4 Simple Day Trading Strategies
A Trading Strategy is set of conditions, such as news, price action (trading pattern), volume, market conditions or company fundamentals, that when meet determine how to trade the stock.
Many new traders think all they need is a simple pattern but this is false. A Trading Pattern is useful if its part of a complete trading plan but it is very difficult to predict a pattern before it forms unless you have spent many many hours watching charts live each day. Additionally, trading patterns are not consistent across all stocks.
How to Create a Trading Strategy
Sooner or later every trader will realize that they cannot follow other peoples ideas, strategies or plans. All traders need to come up with their own strategies by watching how stocks react to news, volume, price action, and market conditions. Your strategy is the one you will trade the best. I firmly believe that you can learn a tremendous amount of information from being in a chatroom or taking a trading course, but you should never make trades that you do not understand and that your not prepared to lose on.
Earnings Trading Strategies*
Things to consider
Companies report their earnings once a quarter. These events provide a lot of volatility and opportunities for day traders. How a company stock reacts to earnings is dependent on the reported numbers, past price action, market conditions and much more. As a day trader, you have to think about how investors are going to react when the report come out, were investors buying before earnings anticipating a beat (stock price going up before earnings) or were investors selling before earnings anticipating a miss (stock price going down before earnings).
As a day trader, you are looking for large intraday moves in a stock to take advantage of. The strategy I’m going to outline is fore trading after earning have been reported. There are additional strategies that can be used to swing trade the stock before earnings are reported or after earnings have come out.
Earnings Miss: If a company misses on earning and the stock price drops, look for a support area to buy the stock. Remember, if there is a high short interest and/or the stock has been shorted into earnings, there tends to be a short cover pop at some point. As a day trader, look for areas of support where either shorts will cover (buying the stock) or investors will start buying a dip. The goal is to ride the short term, five to ten minute, wave of volatile.
Earnings Beat: If a company beats on earnings and the stock price pops, look for a resistance area to short the stock. Remember, if there is not a high short interest and/or the stock has been bought into earnings, many investors want to take profits and sell their shares (the price will go down). On the other hand, if there is a high short interest, the stock can squeeze even more so you may want to buy the stock.
Analyst Trading Strategies*
Many day traders do not trade Analyst Calls. Ever day different analyst make predictions on what they think a stock should be trading at and if you should buy, hold, or sell the stock. Just like all other strategies, you need to come up with a set of conditions and then review how stocks react to those specific conditions.
Personally, I have found that stocks gaping up pre-market from an analyst upgrade tend to pullback at the open before finding a base on moving higher. This means that you could create a strategy to short stocks with analyst upgrades. Additionally, you could have a long strategy to buy stocks that have analyst upgrades after they pullback and find support. Remember, stocks react differently based on the analyst, the price target of the analyst, and past price history.
On the contrary, I found that stocks gaping down pre-market from an analyst downgrade tend to pop a little at the open before hitting resistance and moving lower. Again you could create a long or a short strategy based on your own analysis.
Market/Gap Trading Strategies*
When the Dow is up or down big in pre-market trading there are many blue chip stocks that will be gaping up or gaping down with the Dow. If the Dow is gaping up, individual stocks tend to have a small pop and then pullback into support before moving higher during the day. If the Dow is gaping down, the opposite tends to happen. Individual stocks will pull at the open, then pop up into resistance before fading the rest of the day.
Technical Trading Strategies*
*There are many factors to a trading strategy and each trader need to do their own due diligence.