Traditionally strategy, any strategy, takes time. Which means, in the lightning fast world of day trading, there is really only one entry in the book of day trading strategies: buy right, sell into strength and get out with a profit.
That said, there are several strategic approaches traders can take, depending on their risk tolerance. They involve various combinations of long and short positions, and the willingness to pull the trigger when the golden moment arrives.
It is the determination of that golden moment that separates the successful from the rest. Which – the rest – is a much larger demographic.
The Value of the Trading Range
If a trader can stay ahead of a trading range within a given day, they can – theoretically, at least – buy low, sell near the peak, go short at the peak, ride the momentum back down, cover at a profit, then buy-in again.
But rare is the investor who has either the intestinal fortitude, the capital or the instinctive insight to pull this off.
One reason is that day trading is, by an large, completely immune to the effect of fundamental research on the intraday price of a stock. Which means they are left to ponder the intricacies of technical analysis as represented by trading range and volume.
Some traders rely on software programs that track and analyze these technical variables, flagging identified stocks for possible entry and exit opportunities.
Pick Your Battles
Another strategy is to restrict the playing field to stocks that meet a set of given criteria. Volatility is the number one criteria here, along with sufficient volume to ensure a quick exit. Day traders pay little attention to, say, utility stocks, and for this very reason. The wilder the ride, the greater the opportunity.
This combination of stock selection, trading range, volume, and the possible use of software to monitor it all, combines with the trader’s personal style – and, risk-level tolerance – to define their day trading strategy.
Once you find out what works for you, the best strategy then becomes this: if it isn’t broken, don’t change it. Stay the course, even when the ride gets crazy.
