Day Trading Strategies

In order to learn the best day trading strategies, it is necessary to elaborate on the concept of day trading. Day trading is usually defined as selling and buying stock, commodities, or options on one day and closing your positions by the end of the day. In the past, professional investors and financial companies had the monopoly over this type of trade, as opposed to now, when we have people working with well-developed day trading strategies from home.

Some of these strategies involve short selling stocks, not buying long stocks. In this case, your broker cannot have shares that you can short. Otherwise, the stock may be banned from being shorted on the particular trade exchange.

One of the best and most popular day trading techniques is trend trading. This is generally defined as the belief that a falling stock will keep falling and a rising stock will keep rising. This strategy involves a component of risk management using 3 elements: current market volatility, current market price, and a number of shares held. An initial risk rule is used to determine the size of the position at the time of entry. How much you will sell or buy depends on the volatility of the issue and the trading account’s size.

Basically, you trade in line with the trend and leave the trading session when the trend is broken. Another popular strategy is contrarian trading. This method is roughly the opposite of trend trading. In that case, the trader assumes that prices which have been falling or rising dramatically will eventually reverse. The idea is to trade in the exact opposite direction as everyone else.

Another option is range or channel trading. This is the midway route in day trading. Here, it is assumed that the price of certain stock will trade continuously inside a price channel or range. You sell short when prices are at the top end of the range and buy long when they are near the bottom.

Most of the information one can find on day or stock trading strategies applies to the U.S. market. The difference between that market and the Canadian stock market lies in the size - the number of actively trading stocks is between 100,000 and 200,000. This volume is approximately 6 times larger for the U.S. markets. On the markets in the United States, active stocks are established by looking at the volume of trade on the day of analysis and the closing price. These criteria are too strict in terms of the Canadian market and must be reevaluated. Due to this and other factors, it is hard to find possible bullish stocks on a daily basis. The list of such stocks is empty around once a week for Canada, and naturally much more rarely for the U.S. Finally, for Canada, it is important to utilize a low risk strategy.