Intraday trading involves making a profit by buying and selling securities based on the short-term price movements on a short-term stock chart. The major difference between active trading and long-term investment is the buy and hold duration strategized by the traders. Active traders seize advantage of short-term movements of the stocks by capturing the market trend. An active online trading strategy can be accomplished in a conducive market environment by considering the risk inherent in the strategy. This article briefly discusses the best active day trading strategies.
Best day trading strategies
Momentum trading strategy
● In this type of strategy, the right stock has to be picked by the trader prior to any significant change in the market trends.
● The decision of choosing the right stock has to be taken by analyzing the current market news.
● The news reports can influence the direction of the price movements of the stocks either in an upward or downward direction.
● An active day trader has to predict this movement that depends upon external factors. By performing due diligence, quick trading decisions have to be made in the form of placing trades.
● This strategy is known as momentum trading because it makes its trades based on interpreting the market's momentum.
● The traders have to respond quickly when the news breaks out.
● The holding period of the securities depends upon the market direction. It can be minutes, hours, or the entire day.
Position trading strategy
● The current market trend is determined by using long-term price charts of stocks. The price movements can be anywhere from daily to monthly.
● These charts are closely monitored by traders and successive higher highs or lower highs to understand the trend of the security.
● Both up and down movements of the market are taken advantage of to ride the wave of the trend.
● Even though the price of the securities is not predicted by the traders, they quickly place trades when the trend is established.
● Traders exit the market when the trend breaks. In a nutshell, when there is high market volatility, they exit the position, as the long-term course of the security price diverges from the previous pattern.
● Implementing this strategy requires strong technical analysis background.
Reversal trading strategy
● In reversal trading, the trading decisions are made against the trends.
● The decision-making requires high expertise in the analysis of markets. Therefore, this strategy is not suitable for novice day traders.
● Now, what is a market reversal? When there is an uptrend in the market, there will be a series of higher swing highs and higher lows, it can reverse into a downtrend with a series of lower highs and lower lows. This downtrend can reverse into an uptrend too.
● Traders exit the position when the trend is aligned prior to a reversal. They will get out even when they see a market reversal underway.
● Identifying such pullbacks need deeper knowledge about the market.
Breakout trading strategy
● When it comes to intraday trading, the time has a great deal of significance.
● In breakout trading strategy, the trading decision depends solely on time.
● A threshold point can be identified when there is a rise or fall in the prices of the stocks below the specified time. These points are a deciding factor in the change in stock prices.
● If there is a continuity in the trend and when the price of the stocks soars above the threshold point, traders purchase the stock.
● On the other hand, when the price of the stocks falls below the threshold point, the traders sell the stock.
● The breakout trading strategy takes advantage of the volatility that continues when the prices of the stocks cross the threshold points.
Scalping
● It is a short-term trading method that capitalizes on small price movements of the stocks that occur frequently. These price movements are capitalized with measured transaction volumes.
● The trading cycle is shorter than other forms of day trading.
● Traders enter and exit the market to make small profits off many trades on a trading day.
● The profits from small trades are added up that the traders could have made from one day trade with a huge profit.
Moving average crossover strategy
● Moving average is the differential point that shows the performance of the stocks.
● It is one of the many key indicators that help traders to understand the stock market trends.
● When the price of the stocks goes above the moving average, it is called an uptrend. Likewise, when the value price of the stocks goes below the moving average, it is known as a downtrend.
● In this strategy, traders pick the right stocks by analyzing the market factors with the help of catalysts such as news about the stock movements directly or indirectly.
The right trading strategy is the primary step in starting day trading. Successful intraday trading on trading platforms involves quick decision-making power to invest quickly and monitor the market trend.
