Day Trading Strategies: Simple and Advanced Techniques for Success

Day trading is the practice of buying and selling stocks within the same day — often holding positions for just minutes or even seconds. The goal is to profit from quick, frequent trades. While the potential for fast gains is there, so is the risk. That’s why it’s important to understand the strategies and tools that can set you up for success.

Beginner Day Trading Strategies

There are certain day trading strategies you should know before diving in. Here are some of the best:

Momentum Trading

• With momentum trading, you jump on a stock whose price is moving up or down.
• The idea is to get in and out before the stock price hits the top or bottom.

Scalping Strategy

With scalping trading, you focus on volume. Small wins add up to a lot of money at the end of the day. You set buy and sell targets and stick to these predetermined levels.

Key points to know about this strategy:

• It’s fast: You make several trades within a few seconds, or buy and sell the same stock many times in a day.
• Be confident: Make quick decisions that you act on without hesitation.
• Be disciplined: If a price declines, sell immediately.
• Keep focused: This isn’t a day trading strategy for you if you can’t stay focused.
• Use limit orders: Limit orders automatically place trades when price targets are hit, so you can avoid losing too much money during fast-moving price swings.

Pullback Trading Strategy

• With this strategy, you look for a stock or exchange-traded fund (ETF) with an established trend.
• Then, when there’s a price decline from the upward trend, you buy.
• Once the trend is re-established, you can sell the stock or ETF for a profit.

Breakout Trading

Breakout trading happens when a stock’s price pushes past a key resistance level — the point where it previously struggled to move higher. That can signal strong buying momentum and the potential for gains.

Key points to know:

• The stock will often fall again because there are more sellers than buyers.
• You must watch out for false signals that could lead to losses.
• You should be well-versed in technical analysis to identify resistance levels.

Stop Losses

To protect from oversize losses, set a stop-loss order just below the first price decline. The stop loss works like insurance:

• You place a sell order for the stock at a predetermined price.
• If the stock quote falls to that price, the shares are automatically sold.
• This protects you from further losses beyond your set limit.
• You can also set a specific profit goal and sell as soon as the shares hit that goal.
• You should note that there is no guarantee your order will be executed at the exact price you set.

Common Mistakes Beginners Should Avoid

• Overtrading and chasing losses: Without a clear plan, it’s easy to take too many trades or try to recover losses impulsively. Limit yourself to three to five trades per day and accept losses as part of the process.
• Neglecting risk management: Risking too much per trade can quickly drain your account. Aim to risk only 1% to 2% of your balance on each trade and always use stop-loss orders.
• Trading without a strategy: Jumping in without understanding your approach often leads to poor results. Do your research, test your strategy and practice with a demo account before using real money.

3 Advanced Day Trading Strategies To Try Today

If you feel confident in your abilities to handle risk and mitigate loss, you can move on to advanced strategies.

1. News Trading

Stock prices are heavily influenced by sentiment, which is driven by news reports and current events. By keeping an eye on the business news, you can capitalize on popular daily stories.

• You can short sell — borrow shares, sell and buy back later for a profit — on bad news.
• For good news, you can go long — buy and hold.

2. Market-Neutral Trading

This strategy combines long positions with short ones. Rather than place your bets on upward or downward trends, you take advantage of volatility while mitigating risk to profit from both positions.

Here’s an example:

• Tesla posts record profits, so you purchase shares.
• But Elon Musk tweets something to cause shareholders to lose faith, so you “short” Tesla stock by borrowing shares and selling them, with the option to buy those shares back at a future, lower price.
• This lets you take advantage of the upside, while protecting against the downside.

3. Pivot Points

• Pivot points use the previous day’s high, low and closing prices to predict the current day’s movement.
• Traders employ this strategy to buy shares as they rise and sell as they decline.

Key Day Trading Principles To Follow

Even if you begin day trading with only $100, there are some important principles you should stick to for success.

• Use paper trading: Some trading platforms let you practice trading ideas with simulated funds before risking real money.
• Don’t expect outsized gains: Day trading is about small, consistent wins. Even a 0.5% gain can exceed a 100% annual return.
• Set your maximum risk: Limit each trade to no more than 2% of your capital to protect against large losses.
• Follow the 1% rule: Keep each position or potential loss to 1% or less of your account value, using stop loss orders if needed.
• Be aware of the 6% rule: According to FINRA rules, four or more day trades in five business days make you a pattern day trader, requiring you to follow certain rules like maintaining a $25,000 margin account balance.
• Only trade trends, not guesses: Day traders don’t generally take positions in the market’s opening or closing minutes. Neither of those times is necessarily indicative of the day’s market trend.
• Start small: Trade only with money you can afford to lose until you gain experience.
• Don’t try to win every battle: Even successful day traders lose almost as much as they win. If you can score a 55% or 60% win ratio with your day trades, you’ll come out far ahead in the long run.

Platforms and Tools for Day Trading

You should spend time understanding trading platforms, as well as the essential tools you need to make trades. Here’s a look at the trading platforms, features to consider and tools to look for when you decide to make your choice.

Best Day Trading Platforms

You’ll be on your day trading platform a lot, so make sure it’s best for you.

Key Features To Look for in a Platform

• Fee structure: Consider how much it costs to make a trade. These fees and costs can cut into profitability.
• Advanced tools: Ideally, you want a platform that has charting tools, technical indicators, various order types, plus stock screeners or scanners to spot opportunities fast.
• Speed: You want a platform that executes trades quickly without downtime. 
• Security: Look for a platform that has multi-layered security protocols like cold storage and two-factor authentication. 
• User-friendly platform: Having an interface that is easy to navigate can help with the day trading experience. 
• Demo accounts: You can practice your trading strategies without participating in live trading and risking your money. 

Conclusion

It’s no secret that day trading involves high risk. If you’re new to it, it’s essential to start small and have a strategy in place. Using a demo account coupled with research can help prevent impulsive trades and improve your odds of success. But most importantly, only invest money that you can afford to lose.

Jacob Wade, Barbara Friedberg, Daria Uhlig, Andrew Lisa, Rudri Patel and John Csiszar contributed to the reporting for this article.