Day Trading Strategies

Trading Myths

You may have heard of a trading strategy called 'buy and hold'. Numerous sources and an occassional day trading seminar have expounded this theory over the last few years, including impressive looking statistics that suggest simply buying stocks or index tracking funds and hanging on to them will make you rich. Until fairly recently, 'buying and holding' was the limit of most people's involvement with the stock market. The experiences of the last 3 years have raised serious doubts about this strategy, and it is now commonly (and jokingly!) referred to as 'buy and hope'. Besides, we want to make serious money now, not wait for it till we are 70 years old! As a strategy therefore, it is probably unsuitable for you.

Tips and News Services

You may have come across pundits offering you cast-iron advice about what a particular stock or market is about to do. The simple fact of the matter is that at any point in time, EVERYTHING that is known about a stock (or market) is ALREADY figured into the price. The only kind of information that is outside the price is 'insider information', and if you attempt to trade using that kind of info (even if it were possible to buy it from a public source, which it isn't!), you will go straight to prison. Any kind of trading strategy based on such a service, is, therefore, doomed to failure.

Swing Trading

This is a short - medium term strategy (typically holding a position for a few days). The swing trader usually follows the trend, buying on pullbacks, or selling on sudden rallies, then riding the trend a little further till a trailing stop loss takes him out. While requiring less work than day trading, it also requires a higher risk tolerance, as positions may be held overnight, and who knows what gaps the morning may bring? The Camarilla {b} Equation can be used in combination with this type of trading, but it is an advanced topic, and so we leave it here for now.

Day Trading

Popular opinion states that day trading is dangerous, and most participants quickly lose their trading money and give up. The reality is that those traders who prepare themselves adequately can prosper at it, and it is only the kind of person who would fail at ANY business who is doomed to fail at day trading. Also against popular conception, day trading is where the day to day serious money is made. Day traders do not hold positions overnight. They attempt to take advantage of large intraday movements that typically happen in minutes. The problem is identifying the moments when such a move is about to occur, and being ready to jump on it and ride. The second problem is knowing when to get off. A substantial fast move can reverse just as rapidly and take you from sudden profit to sudden loss. It is for this reason that the Camarilla {b} Equation not only tells you where the likely entry point to such a move is, but also where the move is likely to falter, and where you should therefore take your profits and go back to cash. The Equation can even tell you where the likely high and low for the day will be, and these numbers can give you another signpost as to the market's movements during the day, making day trading in some people's opinions one of the safest forms of trading there is.

Scalping

Widely regarded as 'easy money', this is the shortest term trading. Originally the preserve of the 'pit traders' (the traders actually physically present on the floor of an exchange), it has begun to creep into the internet realm, with a number of erstwhile day traders now effectively trying to scalp with direct access accounts and ECN routing. Scalping involves taking tiny nibbles from a minute price move, and it is possible for pit traders because they have 'the edge', the spread between buying and selling. Off the trading floor, you will not have this advantage, and therefore scalping as a proposition can NOT be recommended.