The following day trading strategies are meant for beginners and experts alike but remember that day trading is full of risk and the majority of those who attempt to day trade end up losing money.
One reason for this is that financial markets are dynamic and extremely efficient. Markets are dominated by machines which means they are very hard to beat.
Don’t just take my word for it, this is what the SEC have to say: “day trading is extremely risky and can result in substantial financial losses in a very short period of time.”
Alright, alright, you know about the risks, you’ve heard them a million times before but you still want to learn how to day trade.
I hear ya. Let’s get going:
20 day trading strategies for beginners and experts
#1. 30 minute range.
OK so this is a day trading strategy that I read about quite a few years ago in a book that I believe was written by Perry Kaufman.
The idea is to watch the market over the first 30 minutes using a 5-minute chart.
You then draw a resistance line on the chart at the highest level that the market reached during the first 30 minutes. And you draw a support line at the lowest level. This is your range.
You then wait until the market breaks through either of these lines and when it does you place a trade in the same direction.
For example, yesterday at 8am GMT, the FTSE 100 opened at 6,507.2. The lowest price fill in the first 30 minutes was 6503.3 and the highest was 6525.5.
At 9:25am, the FTSE hit 6526.3, breaking the upper range and indicating a buy signal. A stop loss can then be placed under the bottom range.
Profits can be taken using another indicator such as a pivot point or the RSI. Or, you can look for a profit based on your risk:reward ratio. You could also use a trailing stop.
As you can see, the strategy worked great yesterday:
*Charts courtesy of IG Index.
#2. Pivot strategy 1
I mentioned before that pivot points are one of my favourite day trading strategies because I know professional day traders still look at them. And you can see a bit more about them here.
One simple method to use pivot points is to buy when a market hits a pivot level and sell when the market hits a resistance point. The problem is that pivot points can also be used in the opposite way too.
The rule is to only buy at a pivot level if the market is in a upward trend. And only sell at the pivot if the market is in a downward trend.
If a market makes it all the way down to the third support, it’s generally not a great idea to buy. But it will likely rebound off the level as traders take profits so you can sometimes manage to pull a few quick points.
As you can see in the next example, the FTSE 100 (which is in a multi-month upward trend) moved nicely off the pivot yesterday and the day before. The second resistance was a great place to sell:
#3. Pivot strategy 2
Pivot points can be used in different ways and they work great as profit targets. And when you place a stop you should make sure that it’s a fair bit away from a key pivot level.
The other role of the pivot is as a trend indicator. So, if the market is above the pivot then you should be bullish and if the market is under the pivot you should be bearish.
Buying the market as it pushes through the pivot and selling the market as it drops through is another technique that traders use.
#4. Gap on the open
When markets gap on the open it shows that a large number of traders have moved to one side of the trade and this imbalance often predicts that the market will carry on in this direction.
However, in stocks, scalpers will often buy the market and try and see the gap closed.
This premise is behind the end-of-day gap system developed by Herman using Amibroker.
Buying a stock when it opens lower than the previous day’s low was shown to produce good profits in back-testing as you can see from the chart. Later, I modelled a similar system on weekly data and also found good results (trading system 14 in my book).
#5. Create your own levels
For sure, traders look at pivot points and that helps them work like they do.
But pivot points are just simple formulas based on the previous day’s price range. At the end of the day, it’s easy to create your own levels.
A trader I used to know did just that. He modified the pivot levels slightly and used a simple formula to create his own levels that seemed to have an amazing knack of predicting the market turns.
Pivot (P) = (High + Low + Close) / 3
R1 = P + (P − Low)
S1 = P − (High − P)
R2 = P + (High − Low)
S2 = P − (High − Low)
R3 = High + 2 × (P − Low)
S3 = Low − 2 × (High − P)
#6. Chaikin indicator
A lot of technical indicators seem to do the same thing, just under a different guise. But the Chaikin Volatility indicator, developed by Marc Chaikin, seems to be slightly different.
The Chaikin Volatility indicator attempts to reconcile increasing volume with price movements, but why is it different?
Well, take a look at the next hourly chart. While most indicators move in seemingly random patterns, the Chaikin exhibits a distinct pattern, because it takes volume into account.
As you can see, the Chaikin crosses over the zero line at roughly the same time every single day. (Usually around 12pm-2pm when US markets are getting busy).
This helps with timing. So one idea is to buy/sell the market only when it crosses through the zero line.
So if the last candle was green, buy the market when the zero line is crossed and if the last candle was red, sell the market when the zero line is crossed. (But don’t trade if RSI is either oversold or overbought). This will get you into a trade when markets are starting to heat up and keep you out when trade is winding down.
It might be wise to exit the trade when the Chaikin is near it’s peak so look for the Chaikin to hit 80-120, or wait for the indicator to turn downwards.
#7 Combine indicators (Cowabunga style)
One of the most popular day trading strategies is to combine indicators together since doing so helps to confirm the trend and direction you want to trade.
One good example of this is the Cowabunga forex system, which has been going on the Baby Pips message forum now for several years.
The creator of the Cowabunga system looks at two charts; the four hour chart to confirm the long term trend and the 15-minute chart to time entries. Long trades are only taken if the four hour chart is in an up-trend and the 15 minute chart shows the following:
- 5 EMA must cross above the 10 EMA (Indicated on my chart by a black candle)
- RSI must be greater than 50
- Stochastic must be headed up and not in overbought territory
- MACD histogram must go from negative to positive OR be negative and start to increase value. (We want to catch trends early so the MACD histogram must be negative.
As well, Cowabunga tries to stay out the markets during news releases.
#8. Trading the news
If robots are so prevalent in todays markets, one way to beat them is surely by reacting to news releases.
However, even computers are becoming very smart at reading news flow and responding to events in a flash.
Nevertheless, a good way to trade the news is to make sure you know exactly what the market is pricing in before the news release takes place and what traders are expecting.
For example, if markets are expecting the Federal Reserve to hike interest rates, that effect will already be priced into markets and they won’t move much when the event actually takes place.
The big move will come if the Federal Reserve surprises the market and knowing this can provide some good risk:reward opportunities for traders.
The next time the Fed meet to discuss interest rates (or whenever there is a big event looming), decide what result the market is expecting and see if there is any value in betting on a surprise outcome.
Placing a trade shortly before the event then closing it once the market has priced in the new situation is a good strategy for day traders.
The important thing is not to jump on board any old news release but to know the importance of the announcement and how much of a surprise it is to markets.
If it’s a major surprise the move will be larger and go on for longer, maybe even a few days. These events give the most opportunity for profits.
Another method for trading the news is simply to keep your ear close to the ground when the market is open.
There are plenty of services that offer live breaking news feeds although they are expensive.
You won’t have any luck with liquid, heavily traded markets because bank traders and hedge funds get the information quicker. But maybe you could build a small watch-list of tradable stocks and keep alert for any big news stories.
#9. Engulfing candles
There is plenty of debate into the effectiveness of using candlesticks to trade but one thing is for sure, there are very few traders who use anything but a candlestick chart when they are trading.
Probably my favourite candlestick pattern is the bearish or bullish engulfing pattern.
A bullish engulfing pattern occurs when a bearish red candlestick is immediately followed by a larger green candle that completely engulfs the previous day’s candle.
A bearish engulfing pattern is simply the reverse. A good example occurred in EURGBP the other day:
#10. Doji candlestick
Doji candlesticks are also good to look out for. They occur when the price moves up, moves down, but ends up just about where it started. The candle therefore has hardly any body, just two long wicks coming out the top and the bottom.
Doji’s indicate uncertainty so they can signal reversals and they often happen during big news events.
The best way to day trade a doji depends on the longer term trend. If the market is trending down and then it’s hit with a big doji, you should take it as a bullish sign and look to buy. If the market is trending up and there’s a doji, you should probably look to sell.
Doji’s are one type of trading pattern that should probably always be combined with some other strategy.
#11. Pair trading
Pair trading is a fairly simple one, but again, it’s difficult to get right when markets are so efficient.
First of all you need to look for two stocks in the same category that are moving in different directions and you can use various market scanners for this. Such as the one at Finviz or the one on the Thinkorswim trading platform.
The idea is to sell the weaker stock and buy the strongest one (in the same category). You should look to hold the trade for no longer than a day and get out when you’ve made a good profit.
#12. Trend lines
The problem with technical indicators is that they are inherently lagging. They’re also followed by traders all around the world who are all getting the same signals.
That’s why many successful day traders ignore indicators and only look at naked price patterns.
Trend lines are the cornerstone of technical analysis and trend trading and anyone can draw trend lines on a chart using a modern charting package.
Upward sloping trend lines must connect at least two higher lows and downward trend lines must connect at least two lower highs. But the trick to trading trend lines is strict risk management and careful position sizing.
In this example, a break of the downward trend line is a good signal to go long. The new upward trend line gives the trader a place to put their stop. The stop can then be moved up as the trend progresses.
It’s equally important to trade the right size. If you can estimate the chance of your trade working out, plug it into the Kelly calculator and you’ll be able to find the correct position size to use on the trade.
#13. Triangle patterns
Triangle patterns form from the converging of trend lines so they can be traded in a similar way and I went into more detail about them here.
Triangle patterns like wedges are useful for finding markets that are about to break out into new trends. They’re useful because you can trade the new trend immediately, you don’t have to wait for a technical indicator to cross over.
Another thing to look out for when day trading is the different correlations between assets.
You could get really technical with this and create correlation matrixes. That way you could buy an asset whenever the correlation moves away from the mean. Or you could keep it simple and just use common sense.
The idea is to find which markets are moving together and which are moving inversely.
For example, crude oil and the US dollar usually move in opposite directions (because oil is priced in dollars after all). That means when the dollar goes down, oil becomes more expensive and goes up in value.
But these correlations don’t always last and when they break it opens up a great opportunity to instigate hedge trades.
For instance, if your analysis tells you oil supplies are increasing, but you also think the dollar will increase (maybe because the US economy is growing and the Fed want to raise rates), you can buy the dollar and buy oil at the same time.
Normally, the two would cancel each other out but in certain scenarios they can provide low risk trades.
#15. Pump and dumps
Penny stocks (trading under $1) have caused a lot of people to lose a lot of money over the years and in general should be avoided.
Penny stock promoters get paid to pump up worthless companies that are usually no more than “shells” for more shady operations.
Marketing campaigns push the ultra-cheap stocks up a couple of a cents and allow the promoters to make their money back and more. They then sell their holdings leaving those who did buy the stock nursing big losses.
But is it possible to take advantage of the scam by going the other way?
Tim Sykes is a stock trader who keeps an eye out for penny stock scams, he then tries to short them once they’ve been pumped up by the promoters.
The moves from some of these dumps can be very sharp and quick so they’re perfect for day traders.
Pump and dump industries to look out for? Marijuana, solar, bitcoin, biotechs, miners, foreign companies.
#16. Go with the flow – read the tape
Jesse Livermore is one of the most famous stock traders of all time and he’s famous for relying on his tape-reading, pure price action skills.
Jesse traded the markets frequently enough that he built up an intuition with the market. Because of that, he never needed anything more than the naked price sequence to make his trades.
Trading this way requires that you go with the flow. You tune into the market and become ‘at one’ with it, without ever trying to predict.
It can take years of practice. But it still works, as Japanese day trader CIS proves.
CIS is able to keep an eye on hundreds of different markets and gets a feel for when a stock is about to move. He “keep his ears open in chat rooms and his eyes glued to the bid-ask screens.” He usually watches the 300 most heavily traded stocks.
And his only, one rule is this: “buy stocks that are being bought, sell stocks that are being sold.”
#17. Moving averages and the long term trend
Another thing that Jesse Livermore teaches is that there is nothing more important than the long term trend. In other words, are you in a bull market or bear market?
I’ve known traders that go into a bull market and try and sell every day, just because it seems like the most natural thing to do. After all, the market’s more expensive than it was yesterday so surely it must go down today.
It’s the most difficult way to go about it, since trends go on and on and on.
A much easier way to trade is to decide on the direction you want to trade then use short-term indicators to time your entries.
In fact, this could be the most simple way for anyone to trade, whether they are a beginner or an expert.
If you’re in a bull market, only trade long. And if the 20 period moving average crosses over the 50 period moving average, make your entry.
Similarly, if you’re in a bear market, only trade short.
#18. Build a mechanical system
If you want to build a mechanical system for day trading and back-test it using a program like Amibroker or TradeStaion you’re going to be in for a hard slog.
Building an intraday system brings with it a very long list of obstacles and it’s an expensive and time-consuming process.
In fact, I’ll save you time and tell you not to bother using an automated trading system for day trading (especially in forex). You simply won’t be able to make any money with it. Not when you’re up against Goldman Sachs and the ‘robots’.
A better bet would be to come up with a base trading system that at least breaks even.
Then, use your human intuition and market knowledge to join forces with the robot and come out ahead.
#19. Use screeners and online tools
In my course, I talk about some free online tools that traders use to time the markets. Now, they’re mostly intended for medium-term and longer-term trading but you can use them to day trade too.
Look for high volume stocks that are significantly oversold or overbought according to their RSI or technical readings. Combine those readings with fundamental indicators like PE or PEG.
Let’s say you find a stock with a PE below 15, a PEG below 1, an RSI reading of 18 and a high level of insider ownership. You could go long on the open and exit at the close.
On the whole though, short term day trading is about momentum, fundamental value factors can take a long time to play out.
You could also go through Seeking Alpha Pro articles and look for some interesting articles that might play out in the next session.
Or, take a look through StockTwits and Twitter for stocks that are experiencing a heavy amount of social volume.
If you see a stock that is starting to trend on StockTwits take a look at the price chart. Maybe it’s near a support level or maybe it’s about to break through a trend line. Keep watching it and if it breaks through you have your trade.
#20. Just sit and wait
Sometimes the best approach for a day trader is to do nothing at all. Short-term opportunities rarely present themselves so day traders should learn to do nothing at all until an outstanding opportunity lines up.
Wait on the sidelines and don’t make any move until something really big happens. Something that is so incredible, the opportunity is simply too good to pass up.
If you stay focused and keep doing your analysis and research, these opportunities are actually more frequent than most traders realise.
But if the markets are quiet, there are no trends to find, and no value to be had, simply do nothing.
Even day traders shouldn’t trade every day.
Stock chart credits: IG Index, Amibroker and Yahoo Finance.
What are you favourite day trading strategies?
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