A well-defined trading strategy is essential in day trading. Successful day traders use these simple tips to find stocks best suited to their trading strategies. The following day trading strategies explain how to reduce your risks and increase your chances of making money with day trading.
1) PICKING THE INSTRUMENTS
You should begin by deciding on your favored instruments for investment . You can choose:
- stocks
- indexes
- ETFs
- options
- commodities
- futures
Each instrument has its own quirks and risk levels. If you prefer to focus on an entire economic sector such as commercial real estate, then choosing sector-related ETFs is your best bet.
Please note that most ETFs show low beta, which means that large changes in the stock market will produce smaller changes in those ETFs.
High-beta ETFs that change a lot when the stock market rises or falls are better for day trading. You have to be careful when picking your trading strategy.
2) STOP-LOSS ORDERS IN DAY TRADING
Without stop-loss orders it is like walking on a tight wire without a safety net. A serious fall can hurt you badly.
Before you accept an investment, set up a stop-loss order to prevent the possibility of losing all your money before you realize what is happening.
Moving averages and pivot points are good indicators for stop-loss orders.
This is a very popular trading strategy.
3) REAL TIME NEWS
One of your most important tools for seeking profits and avoiding losses is a reliable source of real-time news.
Impressive numbers of stock-market traders jump every day on the latest news as the basis for deciding to buy new instruments or to sell their current holdings, which means that even a few seconds may make the difference between making money and losing money.
Events that instantly affect the stock market may include:
- Report on general economic activity from a government or private agency
- Press release about a company’s current earnings
- Policy change at the Federal Reserve
- Product or commercial-service announcement
- Significant political development in a major trading country
- A sudden natural disaster.
Subscribing to a penny-stock news-reporting service can be useful, but the quality and reliability of such services may vary greatly. Some day traders set up a suite of custom searches at a major search engine that returns a steady stream of relevant news.
4) TIME OVER SALES
Closely monitoring real-time sales data is critical.
If unusually large orders for an instrument appear at the current asking price or above it, then you can take advantage of this by entering longer positions.
Waiting for the strong demand behind this behavior to further increase the instrument’s asking price can result in a hefty profit.
Likewise, seeing unusually large orders at the current bid price or lower quite likely means it’s time to enter short positions and to abandon longer positions for that instrument.
This sort of potentially profitable event does not happen often, but patiently waiting for such opportunities is the most likely path to success with trading strategies.
5) CHART PATTERNS
Day traders often find chart patterns to be a proven tool for finding entry and exit points for investments. Reliability is improved if the chart patterns are used in combination with technical indicators such as the commodity-channel index (CCI), the rate of change (ROC), the relative-strength index (RSI) and the moving average.
Experienced day traders may also use a variety of other technical indicators. This is a famous trading strategy.
6) TECHNICAL INDICATORS
As mentioned, technical indicators are vital tools for day traders. These indicators show interesting trends that can be used by a smart trader to realize a solid profit from following complex changes in the stock market.
Carefully watching momentum indicators such as the moving average, RSI, ROC, CCI and others over brief periods of furious activity holds the promise of improved profits for virtually any short-term investor.
Naturally, knowing exactly when to enter and when to exit from an investment opportunity is the biggest factor in day-trading profitability.
A competent day trader will study longer-term market trends to gain an understanding of what shorter-term changes may mean. Investment instruments typically exhibit demand and resistance zones.
Examining a strong demand zone for a particular investment usually will reveal a good entry point for taking a long position.
Likewise, examining a strong resistance zone usually will show a good entry point for taking a short position. Paying close attention to such details can significantly reduce the risks and increase the potential upsides for your investments.
7) BEST TIME ENTRY
One of the most important trading strategies is the right time entry. The most efficient day trading entry tactic is sturdy support and getaway of strong resistance. The lowest risk entry point with the highest return opportunity is when the stock price hits strong support demand zone.
8) HAPPY EXITS
Your bank account can grow much larger if you use the right methods for your day trading. Keep in mind that your profits do not actually exist until you sell an investment to take the profits.
Unrealized profits from holding on to an investment can disappear at any moment. Strong-resistance, Fibonacci-number, 50MA or 200MA exit strategies all have been successfully used to sell investments in a timely fashion.
A SIMPLE CONCLUSION
No matter what day trading strategies you adopt, consistency is the key.
Make a plan, and stick with it.
Even penny-stock trading falls under the same rules. Traders who keep their hearts still and their eyes open will always do better than wild traders who don’t think first. Stay calm and focused, and you will find your way to wealth.