Trading strategies are one of the most important things to take care of if you want to start day trading. If you read or hear any of the big investors, you will learn that all of them work according to specific strategies. Each of them has their system & strategies which help them earn profit or minimize losses.
Many retail traders operate in the market without any knowledge and strategy; hence, they lose lots of money. Therefore, when you talk to any of the good traders, you will get to know that they have a specific style they follow regularly.
A consistent, effective strategy relies on in-depth technical analysis, utilizing charts, indicators, and patterns to predict future price movements. It would help if you found a broker who gives you all the tools to carry technical analysis with ease.
Before moving to strategies, you should try to practice some basic operations as a trader. Many retail traders think that nothing can stop them from making money if they understand highly complex technical indicators. And hence they shift focus from the basics of trading strategy, which leads to losses.
Therefore, we have mentioned some of the basics which are worth noting and took care of. We are not elaborating on the points as there is nothing to explain about them.
- Money Management
- Time Management
Components Every Strategy Needs
- Liquidity – This enables you to swiftly enter and exit trades at an attractive and stable price. Liquid commodity strategies, for example, will focus on gold, crude oil, and natural gas.
- Volatility – This tells you your potential profit range—the more significant the volatility, the greater profit or loss you may make. The cryptocurrency market is one such example well known for high volatility.
- Volume – This measurement will tell you how many times the stock/asset has been traded within a set period. For day traders, this is better known as ‘average daily trading volume.’ High volume tells you there’s significant interest in the asset or security. An increase in volume is frequently an indicator a price jump, either up or down, is fast approaching.
Binary Options Robot
Day Trading Strategies
Breakout strategy takes place when the price clears a certain level on your chart. In this form, a trader enters the trade when the asset price breaks the above resistance. Alternatively, you enter a short position once the stock breaks below support.
It would help if you found the right asset to trade; when doing this, keep in mind the resistance points of the purchase. The more frequently prices hit these points, the more critical trade becomes.
This part is nice and straightforward. Prices set to close and above resistance levels require a bearish position. Prices set to close and below a support level need a bullish position.
One of the most popular strategies is scalping. It’s prevalent in the forex market, and it looks to capitalize on minute price changes. The driving force is quantity. You will look to sell as soon as the trade becomes profitable.
This is a fast-paced and exciting way to trade, but it can be risky. It would help if you had a high trading probability to even out the low risk vs. reward ratio.
Be on the lookout for volatile instruments, attractive liquidity, and be hot on timing. You can’t wait for the market; you need to close losing trades as soon as possible.
Popular amongst trading strategies for beginners, this strategy revolves around acting on news sources and identifying substantial trending moves with high volume support.
There is always at least one stock that moves around 20-30% each day, so there’s ample opportunity. You hold onto your position until you see signs of reversal and then get out.
Alternatively, you can fade the price drop. This way round, your price target is as soon as volume starts to diminish.
This strategy is simple and effective if used correctly. However, you must ensure you’re aware of upcoming news and earnings announcements. Just a few seconds on each trade will make all the difference to your end-of-day profits.
Although hotly debated and potentially dangerous when used by beginners, reverse trading is used worldwide. It’s also known as trend trading, pull-back trending, and a mean reversion strategy.
This strategy means that you are going to trade against the trend. You are required to be accurate while using this strategy as this requires a lot of strength. To do this effectively, you need in-depth market knowledge and experience.
5. Using Pivot Points
Calculating Pivot Points
A pivot point is defined as a point of rotation. You use the previous day’s high and low prices, plus the closing price of a security, to calculate the pivot point.
Note that accuracy is often reduced if you calculate a pivot point using price information from a relatively short time frame.
So, how do you calculate a pivot point?
- Central Pivot Point (P) = (High + Low + Close) / 3
You can then calculate support and resistance levels using the pivot point. To do that, you will need to use the following formulas:
- First Resistance (R1) = (2*P) – Low
- First Support (S1) = (2*P) – High
The second level of support and resistance is then calculated as follows:
- Second Resistance (R2) = P + (R1-S1)
- Second Support (S2) = P – (R1-S1)
Binary Options Trading
Limit Your Losses
This is of utter importance if you are trading on margin. And many of the retail traders fail because of not keeping the stop losses. When you switch on margin, you are highly vulnerable to high price movement.
There is no doubt that if the price moves up, you’re going to get profit, but you will end up in heavy loss if the price goes below. That is why successful traders always advise putting stop-loss to every trade.
The stop-loss controls your risk for you. You have to learn technique to put SL in volatile market.
Your end goal is to earn profit whatever be the strategy, tool or technique. But keep in mind that the strategy used by you is the only thing that will make a profit or loss for you. Hence choose technique wisely. Stick to one system, don’t switch between different systems with every trade.
As we mentioned, discipline is the major requirement stated by all of the top traders. That’s why you are advised to be in discipline and opt for a single type of system. Which gives you profit in stocks will also give you profit in commodities as well.
So spent time learning and earning trust on a single type of strategy or system. Technical analysis plays an important role in each of your trades. At last, always keep yourself updated about the market and news, always stay open to new learning and give equal importance to basics and strategies.