Day Trading Strategies For Beginners

by Justin Kuepper,
FREE Forex Report - The 5 Things That Move The Currency Market (Contact Author |
Biography)
Email Article
Print
Feedback
Reprints
Share
Filed Under: Active Trading, Technical Analysis

When people use the term "day trading", they mean the act of buying and selling a stock
within the same day. Day traders seek to make profits by leveraging large amounts of capital
to take advantage of small price movements in highly liquid stocks or indexes. Here we look
at some common day trading strategies that can be used by retail traders.
Tutorial: An Introduction To Technical Analysis

Entry Strategies
Certain stocks are ideal candidates for day trading. A typical day trader looks for two things
in a stock: liquidity and volatility. Liquidity allows you to enter and exit a stock at a good
price (i.e. tight spreads and low slippage). Volatility is simply a measure of the expected daily
price range - the range in which a day trader operates. More volatility means greater profit or
loss. (To learn more, see Day Trading: An Introduction or Forex Trading Walkthrough.)
Once you know what kind of stocks you are looking for, you need to learn how to identify
possible entry points. There are three tools you can use to do this:

Intraday Candlestick Charts - Candles provide a raw analysis of price action.

Level II Quotes/ECN - Level II and ECN provide a look at orders as they happen.

Real-Time News Service - News moves stocks. This tells you when news comes out.

We will look at the intraday candlestick charts and focus on the following three factors:

Candlestick Patterns - Engulfings and dojis

Technical Analysis - Trendlines and triangles

Volume - Increasing or decreasing volume

There are many candlestick setups that we can look for to find an entry point. If properly
used, the doji reversal pattern (highlighted in yellow in Figure 1) is one of the most reliable
ones.

Figure 1 - Looking at candlesticks the highlighted doji signals a

reversal.
Typically, we will look for a pattern like this with several confirmations:
1. First, we look for a volume spike, which will show us whether traders are supporting the
price at this level.Note that this can be either on the doji candle, or on the candles
immediately following it.
2. First, we look for a volume , which will show us whether traders are supporting the price at
this level. Second, we look for prior support at this price level. For example, the prior low of
day (LOD) or high of day (HOD).
3. We look at the Level II situation, which will show us all the open orders and order sizes.
If we follow these three steps, we can determine whether the doji is likely to produce an
actual turnaround, and we can take a position if the conditions are favorable. Typically, entry
points are found using a combination of these three tools. (For more see the Charting Section
of the Forex Walkthrough.)
Finding a Target

Identifying a price target will depend largely on your trading style. Here is a brief overview
of some common day trading strategies:
Strategy

Description

Scalping

Scalping is one of the most popular

strategies, and it involves selling almost
immediately after a trade becomes
profitable. Here the price target is
obviously just after profitability is
attained.

Fading

Fading involves shorting stocks after

rapid moves upwards. This is based on
the assumption that (1) they are
overbought, (2) early buyers are ready to
begin taking profits and (3) existing
buyers may be scared out. Although
risky, this strategy can be extremely
rewarding. Here the price target is when
buyers begin stepping in again.

Daily Pivots This strategy involves profiting from a

stock's daily volatility. This is done by
attempting to buy at the low of the day
(LOD) and sell at the high of the day
(HOD). Here the price target is simply
at the next sign of a reversal, using the
same patterns as above.
Momentum This strategy usually involves trading on
news releases or finding strong trending
moves supported by high volume. One
type of momentum trader will buy on
news releases and ride a trend until it
exhibits signs of reversal. The other type
will fade the price surge. Here the price
target is when volume begins to
decrease and bearish candles start
appearing.

You can see that, although the entries in day trading strategies typically rely on the same tools
used in normal trading, the exits are where the differences occur. In most cases, however, you
will be looking to exit when there is decreased interest in the stock (indicated by the Level
II/ECN and volume). (For further reading, see Introduction To Types Of Trading: Momentum
Traders and Introduction To Types Of Trading: Scalpers.)
Determining a Stop-Loss
When you trade on margin, you are far more vulnerable to sharp price movements than
regular traders. Therefore, using stop-losses is crucial when day trading. One strategy is to set

two stop losses:

1. A physical stop-loss order placed at a certain price level that suits your risk tolerance.
Essentially, this is the most you want to lose.
2. A mental stop-loss set at the point where your entry criteria are violated. This means that if
the trade makes an unexpected turn, you'll immediately exit your position.
Retail day traders usually also have another rule: set a maximum loss per day that you can
afford (both financially and mentally) to withstand. Whenever you hit this point, take the rest
of the day off. Inexperienced traders often feel the need to make up losses before the day is
over and end up taking unnecessary risks as a result. (To learn more, see The Stop-Loss Order
- Make Sure You Use It.)
Evaluating and Tweaking Performance
Many people get into day trading expecting to make triple digit returns every year with
minimal effort. In reality, around 80% of day traders lose money. A recent (January 2005)
behavioral finance study of the Taiwanese stock market conducted by professors at the
University of Taipei and the University of California suggests that "less than 20% of day
traders earn profits net of transaction costs". Most of these people would be better off putting
their money on the roulette table than using it for day trading! However, by using a welldefined strategy that you are comfortable trading, you can improve your chances of beating
the odds.
How do you evaluate performance? Most day traders evaluate performance not so much by a
percentage of gain or loss, but rather by how closely they adhere to their individual strategies.
In fact, it is far more important to follow your strategy closely than to try to chase profits. By
keeping this mindset, you make it easier to identify where problems exist and how to solve
them.
Conclusion
Day trading is a difficult skill to master - well over 50% of those who try it fail. But the
techniques described above can help you create a profitable strategy and, with enough
practice and consistent performance evaluation, you can greatly improve your chances of
beating the statistics.
by Justin Kuepper (Contact Author | Biography)
Justin Kuepper has many years of experience in the market as an active trader and a personal
retirement accounts manager. He spent a few years independently building and managing
financial portals before obtaining his current position with Accelerized New Media, owner of
SECFilings.com, ExecutiveDisclosure.com and other popular financial portals. Kuepper
continues to write on a freelance basis, covering both finance and technology topics.
DIFFERENT TRADING STRATEGIES :We can categorize or divide our strategies as per different time frames &
situations for better understanding.
1. MORNING 30-MINUTES STRATEGY.
2. TRADES AFTER MORNING TRADES.

3. TRADES DURING QUARTERLY RESULTS.

4. GAP OPENINGS OF MARKET.
* MORNING 30-MINUTES STRATEGY *
This strategy is based on understanding the moves of the BROKER.
( sentiments )
If you track the Close price you will wonder the Open price of the trade day is not
always the same as that of the previous days Close price. It is because the major
brokers (BIG TRADERS) according to the sentiments lay a trap in which small
traders get trapped and run into losses. If we understand the brokers mind we
can make profits 90 % times in normal market in the first 3 to 30 minutes of
trading.( Remember you should close your positions in this time frame )
Take the following figures and trade plan with you on the basis of calculations
given below. We will call it Brokers Strategy ( BS )
Difference between HIGH & LOW of previous day i.e.: D = ( H L )
Now BS = D / 3
BUY PRICE = ( Pr. Close BS )
SELL PRICE = ( Pr. Close + BS )
For understanding the BS one should understand the following..
STRONG SHARE or STRONG CLOSE (close price is higher than previous close) &
WEAK SHARE or WEAK CLOSE ( close price is lower than previous close )
Now on the basis of above calculations you are ready with the figures i.e.: BUY
PRICE, Pr. CLOSE & SELL PRICE of STRONG SHARE & WEAK SHARE separately.
Now on trade day if STRONG share opens anywhere between Pr. Close & BUY
PRICE you can BUY first & keep for sell @ SELL PRICE as your target.
The Trap :- As the broker opens the share at a price lower than Pr. Close one gets
the feeling as if the share has become weak and sells it, thus falling in the trap.
On trade day if WEAK share opens at or above SELL PRICE you can SELL first &
buy later @ BUY PRICE as your target.
The Trap :- As the broker opens the share at a higher price than the Pr. Close one
gets the feeling that the share has become strong and buys it thus falling in the
trap.
Note: For this strategy Preferably take shares with high volumes & less
volatility(not operator driven stocks). This strategy will not work in GAP
OPENINGS. This strategy requires you to be very fast in taking decisions and
accordingly positions. Furthermore One should compulsorily come out or close
the position in the mentioned time frame. Life is not that easy and if you find
that your position was wrong immediately square it ( close it)
REMEMBER TO CLOSE POSITION WITHIN THE TIME-FRAME MENTIONED
FEEDBACKS WELCOME
STRATEGIES ( FORMULAE ) FOR INTRADAY TRADING
by..intradaySuRe.

The intraday movements of share prices are generally governed by Support &
Resistance levels. The intraday volume, OPEN, HIGH, LOW, CLOSE & previous
CLOSE prices are very important & one should track these prices daily. Previous
data of 3 to 5 days is what is to be maintained or tracked. And the intraday data
prior to the trading day is important.
OPEN ( O ) : The opening price for the particular day.
HIGH ( H ) : The highest price for the particular day.
LOW ( L ) : The lowest price for the particular day.
CLOSE ( C ) : The closing price for the particular day.
We can calculate the support & resistance levels for the next trading day with
the help of above prices. The basic formula to calculate the various
support(S1,S2,S3) & resistance ( R1,R2,R3 ) levels is as follows :Support & Resistance Levels
R3 = H + 2 * ( B L )
R2 = B + ( H L ) or B + ( R1 S1 )
R1 = ( B * 2 ) L
BASE = B = ( H + L + C ) / 3
S1 = ( B * 2 ) - H
S2 = B ( H L ) or B ( R1 S1 )
S3 = L { 2 * ( H B ) }
Mostly traders worldwide use above formula of Support & Resistance both for
intraday trading as well as Delivery based trading. The general intraday
interpretation of these levels (also called as PIVOT POINTS ) is if the Share
price(or market) is above the BASE one should take a Long ( i.e. Buy ) position
with target of exiting (Selling) at R1, R2, R3 levels. Similarly if the Share price (or
market ) is below the BASE one should take a Short ( i.e. Sell ) position with the
target of exiting ( Buying ) at S1, S2, S3 levels.
YOU have to understand one more important aspect of these levels. As the price
moves from one level to other the immediate lower level becomes support &
immediate upper level becomes resistance. Suppose the price is above R1 than
R1 becomes immediate support & R2 becomes immediate resistance of the price
movement.
Before understanding the different Strategies, we will take a look at the results of
a very long term study of more than 10 yrs.
Actual LOW is lower than S1.......... 43 % times.
Actual HIGH is higher than R1......... 43 % times.
Actual LOW is lower than S2......... 17 % times.
Actual HIGH is higher than R2......... 17 % times.

Actual LOW is lower than S3......... 3 % times.

Actual HIGH is higher than R3........ 3 % times.
Now just apply your mind to interpret the findings of above study to help you
decide ENTRY & EXIT points for your BUY or SELL positions.
THIS FORMS THE BASIS OF YOUR UNDERSTANDING THE MARKET &
INTERPRETTING IT BETTER & ALSO GRASPING MY DIFFERENT STRATEGIES.
POWER OF 3 :As a trader always remember 3 is a very important number.
3 sec., 3 min., 3 hrs, 3 days, 3 months , 30 % etc. and so on.
Some basics for a novice trader :
Intraday as the term itself is self explanatory is the position you take and clear
on the same trading day.
As a general understanding of trading people feel that they have to first buy
something to sell it later at profit.
But in intraday trading you can SELL a share even if you dont have it with you.
This is termed as SHORT SELL. i.e.: You sell suppose 100 XYZ share @ Rs. 250 ,
here if the price comes down to say 220 and you buy back the 100 XYZ shares.
Your transaction is complete. 250-220=30. And 30*100=3000 Rs is your profit.
i.e.: Short sell is exactly opposite of the buy first and sell later transaction.
SHORT SELL transaction has to be compulsorily completed by buying back the
equivalent no. of shares on the same trading day.
General but IMPORTANT for all :
REMEMBER INTRADAY TRADING IS A MINDGAME. There are many strategies one
can apply to make profits daily in intraday trading as per my experience,
observations & understanding. These strategies have been categorized or you
can say designed on the basis of different TRADE TIMES, SITUATIONS, MARKETS,
& SHARES. As discussed Mostly traders worldwide use above formula of Support
& Resistance both for intraday trading as well as Delivery based trading short
term & long term. So my advice would be to refer the support & resistance levels
along with the various recommended strategies by me.
Although one can apply different strategies for different trades, I would suggest
traders to select one strategy, which they are comfortable with, as per the
mindset, personality & risk taking capacity.( i.e.: either BUYING strategy or
SHORT SELLING strategy. A simple reason is that you cannot be two persons at
one time, or you cannot have two views at a time.) Once you master one
strategy, you can practice another and apply. YOU can also make profits forever
by sticking to one strategy forever.
A little study or homework is compulsory to be successful and self sufficient,
independent trader.
DIFFERENT TRADING STRATEGIES :We can categorize or divide our strategies as per different time frames &
situations for better understanding.
1.
2.
3.
4.

MORNING 30-MINUTES STRATEGY.

TRADES AFTER MORNING TRADES.
TRADES DURING QUARTERLY RESULTS.
GAP OPENINGS OF MARKET.

* MORNING 30-MINUTES STRATEGY *

This strategy is based on understanding the moves of the BROKER.
( sentiments )
If you track the Close price you will wonder the Open price of the trade day is not
always the same as that of the previous days Close price. It is because the major
brokers (BIG TRADERS) according to the sentiments lay a trap in which small
traders get trapped and run into losses. If we understand the brokers mind we
can make profits 90 % times in normal market in the first 3 to 30 minutes of
trading.( Remember you should close your positions in this time frame )
Take the following figures and trade plan with you on the basis of calculations
given below. We will call it Brokers Strategy ( BS )
Difference between HIGH & LOW of previous day i.e.: D = ( H L )
Now BS = D / 3
BUY PRICE = ( Pr. Close BS )
SELL PRICE = ( Pr. Close + BS )
For understanding the BS one should understand the following..
STRONG SHARE or STRONG CLOSE (close price is higher than previous close) &
WEAK SHARE or WEAK CLOSE ( close price is lower than previous close )
Now on the basis of above calculations you are ready with the figures i.e.: BUY
PRICE, Pr. CLOSE & SELL PRICE of STRONG SHARE & WEAK SHARE separately.
Now on trade day if STRONG share opens anywhere between Pr. Close & BUY
PRICE you can BUY first & keep for sell @ SELL PRICE as your target.
The Trap :- As the broker opens the share at a price lower than Pr. Close one gets
the feeling as if the share has become weak and sells it, thus falling in the trap.
On trade day if WEAK share opens at or above SELL PRICE you can SELL first &
buy later @ BUY PRICE as your target.
The Trap :- As the broker opens the share at a higher price than the Pr. Close one
gets the feeling that the share has become strong and buys it thus falling in the
trap.
This strategy requires you to be very fast in taking decisions and accordingly
positions. Furthermore One should compulsorily come out or close the position in
the mentioned time frame. Life is not that easy and if you find that your position
was wrong immediately square it ( close it)
Note :- The BUY PRICE as per above calculation is approximately S1
& The SELL PRICE as per above calculation is approximately R1
* Some more morning strategies :.
* Some more morning strategies :.
A ) SHORT SELL :- ( sell first & buy later )

OPEN & HIGH IS SAME.

Sell just below HIGH price if it is not breaking the high price for 3 minutes.
Example : If O-H is 110 sell @ 109 with a SL ( stop loss ) just above HIGH.
Best results are observed if :a) Market is Bearish ( weak )
b) O-H rate is near or above SELL PRICE i.e.: ( pr. Close + BS )
c) O-H rate is @ or near R1, R2, R3
d) Share price has gained 10-30% in previous 1-3 trade days.
e) Weak share but O-H rate is @ or near R1, R2, R3
B ) BUYING :- ( buy first & sell later )
1. OPEN & LOW IS SAME..
Buy just above LOW price if it is not breaking the low price for 3 minutes.
Example : If O-L is 100 buy @ 101 with SL ( stop loss ) just below LOW.
Best results are observed if :a) Market is Bullish ( strong )
b) Pr. Close is Strong ( i.e.: it is a strong share )
c) O-L is near or below Pr. Close
d) O-L rate is near or below BUY price or @ S1, S2, S3
2. STRONG SHARE :- ( i.e.: strong close pr. day )
BUY if :-..
a) OPEN is @ BUY price.
b) OPEN is same as pr. Close.
c) OPEN & LOW is same, as discussed above.
d) OPEN is just above pr. Close but far below SELL price.
Best results if market is bullish. Keep the target of getting out @ SELL price, or @
R1, R2, R3 if it is showing strength & volume is more than pr. Day.
PLEASE REMEMBER : 1) AS A INTRADAY TRADER YOU SHOULD NOT FIGHT WITH
THE MARKET. BE READY TO ACCEPT A SMALL DEFEAT RATHER THAN MAKING IT A
BIG FAILURE.
2) IT IS NOT A EASY GAME. UNDERSTAND IT . ALWAYS ANALISE SUCCESS &
FAILURE FOR EVERY POSITION YOU TAKE.
3) Select a strategy. Do the homework before trading for that strategy only. Don't
mix other strategy with it. PAPER-TRADE.for few days sincerely(the more time
you take the better)......than start with small qty. for a period of say a month(do
not overtrade your limits).......once your success for your strategy is 7080%.........than increase qty in steps again. .....DO NOT OVER RISK.......YOU
CANNOT CHANGE THE MARKET ....ALL YOU CAN CHANGE IS
YOURSELF......TOWARDS SUCCESS.
4) Once you get the feel of price movements , how and why they happen....then
YOU may take additional guidance of any softwares (NOT MANDATORY)
5) YOU CAN MAKE MONEY BY STICKING TO ONE STRATEGY FOREVER
ALSO.......NEWER FORGET THIS.........SO.......JUST KEEP A AIM TO MASTER ONE
STRATEGY.......AND LOOK FOR OPPORTUNITIES ....FULFILLING THE CRITERIA OF
YOUR STRATEGY