There are many different day trading strategies that people use to trade in the markets. Here are some of the most common and basic ones.
Scalping is a very common day trading strategy as it employs a ìget in and get outî type of mindset towards trading. Basically, day traders who follow the scalping method look to sell once the trade starts to show profitability.
Another of the basic day trading strategies is daily pivots, which looks to profit from the daily volatile trends in a particular market. For example, a day trader following this strategy would attempt to buy at the lowest price point during the day, and then sell at the highest price point during the day. These are often referred to as (LOD) low of the day, and (HOD) high of the day.
Known as a risky strategy, fading is the act of shorting stocks once they start to experience rapid gains. The main theory behind fading is that the stocks are over-purchased and many early traders will be looking to sell. Fading can be very profitable when used at the right times, but also comes with many dangers.
If the thought of riding trends interests you, then momentum trading could be the strategy for you. Day traders who employ this method keep a close eye on current news releases, and are always on the lookout for trends which are being supported by a high volume of trades. They will continue to ride these waves until signs of reversal start to become apparent.
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Day trading is very prone to sharp price movements, which is why the use of stop losses is beneficial in order to avoid huge losses in a short amount of time.
The first type of stop loss is a physical stop loss order, which is set at a price which you are prepared for the trade to drop down to. Basically, this is the amount you are willing to lose on any one trade.
The second type of stop loss is mental stop loss, which is set to come into play if the entry criteria is violated. In simple terms, this means that if your trade were to make a sudden and unforeseen turn, then you will get out of the trade straight away.
Evaluating a Day Trading Strategy
A lot of beginner day traders think that a day trading strategy is going to be the magic wand that makes them rich with a minimum amount of effort. In other words, they falsely believe that a strategy will do the work for them.
Actually, the main secret of successful day traders is that they are constantly evaluating and tweaking their strategies, and also adding elements from other strategies into their plan. This takes work and constant trial and error, and is far from being the easy road to riches.
Many elite day traders end up with their own unique day trading strategy, which they have honed and perfected over years of testing, and has shown consistent profits in a variety of market conditions.