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What are some of the most successful day trading strategies?

When looking into day trading, there are multiple strategies out there to consider. Many aren’t that effective, but there are a small handful of strategies that are.

Day trading takes a staggering amount of patience and a profound understanding of the market. It involves making quick decisions and performing a great number of trades for a comparatively small profit each time.





So… Why Do We Need Day Trading Strategies?

Trading can be stimulating and lucrative if you’re able to stay alert, perform meticulous research, and keep your emotions at bay. However, it can quickly become treacherous territory for newbies who don’t stay true to a carefully considered strategy.

It’s an immensely rewarding career for those who take trading seriously as it’s based on skill and knowledge. The right day trading strategies are what helps you achieve this.

Good day trading strategies help you with:

  • What you need to see before you enter a trade

  • Where you’ll exit, and how much you’ll risk

  • Where you’ll place your stop-loss

“A vision without a strategy remains an illusion.” Lee Bolman

A trading strategy that you can rely on ensures stress-free trading.

When you don’t have a strategy in place, you tend to rely on your gut. This will give you sleepless nights and is why 94% of new traders fail during their first year.

Trading shouldn’t mean being under stress. You should take pleasure in it. Pick a strategy that fits your approach. Because day trading is about tested and proven strategies that produce consistent results over time, keeping the odds always in your favor.

When you have strategies that work for you, you don’t have to think about your day trading processes every single day. You are not shooting in the dark.

Strategies keep you on track with your plan and hence stress-free.

The trading strategy you use helps you figure out when to enter and exit the market. It consists of a trading plan and a trading approach to markets and the risk management rules.

My strategies haven’t really changed for the past couple of years. The only thing that has changed is the way I execute.

Day Trading Strategies for Beginners

With so many day traders saying something different, how do you decide what day trading strategies to use? At the end of the day, you’ll need to find strategies that match your particular trading approach and requirements.

Selecting the correct trading strategy is one of the most significant steps you’ll take as a new trader. You will likely try a few out before choosing what works for you. After all, you don’t know what works until you try it.

A strategy is like your wardrobe. It has got to fit well to your style and your needs.

But to get you started, think about the following before investing time or money in day trading.

  • Do you have sufficient investment to really invest? If not, wait until you do. For the time being, continue your knowledge building process.

  • Dependable profit will take six months to a year to arrive. Are you prepared to wait?

  • Can you commit to trading two to three hours a day, taking into account your latest schedule and bandwidth?

Oh, and I need to make this clear before we go any further… Do not quit your job until your trading profits can sustain you. Your plan needs to fit your life.

So, what should your process of choosing a strategy include? I suggest the following...

Consistency

If you make sure your strategy keeps you away from emotional and impulsive decisions, it can ensure consistent results.

You need to let logic and your strategy steer you.

Having no strategy, or having the wrong strategy, will lead to impulsive decisions that steer you away from your plan and can have disastrous results. Being nervous or feeling greedy are emotions that get triggered when you don’t have the right strategy. And that will lead to inconsistent results.

Therefore, a strategy is good if it helps you achieve consistently good results.

Capital Management

In order to select the right strategy for you, it’s important to know how much you can put on the line.

Before you begin, decide how much you’re ready to risk. Thorough risk management ensures your losses do not snowball and don’t turn into big ones.

Research and Knowledge-Building

You need to stay knowledgeable and make sure you stay up to date with market news. This will ensure you choose the appropriate strategies at the right time for YOU.

Most fresh traders jump straight into trading too much and studying too little.

That is why most new traders face difficulties. Now that you know, you will not make this mistake.

Time

The investment of time is crucial. When you are selecting your strategy, you need to factor in the amount of time you will be able to give it.

Day Trading isn’t the sort of career that gives you overnight success. In the beginning, you have to study hard and experiment a lot. This takes time, so it’s important you choose a strategy that fits into your lifestyle, routine, and schedule.

Deciding What and When to Buy

Day traders make profits by taking advantage of tiny price movements in the price of a stock.

There are a few key factors to mull over before you start to day trade any market. A classic day trader looks for the following things:

Liquidity

Liquidity is how easily an asset, or security, can be changed into ready cash without changing its market price.

This enables a trader to rapidly enter and exit trades at a smart and stable price.

Cash will always be the most liquid asset. When it comes to investments, equities are among the most liquid assets.

Volatility

Volatility is how much an asset's prices swing around the mean price.

The greater the volatility, the greater profit or loss you have the chances of making. The cryptocurrency market, for example, has high volatility.

A day trader’s entire purpose is to profit from volatility.

Trading volume

An asset’s trading volume is a gauge of how many times a stock is bought or sold in a given time. A soaring trading volume shows that there is increasing interest, and is helpful for identifying entry and exit points.

Market Cap

Market capitalization refers to the total value of a company's shares of stock.

As we are in the process of understanding and creating an investment strategy intended to help you follow long-term financial goals, being aware of the relationship between company size, return potential, and risk is crucial. You’ll be better equipped to put together a balanced stock portfolio that consists of a mix of "market caps."

Ideal market cap will be anywhere between 10 to 100 million, which makes a company a mid-cap company. Mid-caps present more growth potential than large caps, and in all possibility less risk than small caps.

Flow

Flow means the number of shares that can be available to traders to purchase as supply.

When the number of people who want to buy something is higher than the number of the commodity itself, the price of the commodity goes higher as the demand is higher. Flow determines that supply. Ideally, flow has to be anywhere between zero to 10 million.

Day Trading Strategies

Here are a few basic day trading strategies worth considering (and studying) if you’re new to the markets.

1: Breakout

A breakout occurs when price clears a significant level on your chart. When trading breakouts, it is vital to think about the underlying stock's support and resistance levels. The resistance or support level becomes a position which many traders use to set entry points or stop-loss levels.

Levels on your chart are psychological and symbolize the outlook of day traders at a particular price level. Let’s say last month the highest point was $100 and today we hit $101, that's a breakout. It means it broke through 100.

Breakout traders frequently want to take hold of the stock because they think the market is showing it wants to go higher since it broke a key resistance level. When managed properly, it can offer limited risk.

The first step in trading breakouts is to identify current price trend patterns.

The breakout trader enters into a long position after the asset or security “breaks out” above resistance. On the other hand, you enter a short position once the stock breaks below support.

Volatility, more often than not, increases and prices will often drift on the track of the breakout.

2: Momentum Trading

Momentum trading is buying what’s going up and selling what’s going down.

Momentum investing aims to take the benefit of market volatility. This is done by taking short-term positions in stocks going up and selling them as soon as they show signs of going down. This strategy is not without risk.

The principle of momentum trading is basically cutting your losses.

The most important stocks for a day trader are stocks that are moving. The good news is that on any given day there is a stock that will move 20-30% or even more! This is a reality of the market.

Using stock scanners, day traders find stocks that are moving.

The momentum trading approach is pertinent if you want to trade part-time and still strike the markets. With momentum strategy, you must ensure you’re aware of the latest news and announcements.

Momentum trading is for day traders who usually rely on technical analysis instead of fundamental analysis.

3: Short Selling Strategy

Selling a stock at a given price without owning it and buying it later at a lower price to gain a profit is known as shorting or short selling.

In the real world, naturally you would have to buy something to sell it, right? It is a bit different in the world of trading. Traders who short-sell, sell these assets before buying them, and are hopeful that the price of these stocks goes down before then.

When it comes to trading, the terms “sell” and “short” can be used interchangeably.

Here is an example: Let us say you go short of 1,000 shares of stock at $10 a share. You would receive $10,000 into your account. The catch here is, this isn’t your money. It only becomes your money once you buy those shares that you sold.

Your account will illustrate that you are at -1,000 shares and that will only balance out to 0 when you buy those shares. You won’t know the actual profit or loss that you come out with until then.

That element of mystery is where the risk factors in.

Because of limited profits and unlimited risk, shorting is not recommended for absolute beginners (or if you don’t have enough backup funds).

Short selling, however, has become my #1 strategy and I would encourage you to try it out once you become more experienced.

4: The Moving Average Crossover Strategy

Moving average indicators are typical within each and every trading platform, so the indicators can be set to the conditions that you have a preference for.

The moving average crossover strategy is aimed towards finding the middle of a trend.

You want to identify and ride the trend for as long as possible.

You have to know when to get in and when to get out, and the moving average crossover (as a tool) can help you identify when to do so.

5: Scalping

Some traders sell stocks right after buying them to make a profit. It looks to get the most out of tiny price changes. The driving force is quantity.

Scalping is a defensive strategy in the sense that it is all about accumulating small profits over a period of time. Which means consistency is the key here. To use an analogy that all of us on the internet will relate to, it is like posting consistent content to accumulate followers over time.

It requires a trader to have a firm exit strategy because one big loss could wipe out the many small gains you worked hard to acquire. It requires enormous discipline and focus.

These are just a few of the trading strategies that new traders commonly use.

It’s worth keeping in mind that it’s often the clear-cut, uncomplicated strategy that proves victorious. The best strategy is the one that fits your situation and individuality best.

Bottom-line…Always stick to the original plan

Day Trading isn’t overly difficult or complicated, yet many people stay away because it takes a bit of work (and conviction).

Successful day trading requires fast movement, but not necessarily impulsive thinking.

Before you start to day trade, it’s important to summarize precisely what you’re hoping to achieve. Be pragmatic about your results. Challenge yourself, but at the same time make sure you’re realistic.

Have a plan. You have to have your day trading strategies developed in advance, otherwise, you’ll allow your emotions to take over. This is how most traders fail, and it’s what you must fight against.

Choosing the right day trading strategies, however, is not learned by reading an article like this. Reading and learning about strategies will definitely give you an edge. Being aware of what strategies exist will help you get started.

But there are two main steps to learning how to choose and develop a strategy. The first is to study (a lot), and the second is to work with a mentor. Once you have the experience of working with a mentor, the right choices of strategies for a situation becomes second nature.

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