Last updated on November 10th, 2016
When traders think of day trading strategies, they often think of how to get in and out of the market.
If that is where is begins and ends for you, you are missing out on some of the more important factors for your success with day trading
Yes, a trading strategy is important and so is having a trade plan that keeps you on point when it comes to executing that plan.
But in between your strategy and you executing that trading strategy, there is a gap as large as the Grand Canyon that can influence your behavior.
5 Day Trading Strategies To Explore
No trading strategies article would be complete without the usual listing of methods that you can use for day trading. While not the true topic of discussion here (or the most important), it may help beginning traders see what types of methods can be successful.
Keep in mind that day trading for a living, if that is your goal, is not reliant on a strategy in and of itself. There are other variables that need to be addressed and that will be the focus after this section.
1. Range Trading
Markets tend to range more than they trend so understanding how to trade ranges is a great tool to have in your tool box. When I talk about ranges I am not just talking horizontal ranges. You can also look at pullbacks as ranges except they are either up or down sloping. Whichever one you are looking for, trading ranges/consolidation is a wonderful day trading strategy to explore.
We have a great trading article that can help you learn about range trading and it actually may fit into your day trading plan as a strategy of interest.
2. Trading Pullbacks
Any technical analysis course will teach you about pullback trading to allow you to get into the current direction of the market. Since markets, when not ranging, advance in an impulse/corrective movement, you can find opportunities during the corrective move to assist you in position in the next impulse move.
The tricky part is finding a trade location where the corrective move ends and the impulse move begins. Nothing is perfect and nothing is guaranteed. You find you entry, manage your entry and protect your trading capital.
You can learn how to trade pullbacks in this article as well as finding out why trading breakouts is a suckers play.
3. Fibonacci Trading
This is another method of trading you will come across on your journey to becoming a trader. There are many knocks against Fibs and many people ask if they actually work.
They work in the sense that they plot price zones on your chart that you may be interested in taking a trade. They don’t work as a foolproof way to take money out of the markets. That method has never been invented.
I have a soft spot for Fibonacci and if that is something you may want to explore, you will find this article “How Fibonacci Levels Can Help Your Trading Results“ full of useful information to hit the ground running with.
4. Indicator Based Strategies
There are some useful indicators out there but as with any strategy, they have to be used as part of an overall plan. There are so many to choose from but to keep it simple, think trend determination, oversold/overbought and emotional extremes.
Don’t get tempted with trying to find the perfect setting for any indicator because there isn’t any. There also is not any special indicator that will turn a losing trader into a winning trader.
I put together a small list of trading indicators that I have found useful over the years for both swing trading and day trading and how you can implement them. Putting them into a coherent trade plan as a complete trading strategy is up to you.
5. Day Trading Systems
All the trading methods I have mentioned do have a learning curve. It will take time to not only learn them but also to be able execute them with mastery.
Many traders like to start off with trading systems that have already been designed and tested in the real world of trading. Netpicks has been developing and trading systems since 1996 and have been able to develop some of the most consistent and profitable trading systems available.
One of our newest additions (although we only develop and release new systems every few years) is Counter Punch Trader. Feel free to poke around the CPT trading blog and see the types of results our trading clients have been making.
The Bottom Line About Day Trading Strategies
People spend a lot of wasted effort looking for the best method to trade. There is no best method and if you were to talk to 30 successful traders, they would probably all do something differently.
This highlights that while a methodology is important, it is not the only thing you will need to have a chance of finding your definition of success.
I always point out the Turtle Traders experiment.
All traders had the exact same coaching but all had different results. That tells you that without a doubt, there is more to trading then just your entry and exits.
There are other strategies those that are day trading should be aware of.
3 “Trading” Strategies You Probably Aren’t Doing
Much of the work you can do as a trader can be done while you are seeking out trading strategies, software and the markets you are interested in such as Futures, Forex, Stocks or Options.
While day traders are the topic of this piece, this is something every trader should do. I kept the day trader in mind because through the course of a trading session, there are multiple opportunities for a trader. They are tasked with following their trade plan on a more frequent basis and also veering from that plan throughout the session is always a risk.
Think about a swing trader.
Their setups probably don’t come on a daily basis due to the time frame they may use. If they take a losing trade and have a negative reaction, the next setup may come much later which allows them a chance to recuperate from the loss.
1. The Why Do You Trade Strategy
I know some of you have just said for the money but if that is main motivator, any type of success will be short lived.
Here is why:
Imagine that you have taken a trade and it turns out to be a loser. That goes against your main reason for trading so you find a way to get into another trade. Often times you will not follow your trade plan because, after all, you trade to make money.
What about a trade the you are in that is currently underwater? I’ve done it and I bet many of you have done it as well where you move your stop further from price because “this is just a small correction.”
If making money is your main goal, you may be hesitant to take your stops when your plan calls for it. If you are not making money, you are losing money and that is not what your objective is.
Take time to read about those who have reached a higher level of success in business, sports, trading…anything really, and you will find that money is rarely mentioned.
Because money by itself is a horrible motivator for the long haul. You can “make money” washing dishes at the nearest restaurant.
Your reason must be bigger than that because bigger goals can get you through the rough patches. You can expand on money (if that is where you are starting) and ask “what will money bring me”?
For me, trading and all the fruits that come with it allowed me the ability to be home with my kids during the early years. I never missed a Christmas concert, a sporting event or anything else they’ve been involved in. My children are one of the reasons I wrote about when looking deeper into why I wanted to trade.
As you dig deeper into the trading experience, you will learn a lot about yourself both the positive and the negative. The negative is brought to the forefront and trading can become a personal development endeavor.
Patience, acceptance, confidence and the ability to take full responsibility for your actions falls way outside the walls of trading.
One of the best moments for me was being in a day trade and watching as price came close to my stop. The stop was in a position that if hit, would signal that my setup had failed. I could have exited early and saved some money but until the stop location was hit, the trade was still in agreement with the setup.
I watched price tick down until it took my protective stop and the money that was risked on the trade. I took a deep breath and instead of getting upset, I simply said the word “next”.It was a great moment because in that moment, there was growth in me not only as a trader but also as a person.
Take the time to look inside and big picture why you trade.
Dig right into it and even describe in detail what you picture when you think about the why. Your drive, your why, has to be strong because in your development, there will be hardship. There will be disappointment and loss. You will need a tool to get you back in the saddle to keep your confidence strong and to keep you moving forward in the right direction.
This strategy is not a one time event.
You may adjust your why over time as you mature in the trader role. You will also review your big picture why when you find yourself going off track and when the frustration sets in. If this is where you stop reading and have taken on this task, then this article has done its job. Believe that this is one of the most important things you can do as you venture out on the road to success as a trader.
2. The Fake It Until You Make It Strategy
Why is everyone so quick to jump to using real money when they can’t even perform using a demo account? With most demo accounts, even if you market into a trade you will get the price that you wanted.
You are not influenced by the same demons that real money traders can fall victim to. You don’t have to worry about blowing your $50,000 fake money – unless you bet the farm on every trade because you haven’t taken risk management seriously.
Demo trading makes it easy to win but it’s an afterthought for some. For others, they jump into real money before they can make it with fake money. It’s quite possible that those people who jump to real money before proving themselves actually have MONEY as their big “why” for trading.
Perhaps spending a few hours in a demo account without the possibility of making money regardless of how great you trade seems like a waste of time. It isn’t.
- This is the time you get to master the trading strategy you have chosen above.
- A time to build the positive habits of not only risk management and following a trade plan, but also to cement the “why” behind your trading.
- A time to practice executing your trading strategy like a master.
Give yourself a few goals:
- 50 to 100 mistake free trades
- ending the month break-even after commissions or better
- reviewing each trading session by using a journal to note how you felt throughout the session.
There is a drawback with setting a goal about ending a time limit at break-even.
1. Trading strategies, whether scalping, day trading or swing trading are going to have losses. They will come in a random distribution so it is quite possible you spend the time simply trading your way back to the initial account balance.
2. Your trading strategy may only have a few setup either because of the strategy criteria or the current market condition. A few losses and you may not get enough setups to be able to meet the break-even goal.
Welcome to the real world of trading where a losing month is entirely possible.
This is one thing you should keep in mind when you are listing out income goals and how much you need to make to meet your basic needs. There is no guarantee, even if you are a trading master, that you will end each and every month on the plus side so make sure you plan for that.
Sim trading gets a bad rap from the trading crowd but remembering that most in the trading crowd fail, perhaps shows that it’s a great idea.
3. The Relaxation Strategy
Coming into a trading session tense and under pressure to perform will ensure that you don’t perform. Ending a trading session after a horrible performance can have you bringing that baggage into the next session.
You have to find ways to come into the session with a balanced state of mind.
Many traders meditate and even use an affirmation mp3 to get their mind into a peak performance state. Calming music instead of listening to the talking CNBC heads can go along way in keeping you centered on the task at hand. Yoga and especially the breathing techniques that you learn are also a great benefit to a trader. Not only will Yoga deal with a body that sits in front of a screen all day but breath control can actually help keep you calm.
Exercise and proper diet are two things that should never be ignored. Whether you train at a gym or at home with a workout cd, exercise has the ability to rid you of the tension and stress that you will feel at times in your trading career.
Journal your trading experience on a daily basis can help you see where you are starting to go off track. That will give you the ability to address it before it becomes a habit that is hard to shake.
Being relaxed will aid you in following the trade plan you set up as well as temper the emotions during a losing period.
Jesse Livermore said: “Successful trading is always an emotional battle for the speculator, not an intelligent battle.”
This points mindset being an important factor but doesn’t eclipse the need to have a trading strategy you understand, have tested and know the probabilities of.
Day Trading Is Not Just Pushing Buttons
There is no question that to have any chance of succeeding, you must get a handle on other areas outside of the trading strategies you are using. The three day trading strategies just mentioned can go a long way in being more well-rounded when approaching the trading profession.
And it is a profession.
Too may day traders just focus on strategies and not enough on the more obscure variables that are required to have a chance of reaching your goals.
The bars you see moving on the chart are moving because of the actions of other traders. Know that many of them take this business more seriously than you do and will have no problem putting your money in their account. Step outside of simply finding day trading strategies. Read trading books on other aspects of trading such a trade psychology.
Seek to improve your internals through some of the day trading strategies above and perhaps your goals will see reality.