Stock Day Trading - The Entry

While many feel that the ENTRY is the least important part of stock day trading and some even say it's possible to extract profits from the market using a completely random entry, I agree it's the least important part, but still a component you must carefully consider as part of your day trading method. What do I mean? Well, I've always felt that the timing of the entry should take into account two very important aspects, Volatility and Risk.

The trading SETUP, which must occur before there is an entry, can be designed so that volatility is relatively low for two important reasons:

  1. Expansion - Since we know that high volatility usually follows periods of low volatility, we want to try to enter right before a period of expansion. This price expansion is what carries us into profits!
  2. Risk - Low volatility offers us something that we can control. We can actually control something while stock day trading?

    That's right! We can't control where price is going to go after we enter a trade, but we can control how much we are going to risk on a trade, by milking these low volatility areas. Since we want to keep our risk to an absolute minimum, we use these areas which have relatively small range bars to place our stops under. That's why it's important to find these entry setups, otherwise your initial stop is too far away from your entry and the risk on the trade is too high!

I'll go over where to place your stops on my stock day trading - Stops page. For now just understand the idea of price expansion out of low volatility, small range, consolidation conditions on a stock chart.

As I demonstrated with both the Bollinger Bands with BandWidth indicator and the ATR indicator, volatility tends to be very predictable. Your best day trading setups will come from stocks that are under going expansion and then later contraction of both their multi-bar and single bar range. These contraction and consolidation areas are what you need to be on the look out for. It is absolutely mandatory while intra day trading to locate probable areas of near future price expansion, due to the short time frame in which stock day trading has to make profits.

You only have hours not days, for price movement to make you money! So use day trading methods that aren't going to leave you sitting in a stock going nowhere.

The two stock charts below are examples of low volatility and low risk intra day trading entries which lead to price expansion.

stock day trading example

Example of a day trade out of stock's consolidation


The TRIGGER, or day trading signal, is simply the price action that must occur for an entry, once a stock has given you a trading setup. All of the day trading strategies, that I will describe later in this site, will use the same type of trigger ---- a breakout trigger.

A breakout trigger is simply price breaking above the high of the previous bar or an established line of resistance. That's it.

{note: to keep things simple in this website, I mostly refer to long trades......obviously everything is reversed for short trades}

Why not just enter before the breakout and get a better price? Because, you want price to to prove to you first, that it can even make it through overhead resistance AND that the bigger players want that stock to go in that direction.

The chart below is a zoomed in view of a setup and a price breakout trigger.

Breakout day trade out of a lateral pattern