Day trading Strategies – Part One

Only an immortal  trader would be able to accurately predict the sway of the stock market and win every trade.  Day trading strategies are since this is highly unlikely, we are left to rely upon our experience, knowledge, risk management assessment, and strategies of various trading styles to survive and prosper in an ever-changing, unpredictable market.  While consistency is very important to succeed in the stock market, it is just as detrimental to be flexible. 

Risks of Day Trading

Think of a tree with deep roots that is so stiff and solid during a howling wind that its trunk is unbending and snaps from the intense pressure. However, a small weed with roots will easily bend to the wind.  The difference is that it doesn’t snap, it isn’t uprooted, and it’s still there in the end.  The goal is to develop  systematic day trading strategies that works for your needs, meets your personal expectations, and brings about success as you define it.

Beginner Day Tradingday-trading-strategy-scalp-trading

The three basic styles are scalp, swing and core trading.  While all three of these day trading systems have consistent elements and characteristics that identify them, their core ideological structures goes very deep and beyond the basics. Even though you are likely to develop a particular style that you prefer, a good, solid education on all trading styles with the ability to use them interchangeably as needed brings an overall approach to stock trading.

Scalp Trading Methods

Scalp trading is a way of profiting from price fluctuations in the stock market, profitable for day trading.  These trades are usually fast and sometimes difficult to judge, lasting from seconds to mere minutes with only 0.125 to 0.5 point gains.  When just beginning, trade with small shares to reduce the cost of learning as you gain experience.  Think of it as baby steps.  Most people that put on skis for the first time, wouldn’t likely climb the highest mountain in Denver, Colorado before at east attempting a few beginner slopes.  Find a few your beginner trades before you jump into to the market full force with challenging profits in mind. This kind of adventure requires gaining experience the old-fashioned way through trial and error.  Due to the quick time frame of scalping, there are various levels of risk-rewards ratios and strategies used.  The best scalp traders have trained themselves to think quickly on their feet and to place numerous orders like second nature.  Hesitation is  always a risky cost in the stock market, but even more so when scalp trading. Before you even begin a scalp trade, do your research on what’s happening in the market.

Once you’ve narrowed the market down to a few possible targets, check the daily chart for resistance levels.  If it’s only ¼  to one point away, abandon this target and find another one. You want a target trade with more leeway than that. Remember that you are looking for opportunities with low risk and high earning probabilities.  A trade already near the resistance point greatly decreases your profitability. By now you realized that charting is very important and necessary to determine your trades, market trends and what steps you want to take next.  You must have access and take the time to review the entire chart so that you can see exactly how the up-to-minute trades are affecting the stock. Be sure to check out the following issues:

  • Today’s highs and lows yesterday’s highs and lows
  • Gaps from yesterday’s closing price to today’s opening price
  • Include yesterday’s critical pivot areas

When scalp trading, only risk as much as 0.125 spread or less.

This reduces your risk, especially if you are inexperienced or uncertain of where the stock is heading. Such trading strategy is designed to win a fast profit and exit quickly.  It’s very necessary to capitalize on breakouts and breakdowns while they are in full momentum.  Scalping is an attractive trade to many because the risks are smaller.  While this may seem logical and cautious, scalp trades happen very quickly and add up during the day.  These small risks in multiple numbers turn into huge losses once they are calculated into one large lump sum. There are a few strategies to consider when setting up a scalp trade. Try your best to consolidate near the day’s high.  This may not be possible early in the morning, but toward the afternoon as market fluctuations occur, good spikes appear on the charts, ripe for scalping profits.  As the stock moves, you should follow sideways in a steadfast manner. You have the option of buying on the breakout point at 0.125 point above resistance, which is probably easier.  Your other choice is to buy right before the breakout, but this step is more difficult and requires precise timing.  If you are too early, you risk the possibility of the stock reversing.  One guaranteed strategy would be to buy only half your planned lot size before the breakout, and the other half at the breakout moment.  When you make a profit, you can sell the first half.  If possible, allow the other half to rise one or two levels higher.  This way you covered either way.

Stock Scalping Techniques

Whether you plan to scalp as a day trader full-time or part-time, use the following considerations to play your game:

Profit Objective – Gaining small profits on temporary price fluctuations that occur throughout the trading day.  Scalpers must have the ability to recognize the momentum of order flows, jumping in the trade right as the price fluctuates and  risking no more than the intended gain and then getting out fairly quickly. Otherwise, you risk prices moving against you.

Frequency – Since the profits in scalping tend to be smaller, the frequency of such trades are higher. This means that scalpers increase their commissions by performing more trades. Resist the temptation to over trade, especially if you aren’t 99.9% sure of making a consistent profit.

Time Intervals – Generally, scalp trades only last from a few seconds to a few mere minutes.  They can last as long as a couple of hours at the most, but this is more rare.

Order Placement – The success of scalping tends to evolve around placing the orders. Because scalping is a very fast process, your ability to get in and out of a trade is detrimental for making a profit.  You must be able to think quickly and act with speed.

Software & Network Connection – Again, speed is of the essence.    If you don’t have a fast enough connection to the Internet to gain access, expedite orders, and receive timely information in real-time, you are defeating your purpose of scalping and probably losing money, or else you could be profiting more.    Likewise, your software program should be efficient and fast in making calculations, producing charts for viewing and toggling to screens without delay.  You can’t  make fast, effective decisions if you don’t have timely access to the information on which you are making decisions.

Competition– Specialists and market makers representing themselves and huge multi-million dollar corporations are not only equipped with the latest cutting-edge technology, but they are very intelligent, savvy individuals who happen to be  your competition.

Sometimes an overcrowded market leaves very few slices of the pie.  As there are a few favorable conditions to look for when scalping, adhere to the don’ts below:

Don’t be Biased – Refrain from making market determinations without sufficient evidence.      Let the market show you what it’s  going to do.    Analyze the factors that may or may not prevent a stock from going in one direction or the other.   Stay neutral and watch things closely so that you will be prepared to take action as soon as the direction of the market becomes clear.

Don’t Chase – Tracking the progress of moving prices is not the same thing as chasing it.  Keep your position if a stock suddenly moves several levels.  The larger a leap, likelier the fall. You don’t want to be caught in this thunder twist. Don’t Bring Home a Scalp Trade – Scalping is too quick and over night changes completely unpredictable.  Before the end of the day, take your profits and cut your losses where they are. Tomorrow is a different day, and a different game.