Day Trading Strategies and Techniques Using Price Action
Learning different day trading strategies was for years a very interesting pursuit of mine before settling on the following equity trading methods. Always interested in improving my techniques, I investigated many different techniques.
As novice traders, I'm sure many of you are in the same investigative mode that I was in decades ago. Let's face it, it's very tempting to change strategies even if we already have strategies that are successful, because we always strive to improve. But, I must tell you when it comes to stock market trading, please understand the basics of trading money management before putting your hard earned money at risk. The best strategy in the world will do you absolutely no good without a solid understanding of position sizing.
The day trading strategies I'm going to show you are methods that I have used with success over the years. They are techniques that are suitable for beginners, because they are simple and easy to understand.
It's very possible (but we never know for sure), they will continue to work in the future, since they are based on simple price action and are not optimized in any way. This is one advantage price action trading has over indicator-based trading. Attempting to optimize your methods by making continual changes in indicator values will only lead to frustration.
These methods can certainly be modified to fit your own needs. Just try to keep in mind the basics of day trading system design.
Put your stops in reasonable areas, use exit strategies, such as trailing stops that let your winners run, pay attention to position size and you'll have a good chance of making some money.
If you'd like to see up to date, current examples of all the day trading strategies and techniques below, I post examples in my day trading stocks blog. So come on over and take a look.
To keep things simple and since some visitors won't know what short trades are, all strategies are explained using Long entries (buying). But, keep in mind that all the methods can be reversed and traded short as well.
Click on the charts below to see a detailed explanation of each method.
Strategy #1: Gap Up - Inside Bar - BreakOut
Strategy #2: Gap Up or Gainer - Lateral - BreakOut
Strategy #3: Gap Up or Gainer - Triangle - BreakOut
Strategy #4: Gap Up - Attempt To Fill - BreakOut
Strategy #5: Gap Up or Gainer - Afternoon BreakOut
Strategy #6: Fibonacci Retracement - BreakOut
Strategy #7: Gap Down - Fill Gap - Inside Bar - BreakOut
Strategy #8: Daily Inside Bar Trading Strategy
Remember, these day trading strategies are trade set-ups and are meant to create opportunities for trade entries. They are not complete systems. You must add your own automatic or discretionary stops and exit strategies. You will also need to determine position sizing for each and every trade you make.
I highly recommend manual or automatic backtesting of any complete system that you create, whenever possible, to determine whether or not it has positive expectancy. Obviously, if your plan is to trade in a discretionary manner this won't be possible. And, this isn't necessarily a disadvantage, since you'll be able spot patterns and other important information, that you'd probably never (or at least have a very difficult time) be able to efficiently program into a computer. I'm sure some will disagree with that statement.
Also, know that assessment and quantification of risk and reward of complete systems will always be based on historical data. It's great that we have all that data to look at, but always keep in mind that future market behavior is not going to look exactly the same as the past. This is a huge limitation in the system development process, but what else can we do except extrapolate from historical data and use our brain to adapt as quickly as possible to changes in the market?
Until you can create a crystal ball to see the future, it will always be the desire of a trader to find an almost perfect correlation between past and future market behavior. But since that's not going to happen for you, make sure you implement good money management techniques, that way you can be wrong a lot and still make money.
LOOKING FOR MORE PRICE ACTION PATTERNS TO TRADE?
The price action day trading strategies above are excellent and will continue to produce year after year. If you're a price action trader or want to learn how to be one, you are going to love the strategies in my new eBook. They are a compliment to the free strategies above.
Click on the eBook for more details.
If price action trading isn't your thing, and you'd rather learn about trading with indicators, then you might be interested in another page I have written about stock market strategies using indicators.