Strategies for day trading mean that a stock is bought and sold within the same day. Day traders take a large amount of money and profit off of small price movements. In this lesson you will learn a couple of day trading strategies that work and then you will see how a top day trader made $20,000 in a single day using a strategy called the Opening Range.
Day Trading Software
I recommend you use ETrade Pro for your day trading software platform. The three minimum requirements that your day trading software needs are:
– Intraday Candlestick Charts = Necessary to track price movements during the trading day.
– Level II Quotes/ECN = Level II and ECN provide a look at orders as they happen and who (market maker, specialists, etc) is making them.
– Real-Time News Service = For day traders, getting the news as fast as possible is critical.
Day Trading Strategies That Work
For most all day trading techniques the stock needs to have liquidity and volatility. Liquidity allows you to trade in and out of a stock with a large amount of money. Volatility is the difference between the high and low of the day. The greater the volatility, the greater the profit. The most important rule of all day trading rules is to make sure the stock you want to day trade has sufficient liquidity and volatility.
Day Trading Strategies and Candlestick Patterns
Day traders, using an intraday chart, focus on candlestick patterns, support and resistance lines, and volume.
Candlestick Patterns For Day Trading
The most accurate of all day trading chart patterns is the long tail reversal pattern. The long tail candlestick belongs to the family of doji candlesticks.
Day Trading Strategy – Long Tail Below
With the long tail below day trading strategy you are looking to buy and take a long position.
Day Trading Strategy – Long Tail Above
With the long tail above day trading strategy you are looking to sell or take a short position.
Make sure to confirm the long tail candlestick reversal by:
– Volume = Make sure there is a volume spike which indicates traders are buying the stock. The volume spike can happen in the 1 minute candlestick or immediately following it in the next 1 minute candlestick.
– Major support/resistance level = Is the long tail candlestick at a major support or resistance level such as the prior day’s low of day (LOD) or high of day (HOD)?
– Level II Quotation = Does the level II quotes show a huge surge in buying or selling? The 4 digit codes you’ll probably see most often on your level II trading platform on a day to day basis are: NITE, ETRD, SCHB, TDCM and ARCA. NITE dominates market making on the OTCBB. NITE is the most common ax on the OTCBB. NITE could be on the ask all the time and could be leading a dip scaring sellers to SCHB and TDCM on the bid. To learn more about level II quotes and how to determine who the ax is, go here.
If we confirm the long tail candlestick with these three steps, we can determine whether the long tail is likely to produce a reversal so we can take a position.
When you sell out of the stock and take profits depends on the day trading strategies you are using.
Day Trading Strategies For Exits
| Most Common Day Trading Strategies | Description |
|---|---|
| Daily Pivots | This day trading strategy attempts to profit from a stock’s daily range/volatility. The idea is to buy at the low of the day (LOD) and sell at the high of the day (HOD). The price target is the next sign of a reversal, using the same patterns as above accept if you are long, the reversal pattern is a long tail to the upside. |
| Fading | Fading or the fade day trading strategy involves shorting stocks after a big move up. This is based on the assumption that the stock is overbought and that early buyers will begin taking profits. Fading can also be done depending on the time of day. This day trading strategy is called “the late day fade”. Although risky, these day trading strategies can be very profitable. If you are fading a big move up, then the target price at which you sell is when the buying starts again. If you are doing a late day fade, then the target price is right before the market closes. |
| Momentum | A fade day trading strategy can also be considered a momentum day trading strategy. Momentum day trading strategies involve trading on news releases or trading on big moves up or down, both of which are confirmed by high volume. If the momentum play is based on news, you need to ride the trend until it “flushes” or shows signs of a reversal such as a “long tail above” candlestick (see above). If the momentum play is fading a huge price surge, then the target price is when buying starts again or when a reversal candlestick such as a “long tail below” (see above) forms. |
| Scalping | Scalping is one of the most popular day trading strategies, which involves selling almost immediately after a trade becomes profitable. Here the price target might be 1% or 2% or a 2, 3, or 5 point move higher after the trade becomes profitable. |
Frequently Asked Questions about Day Trading
What day trading strategy works?
There are many day trading strategies that work but they all need to have liquidity and volatility. You should also be using candlestick charts.
I posted the best day trading strategies in the article above; however, there are many more.
What does day trading mean?
Day trading means buying and selling a stock within the same day, usually within minutes to hours, in an attempt to profit off of intra-day trends and intra-day swings.
HowToDayTradeOnline posted the video below called What Is A Day Trader? Beginner Video on Day Trading.
What are day trading strategies?
The most common day trading strategies are pivots, fading, momentum, and scalping. Each of these common day trading strategies are explained in the article above and are talked about in the videos below.
Accendotraders posted the video below called Accendo Traders – How to Use Pivot Points for Day Trading.
Market Geeks posted the video below on day trading momentum called Best Day Trading Strategies.
What is day trading buying power?
Day trading buying power is the cash requirements your broker is required to maintain by SEC Rule 2520 which was established in 2001. This rule allows for buying power up to four times margin maintenance in a daytrader’s margin account. The rule also requires a pattern day trader to maintain a minimum account equity of $25,000.
Optionsizzle posted the controversial video below called Pattern Day Trader Rules Un-American.
What is a pattern day trading account?
A pattern day trading account is a status of trading account created in 2001 by SEC Rule 2520 that requires day traders to have a minimum of $25,000 in their accounts.
If you make four or more day trades in a rolling five-trading-day period, you will be considered a pattern day trader under these rules.
Optionsizzle posted the controversial video below called Pattern Day Trader Rules Un-American.
What is day trading margin?
As a pattern day trader, you’ll be granted day trading purchasing power up to four times your NYSEThe New York Stock Exchange (NYSE) is a global financial powerhouse, and at the heart of its performance measurement stands the NYSE Composite Index (NYA). This comprehensive index... margin excess.
What is fading a stock?
Fading is a contrarian strategy used to trade against the trend. It can be used for both day trading and swing trading. An example of fading includes buying on a drop in price and selling when the price rallies. It’s a risky strategy, but one which offers the potential for significant short-term gains.
NetPicks Trading posted the video below called Fading the Move.
PATsTrading posted the video below called Price Action Trade Example – Fading A Strong Move At Support.
What is momentum stock trading?
Momentum stock trading is based on the idea that the impetus gained by a moving object will continue in that direction for a period of time. Momentum traders attempt to capture a small portion of that move for profits.
UKspreadbetting posted the video below called The Momentum Indicator.
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