The reason why , and how to day trade stocks, is discussed below. Before you start planning your retirement, look at a bunch of different price charts. Before you start day trading stocks, have a trading plan. It includes your strategies, when you will trade, what you will trade, how much you can risk per trade, and any personal guidelines you may wish to impose on yourself such as maximum daily losses or loss from top limits.
Consistently profitable day trading is not a destination. Let your mind lapse and discipline wane, and the market will give you a reality check. The best time to day trade the stock market is the first hour after the open, from 9: It gives insight into how the markets are shaping up for the open, major biases in the trend, and which stocks are moving if you opt to trade big movers—finding stocks is discussed next.
At the open be ready to go. Trades can happen in a split second and you need to be on your game, not just logging in. For many the window is even smaller: More is not necessarily better.
If do have a bit more time, and you can maintain your focus and discipline, trade up till about 11 AM EST. After that, the market typically gets much quieter and there are fewer opportunities. I recommend just trading around the open, but if you decide to trade another part of the day, trade the last hour, and ideally only the last 30 to 45 minutes.
Through tracking my hourly stats for years, the open and close give you biggest bang for your buck. Trade the same stock s all the time.
Have one, two, or possibly three stocks you become an expert in. If the stock is volatile one day, take smaller position sizes and trade with slightly larger stop losses and targets. That way, you make a decent income regardless of volatility on a particular day. You may find you end up trading the same stocks for multiple weeks in a row. If things are going well, stick with what you are trading!
An example of a stock screen is looking for high volatility stocks with moderate to high volume, as discussed in How to Find Volatile Stocks for Day Trading in 20 Minutes or Less. Alter that stock screen to find stocks that suit your methodology.
Look for stocks to trade each day. This approach involves the most research. Each morning, and throughout the day, look for stocks that are moving big or moving well. This may include doing some homework the night before on stocks that may breakout the next day, or have earnings or news scheduled. It may also involve watching for stocks that are moving big in the pre-market.
Whether your day trading involves homework and research depends on which stock picking method you choose see above. Follow your strategy—or one of the strategies discussed below—and that is it. Check your economic calendar and earnings calendar each morning. Instead, stick to high-quality trade setups and take the easy money.
Stay focused, watching for opportunities. To get into a lucrative trade quickly after the stock market open we need a method that will get us into a big move whether a trend develops or not.
I use examples from volatile stocks, yet the same methods can be adapted to less volatile stocks, the concepts are the same. This is not a rule though, just a guideline. Basically, with these setups, we are always trading in the same direction as the most recent biggest wave.
The alternative non-target method requires more practice. It also depends on how much the stock is moving overall. You need to set your own threshold for when you consider the price moving against you, based on current market conditions.
Trading during these time periods is more challenging. Use the same method discussed above to trade trends and reversal, but your reference points are no longer as clear. And there will likely be another one or two trades in each stock between 3: A downtrend is when the price makes consecutive lower swing highs and lower swing lows. An uptrend is when the price makes consecutive higher swing highs and higher swing lows. Not every signal you get is a stock worth taking.
What I like about my method above is that you have time to watch price waves unfold before acting. Say the price shoots higher after the open. The pullback that follows drops a bit lower than the prior pullback but again, not far enough to signal a trade and rallies again. If the price pulls back into our trade area and consolidates, do you take the trade?
So if you take a long, you need to be aware of that. If the price action is showing buyers are getting weak, you may opt to avoid the trade, or you may still take the long trade, but at absolutely any sign of trouble you get out. New price action is constantly revealed. Results will vary from trader to trader based on which trades they opt to take, and which ones they opt to avoid. Read Analyzing Price Action: Favor trades with sharp and big movements in the trending direction, and where the pullbacks are slow and choppy.
This shows that movement against the trend is hesitant, and the trend is more likely to continue. Waiting for a three-minute consolidation to form is recommended when you are starting out.
It will keep you from getting into a lot of bad trades. In fast-moving market conditions the price may not stay in one place for three minutes; it might only stay there for two.
Waiting for three minutes though, in most cases, works well. A lot can happen inside one minute. No longer is a pause of three bars relevant. This was a very high volume day though. Below is a 1-minute chart of the same day.
Notice how the 1-minute shows less information. The tick chart allows you to prepare for trades a bit more, as you can see them setting up before you can on the 1-minute. This leads to another weird thing you may notice. When there is very little volume in the pre-market, the 1-minute chart appears to show more data.
It shows some see-saws back and forth before the big move higher. The tick chart just shows the big move higher. I actually like that. A target is a live order where your shares are visible to the market.
If you have to manually exit a winning or losing trade, before it reaches your target or stop loss, it becomes more complicated. If things look like they could turn ugly, get out…NOW, taking whatever liquidity you can get. Subtle changes in how you act under these circumstances make a difference in your daily, weekly and monthly returns. The entry also requires a bit of finesse. Typically this will be a one or two cents outside the consolidation.
It may also mean taking shares three or four cents outside the consolidation, but only if the potential reward justifies the slightly worse price. You need to be on your toes, and paying attention to what is happening in the stock. This method also requires practice; a lot of it. Moves happen so fast that you need to be planning your trades before they even occur.
That is how to day trade the stock market in two hours or less. Practice in a demo account until profitable. Cory — Thanks for the great info. This is most useful info I have found on day trading so far. Can I use my TD Ameritrade account for day trading?
I currently invest for long terms but would like to try day trading for a change. I am just not sure what portal to use to watch market by the minute. Thanks for your help in advance.
You can use your TD Ameritrade account. Probably not the cheapest option, but it is usable. If you are with TD ameritrade, you may want to try out the Thinkorswim trading platform which is offered by TD. You may find it a bit more customizable for day trading as you can trade right from your chart while watching the price second by second. Thank you Cory for this information. This article and site overall have been some of the most informative I have read and shed light on mistakes that I am likely making.
I would like to test out using a tick chart on a paper account. What tool do you use to produce the tick chart?More...