Day trading is a term used to describe the daily buying and selling of stocks. The basic rule here is to buy stocks when prices are low and sell them at a higher price to maximize profits. Different trading strategies will help you maximize profits, Keep reading to find out more and Let us know more detail about ‘Day Trading Strategies’.
Day Trading Strategies
There are different types of day trading strategies that traders utilize. Some of them include momentum, scalping, pull back, breakout, and news trading strategy.
Types of Day Trading Strategies
1. Momentum Strategy
A treader who adopts this strategy buys only stocks whose price is increasing with speed. It is very difficult to spot momentum stocks. However, if you wish to work with this strategy, below are qualities you must look out for.
- A significant shift in price as a result of unexpected earnings growth.
- Smaller stocks selling out fast due to a rapid reduction in the number of available shares.
- Trading tips and trends from financial communications platforms such as StockTwits or the likes.
To prevent excessive losses, you can set a stop-loss to serve as insurance. If you set up a stop loss, shares placed on sale will get sold automatically if paraventure price of the share starts to decline. With this strategy, you will be protected from additional losses.
2. Pullback Strategy
If you wish to adopt this strategy, the first step will be to source stocks with a recognized trend. After you have discovered the stock, the next step is to relax and keep an eye on the trend until the price of the stock starts to drop. If the trend previously recognized or established is upward, then the price decline is an indication to buy. This period of decline is the entry point of a day trader.
To fully understand the market trends, traders develop and study technical charts. Before an uptrend is established, high price movements must be noticed on at least two successful occasions before a price decline. And to establish a downtrend, a decreasing price must be recorded two times in a row. If the trend reverses completely after you buy the shares, all you need to do is relax and wait for things to normalize. Established trends usually maintain their course for a long period.
3. Scalping Strategy
A scalper believes that numerous small wins are equal to a big win. He therefore concentrates on making numerous profits. This strategy is fast. A seasoned trader adopting this strategy can perform several trades within a few minutes. Scalping trading is one of the best strategies most suitable for traders who can make a fast, confident, and rational decision. Traders who fall under this category are disciplined and have trained their minds to have a razor-sharp focus. Once a price decline is noticed, they sell off immediately to prevent excessive loss. If you are a trader who lacks focus and is easily distracted, this day-trading strategy will not work for you.
4. Breakout Trading
Breakout trading is a type of trading that happens when the price of a share increase beyond the previous top resistance price. Contrary to what most people think, this strategy is not as easy as monitoring the chart, identifying the resistance price, and making purchases after a breakout. To be successful at breakout trading, you must keep an eye on stock trading volume.
The reason for this is that breakouts traded on high volumes are more likely to be viable than breakouts with lesser volume. Lower-volume breakouts may experience a steady decline below the previous resistance level. Thus making it difficult for you to record a profit. Most times, after the stock hits the resistance level, a pullback is experienced until a catalyst is introduced to the trade.
5. News Trading
It is common knowledge that stock prices are easily affected by events or news. A silly report can cause the price of a stock to either rise above normal, or fall below normal. The news trading strategy prioritizes business and investment news. Hence traders who adopt this strategy banks
focus on the trending news and stories in the stock market.
If the news is bad, you might make a lot of profits by borrowing shares from an investment company. If the prices of the borrowed shares rise, you can sell off the shares and make profits. However, if the price of a borrowed stock reduces, you can still buy it back. Not only can you make good profits by buying back the stocks at a lower price, but you can also benefit from commission payments. Hence, a news trader buys when the news says you should and sells when the news says sell.
Conclusion
All of the strategies discussed above are profitable strategies. However, one strategy might not be suitable for everyone. Hence, the trick here is to discover which of these strategies works best for you and stick to it.
Frequently Asked Questions
- Which strategy is best for day trading?
There are numerous day trading strategies a trader can adopt. But among these, the best strategies include Momentum trading, Scalping strategy, Pull back trading, Breakout trading, and News trading.
- Can you make a living through day trading?
Yes, you can make a living through trading. Day trading provides you the opportunity to make money remotely and flexibly. And most times, it pays better than your regular job.
- What is the easiest way to day trade?
Although trading might be difficult and demanding, it gets easier when you follow the rules and adopt the right strategy. To make trading easy, become an expert in a few stocks rather than trying to jumble everything at the same time.
