What is the best day trading strategy?

Day trading is connected to great risk but also with great potential to profit.

By Guy Avtalyon

So, let’s see what is day trading.

Day trading points to the rapid purchase and sale of stocks throughout the day. With the goal that purchased stocks will climb or fall in value for the short frame of time, seconds, or minutes.

Day traders believe that through certain day-trading strategies, they can add up small daily wins into long-term profits.

Day traders have their own jargon and terminologies, online communities for day-trading tips, support, and strategies.

But you have to know – day trading is risky and only for speculative investors.

The day trading strategies

Scalping Strategy This is the philosophy of how small wins can add up to a lot of money at the end of the day. The scalper sets a buy and sells target and sticks to these levels.

The scalping strategy is fast and traders make buys and sell within a few seconds. This is one of the best day-trading strategies for traders who can make quick decisions and act on them without regret or doubt.

These traders have enough discipline to sell immediately if they see a price decline. In that way, they are minimizing losses. This strategy isn’t for people with short nerves. But still, it is very popular.

Momentum Trading Investor jumps on a stock whose price is moving up. When to use the momentum day trading strategy?
This strategy is very popular for beginners because it focuses on news and recognizing strong trends.
Stock movement of 30 to 40%, smaller stocks, which trade faster due to the reduced number of outstanding shares, a unique and major move in price, driven by a catalyst like a surprise earnings growth, a drug company’s huge, new treatment launch or news that a small company will be acquired by a larger firm. Option stop – loss is required as insurance.
Just hold your position and wait to see indicators of reversal and simply get out. Also, you can decrease the price drop and round your price target at the moment the volume starts to decline.

The most important part of this kind of day trading strategy is to be extremely aware of the expected news and earnings reports. If you execute it correctly, you’ll be able to profit from each trade. And you trade just short as few seconds per trade. Wonderful!.

Breakout Trading – When the stock price rises above the former top resistance price you can use this strategy. You should monitor the level of stock trading volume or how many shares are changing hands. Breakout trades on high volume are more likely to be sustainable at the new higher price than those breakouts with less volume. It’s not as easy as looking at a chart, recognizing the resistance, and then buying after a breakout.

Breakout trading focuses the point when the price clears a particular level on the chart. Also, you have to notice that the volume is increased. So, you have to enter into a long position after the stock breaks above the resistance level. The other possibility is to enter a short position when the stock breaks below the support level.

To explain this more detail, after the stock trades beyond these levels, the volatility will increase and the stock price will usually follow the trend, meaning it will move in the direction of the breakout. Always keep in mind these two levels: resistance and support. You have to see how frequently the stock price hits them. More hits, more volatility, more important the levels become.
Plan your entry point according to which level the price hits. If the price is set close or higher than the resistance level is, you’ll need to take a bearish position. The contrary is when the price hits the support level or move below. In that case, you’ll need to take a bullish position.

Your exits should be set reasonably. Calculate the average recent changes in price to set your price target. For example, if the average price is 3 points more than the last few swings, your price target will be rational. When the stock price hits your target price, just exit the position and take your profit. You had a winning trade.

Day trading on news

News Trading – You must be keeping an eye on the business news, day traders can capitalize on the popular daily stories.

If the news is bad, you might short the stock during the day by “borrowing” shares of the stock from the investment firm. And then selling those borrowed shares.

Similarly, if the stock price declines as expected, you should buy the shares back at the lower price and profit from the difference less a commission payment. If the news is good, you go long or buy the stock outright and sell the shares after the price rises. 

Pullback Trading – The first step is to look for a stock with an established trend. Then, monitor the trend until there’s a price decline from the trend. If the established trend is upward, then the pullback is an entry point for the day trader to buy.

If the trend completely reverses after you buy-in, there’s no need to panic. The trend usually continues in the trending direction for a long time.

You may find pullback ”candidates” from the stocks making the biggest gains.

Is there any risk involved

But be aware!  ”Day trading is extremely risky and can result in substantial financial losses in a very short period of time,” according to the SEC website.

And one advice: If you’re afraid to try your hand at day trading, only invest money that you can afford to lose.
Or don’t try this!

Read more about Strategies to Avoid Bad Investment Moves