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What Are the Best Day Trading Strategies? 

Day trading can be an amazing career! Afterall, day traders control their schedules, can work from anywhere in the world, and do not have a boss critiquing their every move.

Day trading can be incredibly profitable, however, there is a tremendous amount of risk associated with day trading. In today’s modern world, anyone with at least $25,000 can be a day trader.

However, if you want to be a good, and profitable trader, you’ll need to use various day trading strategies. The best day trading strategies do not need to be complex, but you need to be consistent. Let’s dive into the 5 best day trading strategies, and explain each one in greater detail below. 

Table of Contents:

5 Best Day Trading Strategies 

There are a variety of day trading strategies. Some day trading strategies present higher upside potential than others, whereas other day trading strategies help reduce your overall risk.

Momentum Trading 

Momentum trading is one of the best day trading strategies. This strategy coined the term “the trend is your friend” – which simply means, do not fight the overall trend of the market.

If the market is bullish and rising, ride the wave. If the market is coming down, do not try to go long. Leveraging technical analysis, and a variety of economic indicators can help make you a successful momentum trader. 

Key Takeaways: If you want to successfully trade with the momentum of the market, you’ll need to:

  • Leverage moving averages, which is a common technical analysis tool
  • Stay up to date on various economic reports, such as the jobs report, inflation rate, and the moves the federal government are making
  • Put your pride aside. Sometimes it’s difficult to say ‘I’m wrong here, the market is moving in the opposite direction.’ Having that discipline to get out of a trade when the momentum is going against you is critical. 

Momentum is one of many day trading strategies. This strategy has been around for a long time, and it’s not overly complicated. To be a successful momentum trader, you need discipline! Remember, the trend is your friend, and don’t fight it! Without question, momentum trading is one of the best day trading strategies for beginners. 

Ichimoku Kinko Hyo Indicator 

The ichimoku kinko hyo indicator is actually a technical analysis indicator that supports momentum trading. This indicator was developed in Japan. What makes this indicator unique is the fact that it combines numerous indicators into one. The main purpose of this indicator is to help identify support and resistance levels. 

Key Takeaways: The ichimoku kinko hyo indicator is an incredibly popular, and concise, indicator to use if you want to get an understanding of the momentum of a stock. To be successful with this indicator, you must:

  • Thoroughly understand the various components, or lines, within the indicator. These components include the; tenkan-sen, kijun-sen, senkou span A, senkou span B, and the chikou span. 
  • Once you can define each one of the above, you must master the signinal line, also known as the line that would suggest a reversal in the momentum of the stock. 
  • Clear your viewing space. This indicator is designed to be fully encompassing. To better use it, you need to clear all the other noise or patterns you may have on your chart.  

Using the ichimoku kinko hyo indicator is possible on any advanced day trading platform. Afterall, this indicator helps set up one of the best day trading strategies. Leveraging technical analysis is a key component of making you a successful day trader, and this is a terrific technical analysis tool. 

Scalping 

A stock’s price can change numerous times a second, and hundreds of times a minute! When a stock goes from $100 to $100.05 in 5 minutes, no one blinks an eye as these price changes are natural and happen all throughout the day. However, there are traders who make these minimal price moves profitable, and that is known as scalping the market. 

Key Takeaways: Scalping the market is simply when a trader makes a profit on minimal price moves. The trader typically wont hold the stock for more than a few minutes before they close their position. The goal is to not turn any single trade into a massive profit, but rather generate a massive profit off of numerous microscopic profitable trades. To be a successful scalper, you’ll need:

  • To know your exit and entry points of each trade 
  • Quickly get out of a trade if it moves in an unfavorable direction 
  • Learn how to leverage the market news, and technical analysis, to predict where the market is moving in a very short time period 

Scalping often goes unnoticed. For example, if you were trading $25,000, you may have no interest making $5 per trade on that lump sum of cash.

However, if you were to trade 25x a day, and make $5 each trade, you’d generate a 0.50% profit per the day, which is remarkable! Scalping the market is one of the common crypto day trading strategies, but also applies to the forex and traditional stock market. 

Reverse Trading 

Unlike momentum trading, reverse trading actually goes in the opposite direction. Finding the pivot point, or where a stock will reverse the direction it’s traveling in, can create a windfall of profits.

For example, if over the last 2 months a stock rose from $100 to $115 a share, the stock undoubtedly saw a lot of positive momentum. People who purchased the stock at $100 made a 15% profit, and they may be looking to cash in. When they do, the laws of supply and demand kicks in, and the direction the stock is traveling in, can reverse. 

Key Takeaways: Reverse trading takes some adjusting to. Psychologically, it can be difficult to go against the general consensus of the market. However, if timed properly, the trader can make a great deal of money. To be successful at reverse trading, you need to:

  • Leverage technical analysis to identify when a stock is considered overbought or oversold 
  • Follow the market news on a specific stock, and see which public banks are exiting or creating a position in the stock
  • It’s important to note, reverse trading is not riding the momentum in the opposite direction. It is simply generating a bit of profit before the new trend kicks in. Getting in and out of the trade is critical. 

Reverse trading is one of the best day trading strategies, but it takes some adjusting to. You don’t want to enter a position when the momentum will still carry the stock to new highs. Understanding when the momentum is going to die out is the only way you’ll be successful here. 

Pattern Day Trading 

Pattern day trading is when you make more than 3 round trip trades per a rolling 5 business day period. This strategy is only possible if your account size is at least $25,000.

A round trip trade is defined as buying and selling your position, or a portion of your position, in a single business day. Pattern day trading is a common day trading strategy, but understandably, it’s not for everyone considering the capital investment required. 

Key Takeaways: Pattern day trading can be a large time commitment. You’ll need to fully analyze numerous buying and selling decisions per week. Oftentimes, the pattern day trader is someone who is trading full time as a career. To be successful as a pattern day trader, you must:

  • Trade an account that is worth at least $25,000. Unfortunately, there are restrictions in place that prevent you from being a pattern day trader with less than $25,000. 
  • Have the time to dedicate to day trading. 
  • Leverage technical analysis to make educated and calculated trading decisions.  

Pattern day trading is typically for the more advanced traders. Not only is the $25,000 minimum account balance a difficult hurdle to overcome if you’re just starting out, you also need to educate yourself on numerous market conditions and technical analysis tools. Like many other day trading strategies, a pattern day trader must quickly identify when a trade is going against them and get out of that trade as quickly as possible. 

What Is Day Trading?

What is day trading? Simply put, day trading is profiting off of speculation on the direction of an underlying security. The security could be futures, stocks, cryptocurrencies, options, or even foreign exchanges. Unlike a more traditional buy and hold investment approach, day trading is built on earning profit in the immediate future. 

How Does Day Trading Work?

The fundamentals of day trading are simple. A day trader wants to buy a security for value A (let’s say $100), and sell it in a very short period of time for value B (let’s say $102). 

Although that seems simple, considering how quickly the price of a security can move, there is a lot of work that goes on behind the scenes. Completing research, leveraging technical analysis, following trends, and staying current on market news are all requirements if you want to be a successful day trader. 

Things to Consider With Day Trading

There are a few key considerations that every successful trader must be mindful of. These considerations include: 

Liquidity 

The liquidity of the stock refers to how quickly you can buy, or sell, your shares. If the stock is trading millions upon millions of shares per day (for example, Apple), you should never have a problem buying or selling your shares at the given market price. However, if the stock is not liquid, you may have trouble buying/selling shares, which could kill your profit. 

Volatility

The easiest way to understand volatility is to look at volatility as an ocean. When the waves are calm, there is little volatility in the security. When the waves are rough, the volatility is high.

Why does volatility matter? If there is high volatility, it can make timing your trade incredibly challenging, and can make the psychology of trading even more challenging to deal with. 

However day trading is the process of profiting off of market volatility in the short term, so this means that the more volatile a security is the higher potential for profit there is.

Volume

Volume is also important. Not only is volume needed to understand the liquidity and volatility of a stock, it’s also a key component to many technical analysis tools or indicators.

Understanding how many people are buying/selling the stock minute by minute, hour by hour, or day by day, can help you make an informed decision on the overall ‘interest’ of the stock. That ‘interest’ can be used in various ways. 

Day Trading Is Not for Everyone

Despite the freedom day trading provides, it is not for everyone. Even the best day trading strategies have a great deal of risk associated with them.

It’s true, day trading can provide tremendous upside, but you can also lose all the money you trade. If you’re interested in day trading, work with a financial advisor.

Most financial advisors will not promote day trading, but they can help you get an understanding of how much money you can afford to risk. Additionally, they’ll take care of your long term investments, which cannot be forgotten about! 

Frequently Asked Questions

Which Strategy Is Best for Day Trading?

The best day trading strategy is contingent on your goals and risk tolerance. You’ll need to use numerous day trading strategies before you find one that works for your objectives. 

Is 1% a Day Good for Day Trading? 

Earning 1% per day is phenomenal! However, it’s not realistic. You will certainly have days where you earn more than 1%, but you will also have days where you lose more than 1%, which can balance out your average. 

How Much Do Day Traders Make in a Day?

There is no guarantee that a day trader will even make money. In fact, many day traders lose money. The amount you make or lose depends on numerous factors, primarily on the amount of money you are trading.