Day Trading Strategy

Okay, I’m about to get Sun-Tzu on everyone and talk about day trading strategy. There are several approaches you can take to actually execute your trades, and believe me, I’m the kind of day trader that believes that it’s better when you keep it simple. There are people who are so wrapped up in chart reading and technical analysis that they have 537 different indicators they’re monitoring (Williams %R, Relative Strength Index, Gann lines, etc.), and they have so many different multi-colored squiggly lines and graph-looking stuff overlaying their price charts that it ends up looking like a Kandinsky painting. I can’t even function properly with all that stuff going on. Just give me a basic chart pattern, such as a symmetrical triangle or flat-top triangle, and that’s pretty much all I’ll need to know how to react to a market move. A lot of times it’s just a matter of feeling out the general sentiment of the market by studying it every day before even dropping one dollar on a trade. What do I mean by this? Well, take the futures market for example...I have noticed that Corn always has a certain level of trading volume in the morning hours that sort of slopes off towards lunchtime, and then increases again near the end of the trading day. If you could see the volume on a chart, it would look like a horseshoe, because it’s high on both ends, but dips in the middle. A day trader would take advantage of this situation by finding out the general market bias as soon as the opening bell rings, and then basically “riding the wave” until the tide changes. One thing to note is that if the market comes out the gate swinging, the sheer momentum of the collective traders’ bias will normally keep the market moving in that direction. What do I mean in specifics? Okay, let’s say that you see Corn opening up strong, possibly three or more cents higher than the day before. What do you do? Well, while there may be slight corrections during the day, the mere “shock” of Corn opening that high in comparison to where it closed the day before will spur some upside trading activity. I had a situation like this a few years ago where Corn opened up with a bang—some 3 cents above the previous day’s close—and I immediately placed a buy order to get in as fast as I could. I knew that the sheer momentum would allow me to take some quick profits. And, I was right…within one hour, Corn had traded 5 more cents above the early morning opening price, and I had made a quick $250.00 (well, a little less after commissions and fees) within about a two hour span. Folks, this type of stuff happens all the time. I am a big fan of just getting in and getting right back out as soon as I’ve locked in some decent profits. I figure that I can be far more accurate with my predictions if I’m only looking about 2 hours into the future versus trying to look one month into the future (or futures—okay, bad pun). If you think about it, you don’t really even have to have a strong price move if you use leverage to your advantage. You can simply buy more contracts up front, and then you have leveraged your position to the point where even the slightest little “blip” in a trading day can make you large amounts of money. This is a slightly different day trading strategy known as scalping…I’m going to go into this in a little more detail in my next post. Hope you’ve enjoyed this little bit of insight into the mind of a day trader…again, I may not be the most sophisticated one, and I’m definitely not the most wealthy one out there, but I’ve made some darn decent coin in my day. Until next time…keep the faith, whatever that means.