There are a few things to consider before you start day trading. Day trading can be disastrous if you don’t stick to a plan.
Breakout
Breakout trading strategies focus on identifying significant price movements on charts when volume increases.
This approach involves taking a long position when an asset or security breaks a resistance level.
Conversely, if the stock crosses the support line, a sell position is taken.
When a stock crosses a predetermined price threshold, volatility usually increases and prices tend to follow the direction of the breakout.
Choosing the right tool for your transaction is very important.
When making this decision, you need to consider the support and resistance levels of the stock.
The importance of these levels is directly related to how often price interacts with them.
The more these points are verified, the more reliable and important they become in your trading strategy.
Entry Points
This part is nice and straightforward. Prices set to close and above resistance levels require a bearish position. Prices set to close and below a support level need a bullish position.
Plan your exits
Use the stock’s recent performance to establish a reasonable price target. Using chart patterns will make this process even more accurate.
You can calculate the average recent price swings to create a target. If the average price swing has been 3 points over the last several price swings, this would be a sensible target.
Once you’ve reached that goal you can exit the trade and enjoy the profit.
Scalping
One of the most popular strategies is scalping. It’s particularly popular in the Forex market, and it looks to capitalize on minute price changes.
The driving force is quantity. You will look to sell as soon as the trade becomes profitable.
This is a fast-paced and exciting way to trade, but it can be risky. You need a high trading probability to even out the low risk vs reward ratio.
Be on the lookout for volatile instruments, attractive liquidity and be hot on timing. You can’t wait for the market, you need to close losing trades as soon as possible.
Momentum
Popular amongst trading strategies for beginners, this strategy revolves around acting on news sources and identifying substantial trending moves with the support of high volume.
There is always at least one stock that moves around 20-30% each day, so there’s ample opportunity. You simply hold onto your position until you see signs of reversal and then get out.
Alternatively, you can fade the price drop. This way round your price target is as soon as volume starts to diminish.
This strategy is simple and effective if used correctly. However, you must ensure you’re aware of upcoming news and earnings announcements. Just a few seconds on each trade will make all the difference to your end of day profits.
Reversal
Although hotly debated and potentially dangerous when used by beginners, reverse trading is used all over the world. It’s also known as trend trading, pull back trending and a mean reversion strategy.
This strategy defies basic logic as you aim to trade against the trend. You need to be able to accurately identify possible pullbacks, plus predict their strength. To do this effectively you need in-depth market knowledge and experience.
Using Pivot Points
A day trading pivot point strategy can be fantastic for identifying and acting on critical support and/or resistance levels. It is particularly useful in the Forex & Stock market.
In addition, it can be used by range-bound traders to identify points of entry, while trend and breakout traders can use pivot points to locate key levels that need to break for a move to count as a breakout.
