Day Trading Strategies for Winning the Trading Game

All day trading strategies come down to a simple phrase: buy low and sell high. You've heard it often. Buy a stock at one price and sell it at a higher price. Or, if you are shorting a stock, sell it at a higher price and cover your short at a lower price. This is what day trading is all about. Either way, you're making money.

The reality, of course, is that it's not that simple. You might see a stock that's running higher only to jump in at exactly the wrong moment. You might see a stock that has sold off and you think "it can't go any lower that this"...only to be surprised when it continues to fall and it takes your long trade along with it.


But here's the trick - how do you know, when you enter the trade, that the stock will go in the direction you wish? Even if you've only made a few day trades so far, you've had the experience of the stock price going in the opposite direction from what you thought it would. In fact, sometimes it seems one of the best day trading strategies would be to do just the opposite of what you think, since you seem to get it wrong so often!

The lack of a good day trading strategy is the primary reason new day traders go broke. They know how to buy and sell stocks. They just don't know when to enter and exit the trade. A newbie trader sees stock prices jumping all over the place. He sees one start to run up in price. And almost as soon as he enters the trade, the price peaks and he's suddenly losing money. Now what does he do? Does he hold on for dear life or does he take the loss? Often, he ends up taking the loss, but at exactly the wrong moment. As soon as he sells the price starts to climb again. "If only..." he mutters, frustrated by the whole experience.

This whole scenario occurs due to the lack of a good day trading strategy. But, this problem can be fixed.

Without a day trading strategy, you're playing a very serious game without a plan. That's like sending your football team into the huddle and saying "just do the best you can". No plan. No book of plays. Just do your best. You can imagine the results. Without a plan, or a book of plays, you'll never know your best. You'll flounder around, like many other traders, losing money faster than you can count it because you're playing a game without any plan or strategy.



I won't cover all the details here related to building a good sound strategy. But I can list some of the questions that such a plan should answer. Here are a few of them.

1) What criteria will I use for determining which stocks I will study today?

2) What is the common characteristic of these stocks?

3) Do they exhibit a common pattern? If yes, then what is that pattern?

4) How do I know when to enter the trade?

5) How do I know when to exit the trade?

6) Based on your research, what is the average % gain you can expect from this trade?

7) What will you do if the trade goes against you?

8) What is the maximum % loss you will allow before exiting a losing trade?

9) Is there any reason why you might hold a trade overnight?

10) If you answered yes to the last question, then what is your criteria for making that decision?

A good trading plan enables the trader to give quick answers to each of those questions. Once you've chosen a good strategy or game plan, then you can study your trades. Do you follow your own strategy? What is your win/loss ratio? And, bottom line, is this strategy helping you make money? If not, then is it because you are not executing the strategy properly or because this day trading strategy is flawed?

It can be frustrating for new traders. They see a pattern in the charts and they think they've found the ultimate of all day trading strategies. Then they begin testing this with real money and they see that every trade doesn't work quite the same way. Then they begin making exceptions to the rule. Pretty soon, the exceptions have complicated the strategy so thoroughly that no one could trade it. And the trader feels like throwing in the towel because it's all so difficult.

But that is just part of the process of finding a good strategy. In my own experience, my best strategies were ones I simply stumbled upon. I made a a good trade and then I go back and ask the question "Why did this trade work so well?" I analyze the trade from multiple idicator viewpoints. I look at the context of the market and ask "Why did this happen this time?" You won't always know the answer. The market is mysterious and ever-changing and you will never fully understand its movements. But you can get close at times. And by asking the right questions about your trades, then you will start to develop some strategies to call your own.

Of all day trading strategies, I like the gap down strategy the best. Each morning, dozens of stocks "gap down", which means their opening price is significantly lower than the previous day's closing price. This can happen for a variety of reasons. But, knowing how to play these gap down stocks can be very profitable. I have written about this day trading strategy in one of my books. And my blog gives frequent examples of these gap down trades. (For more information about my gap down strategy, you can visit this day trading strategies page.

There are many ways to go about trading stocks. But, thinking this is just a game of chance that involves no plan or strategy will get you into serious trouble. The main point of this page is to challenge you. Find a strategy and start using it. You will not master new day trading strategies overnight. But having a plan and a system for trading is critical to your success. Using the form included in Free Report will help you analyze the results of any strategy.

Click this highlighted area to see a three-part series on day trading exit strategies.



Are you interested in some concrete strategies for trading stocks? If yes, then you may want to see my new video course "Trading the Afternoon Market". Included are eight specific strategies. Trading the Afternoon Market


Here's a YouTube Video regarding strategies.




You might also be interested in this page: Day Trading Statistics.

I'm offering a FREE bi-weekly e-zine called "Day Trading with the Technicals". I take one stock and look at the interface between price and technical indicators for that chart. The e-zine is free and so is the Free Report that you receive when you sign up for the e-zine. The Free Report is called, "The Most Important Activity for any New Day Trader" and will be available to you after you confirm your subscription to the e-zine. Both the e-zine and the Free Report will help you as you develop your own trading strategies. Hope you enjoy.

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