Day Trading Strategies & Techniques

day trading strategies and techniques

Choosing a Trading Strategy
There are many day trading strategies and techniques out there. With so many styles and systems out there, it might be difficult in choosing one that best suits you.

Deciding what type of trading style you are going to use is a must and it needs to be implemented into your trading plan. The type of trading style you choose all depends on your personality and what works best for you.

By choosing the trading system that best suits your personality, you will have a better chance of being a profitable trader.

If you are a new trader or even one with more experience and feel as though you have not found your trading style, then keep paper trading until you find a day trading technique that fits you best.

List of Day Trading Strategies – Trading Styles

There are dozens of day trading strategies and styles out there. Lets take a look at some of the most common day trading strategies that can be used by traders. Note: this is not a complete list of day trading strategies and styles.

⇒ Trend Following
In the trend trading strategy, a trader seeks to enter a position in the direction of an existing trend that the stock is heading. This may include entering in a short or long position, depending if a stock is trending upwards or downwards.

Traders that use this strategy ride the trend for as long as possible and when the trend reverses this signals the trader to exit the trade. This trading strategy can work for day traders and swing traders as well.

⇒ Momentum Trading
In momentum trading, traders look for stocks that is in motion in one direction on high volume and try to jump on board to ride the “momentum train” to reach profits. This may include going long or short in a position.

Momentum traders may hold their positions for a few minutes, a couple of hours or even the whole trading day, depending on how quickly the stock moves and when it changes direction.

Momentum traders looks for a stock that is moving significantly on high volume and ride it until it shows signs of reversal. For example, a stock could be quickly sent in motion by some news about company, an analyst upgrade/downgrade or anything else.

⇒ Scalping
Scalping is a trading strategy that looks to profit on small price changes. Their purpose is to buy (or sell) large amount of shares in blocks at the bid (or ask) price and then quickly sell them a few cents higher (or lower) for a profit.

Traders that use this strategy are known as “scalpers” and try to gain a small profit from each trade by exploiting the bid-ask spread in the belief that small moves in stock price are easier to catch than large ones.

Scalpers might make dozens or a couple hundred trades in a single day. This trading strategy can work as many small profits can easily add up throughout the day if the trader has a strict exit strategy to prevent large losses.

⇒ Fade or Capitulation Trading
Also known as “fading” or capitulation trading, this trading strategy is used when a stock is at a capitulation point. A trader would sell short when a price is rising and buy when it’s falling.

For example, when a stock has risen very rapidly after a huge move, a trader might use this strategy, which involves shorting a stock after it looks like the stock is at its peak after the huge move upwards.

Conversely, this strategy is also used after a rapid decline in a share price of a stock, where a trader will buy up shares that may seem like a bottom.

Traders that use this strategy might believe a stock is (1) overbought and profit taking will take place after the huge move up or (2) oversold after the stock price has fallen rapidly due to panic selling. After these conditions have occurred the trader believes the price of the stock will soon turn direction. This strategy can be very high risk, but it does have high reward if the trade works out.

The Bottom Line

So which day trading system is right for you? It all depends on your personality and what works best for you.

Some traders are able to figure out a trading style that best suits them right away, while others can take quite some time to find a trading style that best suits them.

Choosing the trading style that suits you best is absolutely necessary for the long term success as a professional trader.

If you can’t figure out a trading style, the best thing to do is keep getting educated and keep paper trading. Test out different trading styles until you determine one that works best for you.

Once you have found a trading style that works for you, you should always trade within your own trading style. Do NOT go off testing another trading style or some other day trading strategies. Never jump from one trading style to another.

Keep learning and getting better at one method of trading. Master one style rather than become average at implementing several styles.

If you wonder off from your trading style it will take your focus away from other setups that meet your trading criteria.

Sure, it might work a few times, but trading is all about odds, and odds are if you are off doing other day trading strategies that you are not familiar with, most of the time you will end up losing money.