Day trading strategy
Further Reading Day trading strategies are essential when you are looking to capitalise on frequent, small price movements. A consistent, effective strategy relies on in-depth technical analysis, utilising charts, indicators and patterns to predict future price movements. This page will give you a thorough break down of beginners trading strategies, working all the way up to advancedautomated and even asset-specific strategies.
Julius Mansa is a finance, operations, and business analysis professional with over 14 years of experience improving financial and operations processes at start-up, small, and medium-sized companies. Those changes in daily prices that seem random could actually be indicators of trends that day traders can take advantage of.
The following five day-trading setups, or entry strategies, have a tendency to emerge in the market at some point on many, but not all, days.
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By learning to recognize these trading setups, a day trader may take actions that could improve their chances of seeing a profitable return.
This usually occurs within the first five to 15 minutes after stock trading begins.
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The price may then pull back and stall out, forming a consolidation where the price moves sideways for two or more minutes. This consolidation should occur within the range of the impulse wave. If the price falls off the open, the pullback and consolidation may occur below the opening price. A breakout in the opposite direction of the impulse isn't traded. For example, if the price rallied off the open, then pulled back and consolidated above the open price, wait for the price to break out above the consolidation.
That should trigger a buying opportunity. Bid one cent above the consolidation high point for a long trade buying in the hope of selling later for a higher price. Or bid one cent below the consolidation low point for a short trade selling borrowed shares in the hope of buying them at a lower price before returning them to the lender. The consolidation should be relatively small compared to the impulse wave that preceded it.
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If the consolidation is large compared bar options the impulse wave, the pattern is less effective. There should be a distinct impulse wave, a distinct pullback, and a distinct consolidation during the pullback. If each of these parts is not discrete, the pattern is less effective and should be avoided. Catching the first trade of the day with this strategy can have a substantial impact on overall profitability.
If this pattern occurs later in the day, it will often produce smaller price moves.
Sometimes you get a big move in one direction followed by an even bigger move in the opposite direction immediately after. This is called a reversal.
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It then rallies 30 cents. Don't be distracted by that first drop; it doesn't matter anymore because you now have an impulse to the upside.
Your focus should be on watching for the price to decline a bit pull back and then consolidate. If the price breaks one cent above the consolidation, go long.
The same rules apply as in the previous setup. Wait for a pullback in the opposite direction of the impulse. The pullback must be smaller than the impulse. Then wait for a consolidation and a breakout of that consolidation in the impulse direction. A stock price finds support as it's falling prior to a reversal; it faces resistance as it's rising prior to a reversal.
These levels are often pricing areas, not exact prices. If the price breaks above a consolidation near support or breaks below a consolidation near resistance, you have a trade signal.
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If a reversal signal occurs, make the trade when the price moves one cent above the consolidation near support or one cent below the consolidation near resistance. Expect the price to bounce off support or fall off resistance if this pattern occurs. If the price instead breaks above the major resistance area and consolidation or breaks below the major support area and consolidationget out of the trade immediately and consider taking a breakout trade if applicable. Still, having this strategy in your tool belt can be useful for when special situations arise.
After the price has tested that area more than three times, you can be assured lots of day traders have noticed. A breakout does not guarantee a big move.
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That is why this strategy should be used sparingly. The power of the pattern comes from traders pushing the price back to and then, hopefully significantly, beyond the resistance or support level.
The pattern shows those traders have more resolve than the traders going in the opposite direction.
Day trading strategy example, if the price plummeted off the open and you are trading an impulse-pullback-consolidation setup, you might expect the price day trading strategy fall again. A false upside breakout would help confirm this trade. In that case, the expectation was for a move higher after the pullback because the last impulse wave was up.
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The price consolidated and then had a false break below the consolidation. The price then rose. You would have been waiting to go long anyway, but the false breakout in the opposite day trading strategy further confirmed the trade. If the price tries to go in one direction and cannot, it is probably ultimately going to go in the other direction.
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