My Personal Day Trading Strategies
In the business of day trading, there is a lot of advice out there, and lots of seminars and schools that claim to teach you the secrets of being a successful day trader.
I haven’t taken any of these classes or seminars, and I’m not a stock broker or institutional stock trader. But I have been trading stocks for more than 10 years now, and I have lost money along the way but I have mostly made money.
I believe there are enough FREE resources online that can teach you how to be a professional day trader. The thing is, you will have to develop mental strength, clarity, patience and logical skills in order to NOT lose money.
You also must NOT have a gambling personality, as this will only cause you to make poor decisions along the way. You have to know based on technical charts and signals when to buy a stock, when to sell a stock, and when to do nothing but watch.
Every day trader has his/her rules and guidelines for getting in and out of a stock trade. You will need to have an entry strategy and an exit strategy, and you must learn not to be too greedy that you will end up losing money.
Getting Down to Brass Tacks
1. Trade Within The First Two Hours
The ideal scenario for me is to make one big trade within the first hour of trading. I make my money, and plan to quit before 9am PST (12 noon EST). This way, you have made your money and are free to hit the golf course or do whatever you want to do with your time.
This scenario is ideal because you reduce your stress levels, and that’s good for your health. And one of the joys of day trading is to work a couple hours a day and your done. You can play for the rest of the day.
But later in the day, at least from my own personal experience, I’ve made mistakes trading, and the stock market overall usually starts to downtrend, as most of the action happens in those first two hours, especially within the first half hour of the trading session.
2. Entry and Exit Points
The most important thing in day trading is finding the entry point and exit point. Stocks fluctuate greatly during the day, and it’s up to you to determine the ups and downs of this fluctuation. You want to capture the stock price at one of its lows, get in and if the conditions are right you’ll ride the uptrend and exit when there is resistance at the top.
There is a whole lot of strategy involved with just getting in (the entry point). But for now, I’ll just say that you need to learn a trading platform until you become very familiar with the software. You enter at a point where the following conditions are present:
- The stock is oversold. I use an RSI indicator to determine if a stock is oversold or overbought. If overbought, the stock is going to plummet at one point. If oversold, there’ll be lots of stocks to buy and thus you’ll have buyers.
- I also use the ElliotWaveOscillator to determine when a stock is at its low point and ready to reverse direction and go back up.
- I study the volume indicator to tell me if there is lots of volume behind a stock, which means there will be a lot of buyers and sellers.
- I also use the MACD indicator to determine entry and exit points. More on this in another post.
- And my technical chart includes 7, 25, and 100 moving day averages to tell me crucial crossover points to indicate possible entry points.
Below you can find one of my recent day trades. Using the ThinkorSwim platform, I captured a dip and fully take advantage of the bottom and ride the uptrend to the top of the stock’s resistance levels.
3. Being Patient and Knowing You Don’t Have to Trade
You don’t have a trade at all, and you should never trade for the sake of trading or you feel you have to trade every time. If the conditions aren’t right, I don’t get into a trade. I watch and learn. And observe.
Day Trading requires lots of patience, biding your time until it’s the right time to trade. You will need mental strength and discipline. What happens if you are on the losing end of a trade? Well, don’t lose money, period. Don’t get into a trade unless the conditions are absolutely clear. But, if the time comes and you are on that losing end, don’t worry. I’ve held positions overnight and have held the stock longer until you start profiting. This has happened to me once or twice so far when Day Trading. I’ve held onto the stock until it becomes profitable again and sell with gains.
You need to study the stock’s movements and patterns for possibly days, even weeks or months before knowing when to get in and out.
In time, I think everyone will learn the patterns of each stock.
Risk and Portfolio Management
1. Rotate Funds for Trading
When you buy and sell a stock within one trading session, keep in mind that it takes 2-3 days for the funds to settle, so it’s important to rotate your funds so that you have the ability to trade during every trading session.
That’s why I only try to do one trade a day, in order to keep funds available for trading by rotating. So you’ll want to keep funds available daily.
The challenge is to maximize each trade to get the biggest profit possible.
2. Don’t Risk Your Entire Portfolio
By any means, don’t risk your entire portfolio. That is gambling. I know that many people think trading and investing in stocks is similar to gambling, and it can be that way if you don’t have an overall strategy or plan.
Risk only a small portion of your cash in a day trade. And keep a portfolio of stocks that are long term investments.
Myself, I trade stocks on three different levels: Long Term Investing, Swing Trading (short term), and Day Trading in which I open and close positions within one day (also called intraday trading).
With this three-pronged investment strategy, I diversify my stock portfolio and at the same time dividing the risk between intraday, short term and long term investments. And this gets more into the realm of portfolio management.
To Make a Long Story Short
Do your homework first. Don’t jump into day trading without a definite plan and strategy. Learn all you can about the stock market and day trading specifically.
You’ll need to sign up with a discount broker like TD Ameritrade or Fidelity Investments.
Download an advanced trading platform in order to day trade. I personally use TD Ameritrade’s ThinkorSwim platform. It’s advanced and there’s a lot to it, so there might be a bit of a learning curve just to learn the software. But it’s definitely worth it, and there are tons of tutorial videos on YouTube that will teach you to use whatever platform you end up using, so I won’t go into details here. But, you should master whatever platform you use, as Day Trading is a fast paced endeavor, so you’ll need to get up-to-speed.
Paper Trade first. Virtually all platforms allow you the option to practice with a virtual trading account of $100K worth of pretend money. This is a great feature and allows you to make mistakes without going broke for real.
Rotate your funds so you allow trades to settle. That way you always have funds to trade each day.
Most brokers require that you have at least 25K in your account in order to day trade. They might allow you to have a margin account, which gives you the ability to borrow from your broker in order to day trade. I personally don’t have a margin account, since I don’t believe in risking borrowed money in order to day trade. But, the option is there if you need it, and if you are approved for a margin account.
Do non-trading activities that will help reduce stress and bring clarity of mind… like running, swimming, yoga and meditation.
More Investing Thoughts
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Filed as: Journal
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Tuesday, December 4, 2018: DOW Ends the Day at -799.36 Points
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Monday, December 3, 2018: First Trading Day of December
Monday December 3, 2018 by Carlos Rull
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