Unlike swing trading, day traders make their profit by taking advantage of the small but positive movements in the market.
According to the U.S. SEC (Securities and Exchange Commission), intraday traders hold their trades for a few seconds or minutes. In fact, they use some unique day trading strategies that guarantee them small wins that add up to a big long-term profit.
We have all heard of the popular saying in intraday trading, “the trend is your pal” well, in most cases, it is true. After all, the price has been known to create new lows and highs. And with a momentum trading strategy, you can easily benefit from the upward or downward movement of the price.
Unlike other day trading strategies, it involves the ability to accurately and quickly identify sectors and handle a great deal of risk.
These traders believe that the current market will continue trending thanks to its momentum. So when day trading stocks, they search for shares that have been trending upwards for weeks. Remember, their main goal is hitting a new low or high.
Compared to other day trading strategies, this strategy depends on the high market volatility level. And if well-timed, traders can make a huge profit. To protect their capital, traders use several risk management techniques together with their day trading strategies, including a stop loss.
Unlike momentum trading, with scalping, you’ll sell and buy a certain stock several times. Scalping is a popular trading strategy among day traders that have been around for years. It can help you take advantage of a daily run of a certain sector or stock.
As the name suggests, scalpers can place ten to over a hundred trades while attempting to get some small profits from certain individual trades. Scalping reduces the risk of an event causing a huge loss. After all, you’ll be spending the smallest amount of time on each trade.
Small trades are easier to get than huge ones; plus, they’re more frequent than huge ones. To execute this strategy perfectly, you should be able to spot the market trends in your day trading patterns.
So if you want to try day trading for beginners, you should understand the psychology of the buyers and sellers. But most importantly, you should anticipate the downswings and upticks.
Successful scalpers can interpret the short-term charts and make decisions based on the 1-5 minutes charts. They also use the pivot points and moving averages to determine when they can execute a trade.
Pullback Trading Strategy
A pullback is a moderate drop or a pause in a given stock’s price that occurs within a continuing trend. Pullbacks are considered unique buying opportunities, especially after the trade has experienced a huge upwards price movement.
The initial step in this strategy is to search for stocks with established trends. Monitor the trend for a while and wait for the price to decline. A pullback can create a great entry point if it’s an established upwards trend.
These traders use the day trading patterns to understand the trend of a given stock. In fact, we recommend that you look for an upward trend with more than two consecutive high price movements before a price drop or pullback.
When shorting a trade, you should consider two consecutive decreasing prices. But if the trend reverses after entering it, then you shouldn’t worry. And that’s because the trend continues in the trending direction. Some of the most common pullback day trading strategies include the following:
The breakout strategy is quite common among pullback traders, and it can happen when a market reaches a turning point. It can result in the creation of a consolidation pattern which can help you determine an entry.
Some common consolidation day trade patterns include rectangles, wedges, triangles, and shoulders and heads.
The breakout pullbacks occur near the market turning points, but if you miss your entry point, then you can rely on the horizontal steps. The stepping behavior occurs in many trending markets. It refers to the natural rhythm of the price, and it’s known for demonstrating the ebb-and-flow of market behavior.
In an ongoing trend, the stock’s price will present the stepping patterns and can be a huge addition to the above pullback.
Generally, breakout trades occur when the price of a stock goes beyond the previous price resistance. Unfortunately, detecting breakouts isn’t as easy as examining a chart, identifying resistance, and entering a position.
To get a perfect entry point, you must monitor the stock trading levels and the number of shares changing hands. After all, breakouts caused by high volumes are sustainable and can result in a new high price resistance. Breakouts with low volume don’t have the same effects and can result in a huge loss.
In fact, lower-volume breakouts can go below the previous resistance levels. This will make it impossible to make a profit. But in most cases, it will retreat after hitting the price resistance level until it gets enough catalyst to give it a stronger price movement.
When it doesn’t rise above the resistance price, then the buyers are less than the sellers. Therefore, you have to do your research before entering any position.
It’s a known fact that the market reacts fast to certain news events. In fact, a bad earnings report can easily force the price to plummet. For instance, an FDA approval can cause the stocks to take off. Therefore, by monitoring the news, you can capitalize on some of the positive news.
If bad news is released, you can go short during the day by selling the stocks. When the price drops as anticipated, then you can buy them back and earn your profits minus the commission. If the news is positive, you can go long or purchase a company’s shares and then sell them later.
Stock news is very important in trading; you can expect the market to become volatile as soon as great news comes that people were waiting for. So as a news trader, your goal is always to be on the right side of the news to make a profit.