6 Day trading strategies for the stocks market
The stock market is a complex field with many different facets to explore. If you are interested in day trading, you probably already know that the average stock trader has between zero and three per cent success rate, where successful trades are defined as making back more than they lose (you can check here).
It's true for traditional investing and day traders who work within after-hours time frames. However, some strategies can help increase your chances of finding profitability significantly; here are ten useful ones.
1. The 30-minute rule
Most financial professionals recommend holding stocks overnight unless their price is likely to move beyond 1% or 2%. Generally speaking, it's not advised to keep any stock for less than half an hour because, by that point, all critical information that could affect the price will already have been released and reacted to. However, if you can be patient for half an hour and not worry about missing out on quick profits, then the following strategy might work for you.
2. The 1/4 rule
This one requires a little more patience than the 30-minute rule. While still only holding stocks that are likely to move less than 1% or 2%, wait around half an hour again before taking your trades. If the stock is within 20 cents of its previous quarters closing price, it's an excellent time to buy. This one has a 96% success rate, according to financial professionals.
3. Measure twice, cut once
Before you take any trade, make sure you know how much money it will earn you. Once you see this number, figure out how many shares of a particular stock you need to buy for the profit from the trade to equate to that amount. For example, if it's going to make you $150 and the minimum trading volume is 50,000 shares, then you're going to need to purchase 3,333 of them. It will allow you to scale up or down depending on your level of risk tolerance while still allowing for consistent profits over time.
4. New highs or new lows?
In general - or at least according to experts - a stock's price will continue rising once a particular milestone has been reached. That means there should be more buying pressure than selling pressure, so prices should go up faster than they would if the trend was downwards. Conversely, when a stock's price falls to a new low, it indicates that the sellers have taken over, and the downtrend is likely to continue. So what do you do when you're not sure?
5. Wait for confirmation
Day traders need to read charts and understand market indicators to make informed decisions. One common technique is called 'confirmation trading'. It means waiting for two or three indicators to agree before taking a trade. For example, if an RSI (relative strength indicator) is telling you that a particular stock is overbought, but the MACD (moving average convergence divergence) says it's still undervalued. It's worth waiting for another signal before taking the trade.
6. Capitalize on volatility
According to industry experts, volatility is the key to successful day trading. If you can get in and out of stocks quickly enough while they're still moving their prices, then you will win more of your trades than if you waited for the stock to calm down before entering into it. Some traders use advanced algorithms that earn profits almost exclusively by buying low and selling high at regular intervals; these are called 'trading bots'. A more straightforward method of capitalizing on volatility is to buy when there's blood in the streets - i.e. when everyone else is panicking- and sell when everyone else gets greedy—i.e., no one wants to leave any cash on the table.
Many different strategies can be used when day trading stocks. It's essential to find one or two that work well for you and stick to them while always remaining aware of the risks involved. With a bit of luck and perseverance, you could be on your way to making a healthy profit from the stock market.