Technical Notes on Day Trading Strategies – Part 2

Technical Notes on Day Trading Strategies – Part 2

Never Assume Anything. When I day trade, I’m looking for specific patterns in which the probability is great that an entry point can be made. But, there is the precentage that things might not go the way a pattern indicates. My point being that you could probably depend on a pattern being a good indicator to enter a trade, but it’s never guaranteed.

Patterns Do Emerge. Having said what I said above, patterns do emerge and theyre are indicators that a certain scenario could be a good entry point. Whatever that scenario is, you’d have to weigh it as far as probability is concerned. More than 50 percent likely? More than 75 percent likely? You will have to determine that.

Entering an Uptrend. The goal is to see the uptrend forming, just like a wave is beginning to form for a surfer… and you determine the entry point and go! Hopefully, you’ve caught a nice wave (uptrend) and it keeps going up. And a day trade position might fall into the red, but then you’d have to determine if you have to exit and eliminate your risk of losing too much money, or ride it if there is a possibility that the stock will rebound higher and you’re in the green again.

Allow Losing Day Trades to Become Winning Swing Trades. This depends on the stock. If it’s a high risk stock like a penny stock, you might want to cut your losses. But, if you know the stock has a great track record, then you hold long overnight, or for a few more days until you are in a winning position.

Know What Your Target Price Is Before You Even Trade. When you get too greedy, you lose. Or, your chances are greater that you’ll lose. My own personal goal is to get in and out quickly. I’m basically a ‘scalper’, and I don’t want to stay in a day trade too long. I just want to make my money and get out, reducing the risk for loss. This is something each individual day trader has to determine ahead of time, and is part of your overall strategy. Is there a Plan B? Is there a Plan C? A target price will keep you from being greedy, and keeping things realistic. A successful day trade of 1K or more is of course amazing, but consistently earning $200 to $400 dollars each trade is great too, and more realistic, and safer. Develop your ‘risk management’ philosophy.

It’s Best to Start Small and Develop Slowly. Day Trading can be very difficult and stressful. You have to develop a reasonable strategy for your personal situation and with the amount of cash you have. Most experts recommend you have at least 25K in cash for day trading. And ideally? If you’re going to day trade everyday, you’ll need $50,000 to $100,000 in cash, because you’ll want to cycle through funds and avoid ‘good faith violations’ (more on that later)… because whenever you buy and sell a stock, you have to let the funds settle 2-3 business days.

Develop A Good Day Trading Mindset and Having Clarity of Mind. Serious Day Traders are self-disciplined, self-starters, independent learners, and have a patient mindset going in, and one must have the fortitude to handle losing trades and scenarios where you shouldn’t panic. I personally practice Yoga, Tai Chi and Walk or Jog almost everyday. This helps relieve stress but also calms my mind for day trading. It might not seem related, but Yoga and Tai Chi have really helped prepare me for day trading.

Speed Counts! As a day trader you will need fast reactions and quick reflexes. You might need to be able to get in and out of a trade from seconds to minutes, in order to capture a good uptrend. Stocks fluctuate frequently during the day, giving you opportunities to trade between the valleys and the peaks. And you need to get up-to-speed with your trading platform. And accuracy is important. One click of the mouse and you’ve accidentally bought a stock you didn’t want or you sold at the wrong price.

More later…

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Portfolio Manager & Musician

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