Lets start by answering a simple question. What is day trading? Day Trading is the simple act of buying stocks with the intention of selling them for a higher price For Short Selling traders sell stocks with the intention of covering for a lower price. Sadly, most beginner day traders will lose money. Trading involves a high amount of risk and can cause beginner traders to quickly lose tens of thousands of dollars.
In order to be a successful trader you must adopt a trading strategy. My favorite is called my Momentum Trading Strategy. Momentum is what day trading is all about. One of the first things I learned as a beginner trader is that the only way to profit is by finding stocks that are moving. This is a fact. The question is how do we find those stocks before they make the big move.
First of all, we need a stock that is moving. Stocks that are chopping around sideways are useless. So the first step for a trader is to find the stocks that are moving. I use stock scanners to find these. I ONLY trade stocks at extremes.
This means I look for a stock having a once in a year type of event. The price action associated with this event is almost always the cleanest. Momentum Stocks all have a few things in common. These are the stocks I trade to make a living as a trader.
Float of under mil shares see Float definition. Strong Daily Charts above the Moving Averages and with no nearby resistance. High Relative Volume of at least 2x above average. This compares the current volume for today to the average volume for this time of day. These all refer to the standard volume numbers, which are reset every night at midnight. Criteria 4 is Optional: Stocks can also experience momentum without a fundamental catalyst. Stocks Scanners allow me to scan the entire market for the types of stocks displaying my criteria for having momentum.
Once the scanners give me an alert, I then review the candle stick chart and try to get an entry on the first pull back. Most traders will buy in this same spot, those buyers create a spike in volume and result in a quick price change as the stock moves up.
You job as a beginner trader is to learn to find the entry in real-time. I have created 3 sets of stock scanners for 3 different types of scanning.
These 3 scanners give me tons of trade alerts everyday. Instead of having to manually flip through charts, I can instantly see stocks that are in play. This pattern is something we see almost every single day in the market, and it offers low risk entries in strong stocks. The hard part for many beginner traders is finding these patterns in real-time. These stocks are easy to find using the stock scanners I have developed with Trade-Ideas.
My Surging Up scanners immediately shows me where the highest relative volume in the market is. I simply review scanners alerts to identify the strong stocks at any given time of the day. As a pattern based trader, I look for patterns that support continued momentum. Scanners alone cannot find patterns on charts.
This is where the trader must use their skill to justify each trade. With the Bull Flag Pattern, my entry is the first candle to make a new high after the breakout.
So we can scan for the stocks squeezing up, forming the tall green candles of the Bull Flag, then wait for red candles to form a pullback. The first green candle to make a new high after the pullback is my entry, with my stop at the low of the pullback. That is the tens of thousands of retail traders taking positions and sending their buying orders. Momentum Day Trading Strategies Pattern 1: Momentum Day Trading Strategies Pattern 2: When I buy momentum stocks I usually set a tight stop just below the first pull back.
If the stop is further than 20 cents away, I may decide to stop out minus 20 cents and come back for a second try. The reason I use a 20 cent stop is because I always want to trade with a 2: If I risk 50 cents or more, it means I need to make 1. I try to avoid trades where I have to generate a large profit to justify the trade. The best way to calculate risk is to look at the distance from my entry price to my stop.
Profit Loss Ratios Graph. The Momentum Trading Strategies can be used from 9: I focus my trading from 9: However, at any time during the day we can get a news spike that will suddenly bring a tremendous amount of volume into a stock. The first pull back will typically take the form of a bull flag.
The 1min chart becomes too choppy in the mid-day and afternoon trading hours. You have a tight stop that supports a 2: You have high relative volume 2x or higher and ideally associated with a catalyst. Heavier volume means more people are watching. Low Float is preferred.
I look for under mil shares, but under 20million shares is ideal. You can find the outstanding float with Trade-Ideas or eSignal. I then adjust my stop to my entry price on the balance of my position. Extension bar forces me to begin locking in my profits before the inevitable reversal begins. All successful traders will have positive trading metrics. Trading is a career of statistics. You either have statistics that generate returns or losses.
When I work with students I review their profit loss ratios average winners vs average losers , and their percentage of success. Once you finish each week you have to analyze your results to understand your current trading metrics. When I see a stock that has extremely high volume I look to get in on the first or second pull back.
I am an extremely active trader in the first 2 hours of the market and then I slow way down. Strategy trade will surge with volume out of the gates and come into play for a Momentum Trade. These stocks may have news or may be experiencing a technical breakout or be a sympathy play to another strong stock or sector. Momentum Day Trading Strategies for Beginners: Momentum Day Trading Strategies Momentum is what day trading is all about.
Float of under mil shares see Float definition Criteria 2: Finding Stocks For My Day Trading Strategies Stocks Scanners allow me to scan the entire market for the types of stocks displaying my criteria for having momentum.
Entry Checklist Summary Entry Criteria 1: Exit Indicators Exit Indicator 1: I then adjust my stop to my entry price on the balance of my position Exit Indicator 2: Analyze Your Results All successful traders will have positive trading metrics. Want to Keep Learning? Momentum Day Trading Strategy Examples.More...