Rookies Day Trading Strategies

Published on this site: November 1st, 2006 - See more articles from this month

To succeed in anything, one must have a plan of action so he will know what to do in case a matter of concern comes up. An architect has floor plans to properly construct a building. A professional ballgame team has different gameplans to win against different opponents. In short, one must have strategies to succeed, particularly in endeavors that are volatile in nature.

To succeed in day trading, a trader should have very specific strategies that tell him when to buy, when to sell, how to deal with losses and gains, and the amount to risk per trade. Strategies that are too general help traders mess up! Thus, strategies should be objective, not subjective.

Traders should also remember that there is no ideal strategy to address day trading concerns. Strategies succeed if they are implemented with high degrees of discipline. Traders need to be very patient and practice a strategy before declaring that it works or not.

So what strategies can help you succeed in the field of day trading?

1. Identify Possible Entry Points
   
   After knowing what kind of stocks you want to trade, use the following tools to identify possible entry points:
   
   
   • Intraday Candlestick Charts - give analysis of price action
     
   • Level II Quotes/ECN - provide real time looks at orders
     
   • Real Time News - provide real time news regarding targets
     
     
2. Find a Price Target
   
   Use the following strategies to help you find your target price:
   
   
   • Scalping - involves selling the moment a trade turns profitable. The target price is determined after success is ensured.
     
     
   • Fading - shorts stocks after rapid upward moves. This is based on the assumptions that
     
     
     1. stocks are overbought,
        
     2. early buyers are ready to earn their profit, &
        
     3. existing buyers may be turned off by these transactions.
        
        

     The price target here is when buyers start to give offers for purchase again.
     

   • Daily Pivots - profiting by buying at the low of the day (LOD) and selling at the high of the day (HOD). The price target is during the next reversal.
     
     
   • Momentum - use this if you wish to trade based on news
     releases or strong trending moves supported by high transaction
     volume. Price target is when volume begins to decrease.
     
     
3. Know When to Exit
   
   Traders commonly exit trades if there is a decreased interest in the stock as indicated by Level II/ECN data and volume.
   
   
4. When to Set Up Stop-Losses
   
   Trading on margin makes you very defenseless against sharp price movements. Setting up stop-losses will protect you from that.
   
   
   • Set up 2 stop-losses - determine the maximum amount you can lose, (physical stop-loss), and determine the point/s when you will exit a trade due to violation of your entry criteria (mental stop-loss)
     
     
   • Establish a daily max loss level - if your losses reach your daily tolerable loss level, take the rest of the day off. Rookies tend to take unnecessary risks when they reach or go over their tolerable loss level and put themselves in deeper trouble.
     
     
5. Evaluate Your Performance
   
   Most day traders evaluate their performance for the day by checking how close they adhered to their personal strategies. This helps you train you to keep a proper mindset so that you can identify problem areas and know what to do with them.
   
   And a day trader should take note of the following strategies that will more or less help them stay afloat in the day trading market:
   
   
   1. Your profit objective should be at least 300% of your maximum loss level.
      
      
   2. Allow a maximum loss that is 2% of your float's value at entry point.
      
      
   3. Exit a trade if the futures make an intermediate lower high intraday,
      
      
   4. Exit a trade if your stock hits a new low for the day in long trades, or a new high for the day in short trades.
      
      
   5. Take your earnings when buyers are thinning out and momentum is fading.
      

Burt Cotton: http://www.online-currency-trading-net