Day Trading Strategies for Beginners (Part 2)

Okay, based on the previous post, I promised that I would get into some more specific day trading strategies for beginners, so I plan on making good on that promise with this post. I’m learning more & more that I have to do my best to prevent “diarrhea of the mouth” with these posts, and just stick to the topic at hand. To be honest, that’s probably never really going to happen, because my brain just doesn’t work that way, but I can dream, can’t I? So, in my (somewhat feeble) attempt to stick to the subject, I’m going to go ahead and dive into some specifics where day trading strategies are concerned. I trade and have traded all different types of markets, including stocks, futures, options, and forex, and the one common denominator in all of my trading is that I rely heavily upon price charts. I honestly feel that there’s no other way to go but to use price charts to determine what my trading strategy is going to be. In my humble opinion, if you’re entering into a market, but haven’t taken a look at the price chart, but are only going off of fundamental data and statistics, in my mind you’re flying blind. Most of the time, by the time you actually read the reports or the headlines, whatever “big events” are supposed to shake the makrets have already been factored into the price. This is just a fact of life…most traderst that trade on fundamental data are very much late to the party. Price charts, however, give you the distinct advantage of noticing recurring patterns and trends that many times repeat themselves. It’s a lot like what a meteorologist does; they look at historical data and make a determination of how things are going to be tomorrow based on their historical data, but also mixed with a little bit of how the current conditions are. They don’t’ claim to know the future, and many times are dead wrong (as you will be too sometimes when you trade), but they’ve done a pretty decent job of being able to predict the weather on a fairly reliable basis. There are certain things to look for on a price chart that will help give you “clues” as to what may (and I stress the word “MAY”) be happening next. These “clues” on the price charts are revealed by way of chart patterns. The art of identifying chart patterns is a huge part of the school known as “technical analysis”. If you boil it down to its most essential steps, technical analysis is simply the study of price charts.

There are a lot of different tools and techniques that people use to perform their technical alnalysis, but at the end of the day, just looking at the overall direction of the trend is pretty much all you really need to know. I’m a huge fan of the book “Trend Following” by Michael Covel, and I’m a huge fan of the trading school known as the Turtle Traders. If you ever get a chance to check out those websites, do yourself a favor and do so, because it will revolutionize your perspective on trading. Solid trading is not built on never being wrong; solid trading is built on managing the losses when you are wrong, and absolutely milking your winners for everything you can when you’re right. It may seem funny that I’m a fan of those two books and that general school of methodology, because it normally applies to long-term trading rather than short-term, but I love the discipline that’s involved in their methods. At the end of the day, yes, a day trader’s transaction costs can far outweigh those of a less frequent trader, but using a disciplined approach based on money management and handling losses properly, the day trader can kick tail over a long-term trader any day of the week—just ask Marty Schwarz. He was clocking about $70,000 a day on average using “scalping” methods, which is basically entering and exiting a market at light speed, within seconds of each other, and doing it with multiple contracts to leverage small “blips” that happen during a typical trading day. Okay, before my hand starts cramping, I’m going to sign off on this post, but I have to take a second to look back and see if I stuck true to my word…okay, well, I did introduce the core foundation of all of my personal trading strategies, and that is studying price charts (i.e., technical analysis). I’ll have to go into detail about what happens during the actual trading process in future posts; I’m definitely not going to make any more promises about giving this beautifully packaged set of day trading strategies for beginners until I know that I’ve covered the basics to a decent degree. This is not to say that I won’t skip around and do some things in a non-sequential order…hey, I’m writing how I’m writing, and I hope it’s been useful.