If you’re new to the world of day trading there is a lot you need to know. You may find yourself scratching your head wondering which, of many, is the best day trading system.
If you have already mastered the trading basics, it is time to pick your strategy. Finding a strategy that works for you can sometimes be an errand of trial and error but the best tool to have in your belt is knowledge.
If you've already mastered the basics, It is time for me to show you just a few of the trading systems there are so that you may walk away with a better idea of the best day trading strategy for you.
The most popular of the strategies, scalping, is the act of buying a stock on a hunch, or with some knowledge of what the market is going to do. You then sell it immediately after it becomes profitable.
This is the a very simple, yet one of the best day trading strategies if you are working with a broker with low enough fees that you don't get fleeced yourself!
Here's a quick video that further explains what scalping is.
Buying The Breakouts
Often times a stock will stay in a given range throughout the trading day.
If you set your parameters and watch closely, you can buy a stock when it breaks out above a known resistance.
This is a good system if you are okay holding a stock for a long time or if you are experienced in shorting stocks and want to play on the volatility of a stock breaking out.
Beware! This is a very risky strategy for stock trading but with great risk often comes the potential of great reward.
Fading a stock is when you short (essentially bet against) a stock that you think is oversold, over valued, or both.
There are times when a stock might be overhyped by the general public and traders. When this happens it starts a buying frenzy and people way over value said stock. This is where the fade comes in.
You, armed with a better idea of what the stock is worth, bet that its value is not as high as everyone else thinks. If you’re right the stock’s price comes tumbling down and you make money. This is the best day trading system for someone who doesn't mind taking risks.
Trading Daily Pivots
If you’re looking at a 12-month or 5 year stock chart the trends up or down of a stock may seem pretty steady and consistent. If you zoom in to look at the same stock’s trends daily or even hourly what you’ll see is a very different picture.
The stock will seem, while still trending one way or another, volatile on the day to day. If you study the charts over a period of time you'll find there is a way to profit on the capricious nature of intraday stock trading.
Trading stock pivots is where you attempt to purchase a number of shares of a certain stock at its presumed lowest point of the day, and then sell it that same day at its presumed highest point.
This is the best system for someone that has patience and the willingness to do a lot of research as it’s essential you know the stock you are trading inside and out.
Trading daily pivots is a versatile system because the same principals apply to trading the foreign exchange market.
Momentum trading is the day trading system of choice for the news and media junkie. This system has you making trades based on news reports and trends.
A good momentum trader will spot a stock that is starting to get popular, buy it, then ride the wave of media and gossip until it seems to be making a reversal, then sell. It’s another risky day trade move, but the potential for reward is massive.
Momentum traders can also use the fade and make a profit by shorting stocks that are over-hyped thus making money as the stock comes up and goes back down.
Remember, the best tool you can have in your belt while day trading is knowledge.
I hope this has been a good primer for you in understanding the different types of strategies and how they work.
If it’s a subject you want to learn more about there are many online resources and books available with in-depth looks at these and more types of trading systems.
Good luck and happy trading!
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