DAY TRADING STRATEGY: Proven Techniques for Profitable Day Trading (2024 Guide for Beginners)

By TYLER FRANKLIN

"Day Trading Strategies" is your comprehensive playbook for mastering the art of day trading, offering a diverse range of proven techniques and strategies to help you navigate the dynamic world of day trading with confidence and success. Whether you're a novice trader or an experienced investor looking to enhance your trading skills, this book p

• Language: English
• Publisher: TYLER FRANKLIN
• Release date: Apr 4, 2024
• ISBN: 9783689440718

TYLER FRANKLIN

Tyler Franklin is a seasoned day trader with extensive experience in the financial markets. He has successfully navigated the complexities of day trading and is passionate about sharing his knowledge with beginners to help them achieve profitability and success in their trading endeavors.

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Introduction

Mastering all three elements is crucial in day trading. While some approaches solely rely on technical indicators such as VWAP and Moving Average, a comprehensive understanding of price action and chart patterns is highly beneficial for achieving profitability as a day trader. Gaining expertise in price action requires consistent practice. As a day trader, it’s imperative to disregard factors like a company’s revenue, mission, or vision. Instead, your focus should be solely on chart patterns, technical indicators, and price action.

Successful day traders avoid blending technical analysis with fundamental analysis, with a predominant emphasis on technical aspects. The catalyst, or the reason behind a stock’s movement, is pivotal. Whether it’s a tech company securing patent approval or a pharmaceutical company successfully completing crucial clinical trials, identifying such catalysts is essential for grasping the market dynamics.

Avoid getting bogged down by revenue papers or participating in conference calls unless you have a long-term investment perspective. Day trading demands quick decisions, sometimes within time frames as short as 10 to 30 seconds, allowing for substantial profit. In fast-moving markets, being strategically positioned is vital for capitalizing on profits while minimizing risks.

With countless day traders employing diverse strategies, each trader must develop their unique approach and competitive edge. Finding a comfortable niche in the market is crucial. Emphasizing day trading strategies is paramount, given their proven efficacy. While these strategies may seem basic in theory, mastery demands considerable practice and effort.

It’s essential to recognize that over 60% of market volume is dominated by algorithmic trading. Day traders often find themselves competing against computers, and while occasional luck may come into play, supercomputers generally have the upper hand. Trading against computers implies that most stock changes are driven by algorithmic movements. However, there are opportunities to focus on specific stocks or Apex Predators that experience heavy retail trading volume daily.

Identifying stocks with significant interest among day traders and substantial retail volume is key. Collaboratively, retail traders can still outperform algorithmic traders. A valuable principle in day trading is selectively choosing setups to master, favoring basic methods that reduce stress and confusion. This approach allows traders to concentrate on the psychological aspects of trading, distinguishing between losers and winners in the market.

**Managing Your Day Trades**

The dynamics unfold intriguingly when two day traders opt for the same stock, with one going short and the other long. More often than not, both traders end up in the profit zone, underscoring the significance of trader management and experience over the specific stock and strategy employed.

It’s crucial to bear in mind that your trade size should be contingent on the stock price, your account size, and your risk management approach. Day trading novices are advised to cap their share size below 1000. For instance, initiating a trade with 800 shares, selling half at the first target, adjusting the stop loss to breakeven, selling another 200 at the subsequent target, and retaining the last 200 shares until the stop, allows for a prudent approach. Notably, professional day traders refrain from risking all their shares at once, opting instead for scaling into the trade by acquiring shares at different points.

However, caution is warranted as mishandling position management can lead to overtrading, resulting in losses due to slippage, commissions, and averaging down on losing stocks. While scaling into a trade can be effective when done correctly, beginners should avoid this strategy as it can increase risk and might be misused as a means of averaging down on losing positions, a perilous move for smaller accounts.

**ABCD Pattern**

The ABCD Pattern stands out as the simplest trade pattern, making it an ideal choice for novice day traders. Despite its basic nature, this pattern remains effective due to its self-fulfilling prophecy effect, as many day traders continue to utilize it.

Examining the example of an ABCD pattern in the stock market, it typically begins with a robust upward movement. Entry into the trade is considered at point A, where buyers are actively acquiring stocks, leading to new highs at point B. However, caution is advised at point B, as the trend may be extended and reach its highest price.

Identifying a stop is crucial before entering a trade, and at point B, traders start selling for profit, causing prices to decline. Observing the price’s behavior at a specific level, such as point C, helps in determining possible support. Planning the trade, setting stops, and identifying profit-taking points become feasible, making the ABCD pattern a valuable strategy.

For instance, with OPTT (Ocean Power Technologies Inc) in 2016, the announcement of a new $50 million deal led to a surge in stocks from $7.70 (Point A) to $9.40 (B). Traders waited for point B, ensuring that the stock would not dip below a specific price (C). Confirming support at C signaled a potential price increase, prompting buyers to enter the market.

The ABCD Pattern is a fundamental day trading strategy sought after by retail traders. As volume spikes near point D, it indicates traders’ active participation. Exiting the trade becomes clear when the stock makes a new low.

Following specific steps can maximize the effectiveness of the ABCD strategy:

Observe a stock surging from point A towards a new high at point B, waiting for price support higher than A at point C.

Monitor the stock during consolidation, plan share size, stops, and exits.

Participate in the trade near point C if support holds, anticipating the move to point D or higher.

Set the stop at C, selling if the price drops below, ideally buying closer to C to minimize losses.

Sell half of the shares near point D as the price moves higher, adjusting the stop to breakeven.

Sell the remaining shares when hitting the target or sensing a loss of momentum or seller control in the price action.

**Bull Flag Momentum**

The Bull Flag Momentum is recognized by expert stock analysts as a scalping strategy due to the transient nature of the flags within the pattern. Day traders typically employ a scalping approach to swiftly enter, earn profits, and promptly exit the market. Illustrated below is an instance of a Bull Flag pattern featuring a distinctive consolidation phase.

Termed the Bull Flag because of its resemblance to a flag on a pole, this chart exhibits prominent upward movements in the form of large candles (pole), accompanied by a series of smaller candles moving sideways (flag) or consolidating, as termed in day trading vernacular. The occurrence of consolidation in the pattern indicates that individuals who initially bought stocks at a lower price are now selling. Despite this, the price remains relatively stable as buyers continue to participate, preventing sellers from gaining control over the price.

Many retail traders may overlook the opportunity to buy stocks before the onset of the Bull Flag. Purchasing stocks during a price increase is considered risky and is referred to as chasing the stock. Successful day traders typically aim to engage in trades during calm periods and secure their profits during more volatile phases.

Chapter 1 Know the Market

Before delving into day trading, the initial consideration revolves around selecting the market for trading. Although this may seem peculiar at this stage, the choice of market is crucial and depends on the amount of capital one possesses. It’s essential to grasp that day traders frequently encounter a series of losses. This isn’t limited to novices; even seasoned day traders routinely face losses. While the expectation is long-term profitability, similar to the possibility of getting five tails in a row when flipping a penny, executing numerous day trades may result in multiple losses before a significant win. Therefore, if a substantial portion of your capital is at stake, consecutive losses could lead to rapid financial depletion, with individual trades involving thousands of dollars. To mitigate such risks, there exist rules and recommendations, but these can make day trading appear less appealing, especially if meeting the required capital is challenging.

Considerations Before Commencing Day Trading

Day trading transcends being a mere hobby or game; it is a serious business that demands a dedicated commitment even before initiation. The endeavor necessitates a significant time commitment, requiring thorough study of financial markets, staying abreast of financial news, and spending considerable time analyzing financial data on your computer. Essentially, it mirrors a full-time job, making it improbable to succeed as a