The 9 Best Strategies for Day Trading

When taking any position you’re going to want a game plan. In this situation we are talking about trading strategies that involve taking a position and closing it within the same trading day. Although there is some overlap between strategies and different time frames try to keep your ideas separate because intraday trading is much different than riding out long term established momentum or ideas based on fundamental analysis.


Each Strategy has a different focus:

Sometimes you may choose to look at specific, technical-study values. Other times, you have a predetermined profit or loss percentage set. You might only aim to profit from gaps closing. And, you also might wait until the momentum is increasing or decreasing.

There are many different reasons and circumstances that entice you to take or close a position. Here are the most popular:

Entry and exit

Scalping – involves taking a position and then closing it/selling almost immediately, when it hits a small profit percentage. Scalping involves profit targets of less than 1% on each trade but uses the quantity of his/her trades, position size and using margin debt to optimize daily profit goals.

Scalpers set very tight stop-loss orders on each trade so that, in the event of the stock price goes backwards, their shares are sold and the position is closed out before taking any substantial loss in capital. This stop order is set at less than 1% of the purchase price and is probably less than whatever the profit % goal was. This means no hoping, no waiting, no feelings. You set the stop, and you back off. You assign both exit points, the loss exit and the profit exit, when you take the position so that you know exactly what you will lose or gain in either event.

Before free commissions, scalpers had to take quite large positions to offset the trading fees associated with such high frequency trading. Now, luckily that is reduced. This is the most common day trading strategy due to minimized risk.

Fading – is when you take a short position after a rapid move upward. Typically, the “smart money/big money” bought into the stock early and the rapid move was due to novice investors buying off of speculation/rumors/momentum. After a big movement the “smart money” will start unloading their position and taking profits which will cause either downward or sideways price action and this scares off the upward momentum that it had from new buyers. This combination of less buyers plus sellers unloading large positions leads to a reversal from the previous uptrend. By Fading, taking a short position at the top of the steep rally, you get to ride the downturn into profits. This can be risky due to false indicators and a trend continuing to rise upward, but done correctly and the rewards are extremely profitable.


Movement:

Post-Gap closing – Typically most days start with a gap between the closing price yesterday and the opening price today. In general, most gaps are closed at some point. Upon seeing this gap, either down or up, you take a long or short position accordingly and set a profit goal at the filling of this gap.

Momentum – is when you ride the current trend upward. You can chose to ride the momentum that was established over the past few days or past few minutes. Typically, to see a confirmation in raising prices, you want to see high volatility associated with green candles. You ride the wave, buy in when the uptrend is there and sell when it slows down.

Trading News – is taking a position, either long or short, immediately after the release of good or bad news. Ride the momentum of this news and get out.

Daily Pivots – is when you aim to trade at the daily low and the daily high.


Technical Studies:

Ichimoku Kinko Hyo – also known as the Ichimoku Cloud, is a good standalone. You open a trade when the price goes out of the cloud, which is an indication that a potential trend is interrupting the current flat price activity. You hold until price interrupts the blue Kijun Sen line or until the end of the trading day. Use a trailing stop-lose that is placed on the bottom of the Kijun Sen. Don’t be afraid to close a position before it hits the stop-loss, if it seems the trend is broken, get out. This is not a business of hope, day trading is a business of trends. Safe yourself from a loss. Get out, and get back in when you see a newly established trend later.

The Big Three – involves using 3 different Simple Moving Averages (SMA). Typically you use a 20/40/80 period SMA combo. You can also use 20/50/100-200. I say period because you can chose to base it off of 20/40/80 minutes, ticks, days, etc. Tweak it to your liking. Anyways, when the price is below the SMAs you wait until a candle closes above the highest SMA on your chart. You then wait until one reversal candle, then another green candle that closes above that reversal’s high. Buy in there because that failed reversal and a newer high above the SMAs just confirmed a new rally. Establish your exit plan before you click buy. This is very popular in trading foreign exchange currency.

RSI and Stochastic Oscillator – is using two indicators, the RSI (relative strength index) and the Stochastic Oscillator. Both of these are indications that a stock is overbought or oversold. If both charts show that it is oversold, buy and hold until the price goes past overbought and re-enters the mid range. Sell on the line that says it is going from overbought into mid. Use a very tight stop-loss as always.


Hedging:

Market Neutral Trading – is when a trader attempts to hedge by entering a long position and one short position in two similar equities. Here you profit from the relative performance of one stock to the other, while off-setting the risk from the overall market.


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About the author: Dominick Muniz
Creator, web-developer, and writer at The Trading Space.

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