to success with trading strategies.
Strategies for trading stocks
There are several strategies that you can use to trade stocks effectively. First, there is a concept known as arbitrage, where you focus on trading two stocks that are relatively related.
For example, you could trade a stock like Chevron and Exon Mobil that tend to move in sync. Therefore, after doing your analysis, you could buy one of the stock and then short the other one.
» Related: Maximize the benefits of correlation
Another strategy is known as algorithmic. This is where you use algorithms and bots to analyze and trade stocks. This strategy is mostly recommended for experienced traders.
Meanwhile, based on your experience, you could decide to become a copy trader. This is where you will let other traders do the work for you and then pay them a fee. Companies like eToro have tools to automate that.
Summary: Consistency is the key
No matter what day trading strategies you adopt, consistency is the key. Make a plan, and stick with it. Even penny-stock trading falls under the same rules. Traders who keep their hearts still and their eyes open will always do better than wild traders who don't think first.
Stay calm and focused, and you will find your way to wealth.
External useful Resources
- What are some good intraday trading strategies? - Quora