What are some common day trading strategies that actually work? This is a question that many new traders are very curious about once they get started and because I want more trading challenge students, I’ll gladly tell you!
Being a successful day trader means that you’ve got to have a little bit more strategy than simply buying and selling stocks, you really have to think inside and out about the stocks you’re trading and be VERY meticulous. It’s vital to research them thoroughly to make sure that you’re making a calculated risk. Here are some common day trading strategies that will help you refine your trading methods.
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1. Remember that you’ll never get it right all the time. It’s important to remember that no matter how prepared you are, you will never get it right all of the time, this is more of an art and NOT an exact science. Think of successful trading as a moving target as at any one time, there are simply too many factors at play.
However, knowing this can actually be part of your strategy. Knowing that it’s impossible to nail every trade perfectly can help you push to do the best you can to research, study, and chart out whether or not this is a calculated risk and you’ll learn in time to take “the meat of the move” where you don’t necessarily capture the entire move of a stock, up or down, but you profit on some of the move and that should be enough for you.
2. Learn a variety of trading styles and setups. As you begin to trade, you’ll undoubtedly gravitate toward certain styles of trading and particular types of setups. For instance, some traders really love short selling. Others really like looking for low priced stock breakouts with big volume. Usually, you’ll move toward the methods that play to your strengths. In the Tim Sykes Millionaire Challenge, I emphasize to my students the importance of learning about how to trade in a variety of different ways, so that you can approach trading in the most nimble way. Not only will this make you a more masterful trader, but it will make you more nimble and adaptable to market changes.
3. Look for earnings winners. Companies report quarterly earnings four times per year. These reports on their earnings make people re-evaluate the worth of a company, and the stock can spike in reaction for several days or even weeks. Stocks can react to both good and bad earnings, but the best part about looking for earnings winners is that you don’t need to understand complex financial statements; the first 1-2 days’ stock reaction will usually tell you all you need to know…no matter how “good” the numbers look, if the stock doesn’t spike in a meaningful way it’s NOT an earnings winner and that “good” news was probably priced in already.
4. Is there a new investor? A big new investor can have an immense effect on a stock, so reviewing such news is one of the most invaluable day trading strategies. Basically, whenever a company gets a big new investor buying more than 5% of the company, there has to be an SEC filing denoting the new investment. There could be a press release or news stories on the subject. The bigger and more credible the new investor, the better it is for the stock. Personally, I love piggybacking on big new investors, because it’s almost as if they did the research for me and given their seal of approval on a stock.
5. Are there any new products/contracts? Like earnings reports and news of big new investors, the announcement of a new product or contract can have a big impact on a stock. This type of news can spike a stock for days or weeks! Simply put, announcing, teasing, or debuting a new product gets people excited. Even if you don’t know if the new product or contract will succeed, it can impact the stock. There’s actually a famous trading adage related to that: “buy the rumor, sell the news”. The fact is, even if a new product or contract fizzles out over time, the stock can still spike in anticipation. Therefore, it’s worth looking at this type of news.
6. Learn some key patterns. Learning to identify patterns is one of the most important day trading strategies. I place huge emphasis on this in teaching members of the Tim Sykes Million Challenge Team. For instance, I teach my students about common patterns and day trading strategies such as dip buying and shorting supernovas and what I call my “gimme” pattern of buying low priced stock breakouts on big volume. Learning to identify these so-called “boring but reliable” patterns can be a great way to begin identifying reliable ways to find success in trading. Since history repeats itself, once you learn about key patterns, you can use them to your advantage over and over.
So do me and yourself a favor and learn these patterns in this must read new penny stock book…it’s an organized take on all my lessons by one of my students who was fed up with my lack of organization! (seriously)
7. Be willing to change your setup. This advice may seem contrary to the last few points. However, it’s important to discuss how you need to be adaptable. Basically, even if you’ve refined patterns and setups which work reliably for you, the ever-changing market can shift things on a dime. This means that the same setup which has been working for weeks or months might suddenly stop working. If this starts happening over and over, you need to be willing to change how you trade.
It doesn’t mean that you’ve been doing anything wrong; it simply means the market is headed in another direction and you need to adapt your methods to fall in line with it. You won’t beat the market by force of sheer will, so it’s always better to go with the flow…adapt or perish, it’s your choice!
8. Learn from your mistakes. This shouldn’t just be one of your day trading strategies, but life advice. Be willing to learn from your mistakes! Every trader will make mistakes; it’s inevitable. However, if you are willing to learn from them, evaluate your performance, and avoid them in the future, they can be your biggest teachers. Yes, it can be humbling to face the fact that you’ve messed up, but it can actually really help you in the long run.
Finding success as a day trader isn’t always easy. However, by arming yourself with some key strategies, you’ll give yourself a powerful edge that can help you get ahead. See for yourself the impact that incorporating these strategies into your trading can have!
Leave a comment below if you understand these points as knowledge and preparation are keys to your eventual success!