The 5 best daily trading strategies

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The term day trading refers to the frequent buying and selling of stocks throughout the day. Day traders hope that the stocks they buy will gain or lose value during the short period that the day trader holds those stocks, which is typically only minutes or even seconds, according to the Securities and Exchange Commission. (SEC) of the United States. Day traders are investors who seek higher profits in the stock market in exchange for a much greater risk of loss. These investors believe that if they use the right day trading strategies, small daily gains will translate into big profits in the long run.

From candlestick charts to candlestick patterns and momentum strategies, day traders have their own language. Online communities like Warrior Trading provide advice, support, and day trading strategies, but day trading is risky and reserved for speculative investors who can afford to lose the money they trade with.

Here are some tips for anyone looking to try their hand in the high risk, high stakes world of day trading. You will discover five daily trading strategies that could work with a lot of work and a little luck. You can try them out if you are looking to make money buying and selling stocks in one day, but don’t expect to be successful right away.

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Trading on momentum

With a momentum strategy, an investor jumps on a stock whose price is rising. Momentum stocks are rare and hard to find – only about 10 in 5,000 will meet the criteria on any given day, according to Warrior Trading. Look for these qualities in stocks if you are using a dynamic trading strategy:

  • A major change in prices, driven by catalysts such as unexpected profit growth, the discovery of a new treatment by a pharmaceutical company or the announcement of the acquisition of a small business by a larger company

  • 30 to 40 percent stock movement

  • Smaller shares, which trade faster due to the reduced number of shares outstanding – the free float should be less than 100 million shares

  • Trends or ideas for momentum trading thanks to tools like StockTwits, a financial communication platform

To protect against oversized losses, Warrior Trading establishes a stop-loss order just below the first price drop. Stop loss works like insurance: you place a sell order for the stock at a predetermined price, so if the stock price falls at a particular point, the stock is automatically sold, protecting you from further losses.

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Scalping strategy

The philosophy behind a scalping strategy is that small wins can mean a lot of money at the end of the day. The scalper sets buying and selling goals and sticks to those predetermined levels. The scalping strategy is fast. It is not uncommon for multiple transactions to be completed within seconds.

Scalping is one of the best day trading strategies for confident traders who can make quick decisions and act on them without delay. Followers of the scalping strategy have enough discipline to sell immediately if they see the price drop, thereby minimizing losses. If you are easily distracted and lack focus, this is not the day trading strategy for you.

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Withdrawal trading strategy

The first step in the withdrawal strategy is to look for a stock or ETF with an established trend. Then watch the trend until there is a price drop from the trend. If the established trend is up, then the downward price movement – or pullback – is an entry point for the day trader to buy.

Day traders use technical charts to understand the trend of a stock. Fidelity recommends looking for an uptrend with at least two successive high price movements before the price pulls down or down. Or, if you are selling short, you will be looking for two decreasing prices in a row. And if the trend reverses completely after your purchase, there is no need to panic as the trend usually continues in the direction of the trend for a long time. You might find the most successful stock takers.

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Breakout exchange

A breakout trade takes place when the stock price exceeds the old upper resistance price. But it’s not as easy as looking at a chart, recognizing resistance, and buying after a breakout. You should monitor the level of stock trading volume or the number of stocks changing hands. That’s because high-volume breakout transactions are more likely to be sustainable at the new higher price than those with less volume, according to Fidelity. Low volume breakouts are more likely to drop below old resistance levels, making it harder to break even.

In most cases, the action will retreat after reaching the resistance level until there is a catalyst for a stronger price movement. Above this specific price, there are more sellers than buyers, which prevents the price from increasing further.

Trading News

You may already know that stocks react quickly to news events. A lousy earnings report can cause the share price to drop. Something like FDA approval for a new drug, on the other hand, could get a stock off the ground. By keeping an eye on business news, day traders can capitalize on popular daily stories.

If bad news comes, you can sell the stock short during the day by “borrowing” stock from the investment firm and then selling those borrowed stocks. If the share price drops as expected, you buy back the shares at the lower price and take advantage of the difference minus a commission. If the news is good, you go long or buy the stock directly and sell the stock after the price rises.

“Day trading is extremely risky and can lead to substantial financial loss in a very short period of time,” according to the SEC website. If you want to try your hand at day trading, invest only the money you can afford to lose.

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André Lisa contributed to the writing of this article.

Last updated: May 20, 2021

This article originally appeared on The 5 Best Day Trading Strategies

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