Day Trading Strategies for Beginners.
Day trading – the act of buying and selling a financial instrument within the same day, or even multiple times over the course of a day, taking advantage of small price moves – can be a lucrative game. But it can also be a dangerous game for those who are new at it or who don't adhere to a well-thought out method. Let's take a look at some general day trading principles and common day trading strategies, moving along from basic tips you need to know to advanced strategies that can help you learn how to day trade like a pro. [If you're looking for a more in-depth option, Investopedia Academy has a three hour video course taught by a 30-year veteran of the industry.]
Day Trading Tips You Need to Know.
Not just knowledge of basic trading procedures, but of the latest stock market news and events that affect stocks – the Fed's plans for interest rates, the economic outlook, etc. Do your homework; make a wish list of stocks you'd like to trade, keep yourself informed about the selected companies and general markets, scan a business newspaper and visit reliable financial websites on a regular basis.
Assess how much capital you're willing to risk on each trade (most successful day traders risk less than 1-2% of their account per trade). Set aside a surplus amount of funds that you can trade with and are prepared to lose (which may not happen) while keeping money for your basic living, expenses, etc.
Day trading requires your time – most of your day, in fact. Don’t consider it as an option if you have limited hours to spare. The process requires a trader to track the markets and spot opportunities, which can arise any time during the trading hours. Moving fast is key.
As a beginner, it is advisable to focus on a maximum of one to two stocks during a day trading session. With just a few stocks, tracking and finding opportunities is easier.
Of course, you're looking for deals and low prices. But keep away from penny stocks. These stocks are highly illiquid and chances of hitting a jackpot are often bleak.
Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, contributing to price volatility. A seasoned player may be able to recognize patterns and pick appropriately to make profits. But as a newbie, it is better to just read the market without making any moves for the first 15-20 minutes. The middle hours are usually less volatile while the movement begins to pick up towards the closing bell. Though the rush hours offer opportunities, it’s safer for beginners to avoid them at first.
7) Cut Losses with Limit Orders.
Decide what type of orders you will use to enter and exit trades. Will you use market orders or limit orders? When you place a market order, it is executed at the best price available at the time; thus, no “price guarantee.” A limit order, meanwhile, does guarantee the price, but not the execution. Limit orders help you trade with more precision wherein you set your price (not unrealistic but executable) for buying as well as selling.
8) Be Realistic About Profits.
A strategy doesn't need to win all the time to be profitable. Many traders only win 50% to 60% of their trades. The point is, they make more on their winners than they lose on their losers. Make sure that the risk on each trade is limited to a specific percentage of the account, and that entry and exit methods are clearly defined and written down.
There are times when the stock markets test your nerves. As a day trader you need to learn to keep greed, hope and fear at bay. Decisions should be governed by logic and not emotion.
Successful traders have to move fast – but they don't have to think fast. Why? Because they've developed a trading strategy in advance, along with the discipline to hold to that strategy. In fact, it is far more important to follow your formula closely than to try to chase profits. There's a mantra among day-traders: "Plan your trades, then trade your plan."
Day Trading Like a Pro: Deciding What to Buy.
Day traders seek to make money by exploiting minute price movements in individual assets (usually stocks, though currencies, futures and options are traded as well), usually leveraging large amounts of capital to do so. In deciding what to focus on – in a stock, say – a typical day trader looks for three things: liquidity, volatility and trading volume.
Liquidity allows you to enter and exit a stock at a good price (i. e. tight spreads, or the difference between the bid and ask price of a stock, and low slippage, or the difference between the expected price of a trade and the actual price). Volatility is simply a measure of the expected daily price range—the range in which a day trader operates. More volatility means greater profit or loss. Trading volume is a measure of how many times a stock is bought and sold in a given time period (most commonly, within a day of trading, known as the average daily trading volume - ADTV). A high degree of volume indicates a lot of interest in a stock. Often, an increase in the volume of a stock is a harbinger of a price jump, either up or down.
Once you know what kinds of stocks (or other asset) you are looking for, you need to learn how to identify entry points – that is, at what precise moment you're going to invest. There are three tools you can use to do this:
Real-time news services. News moves stocks; subscribing to such services tell you when potentially market-shaking news comes out. ECN/ Level 2 quotes . ECNs are computer-based systems that display the best available bid and ask quotes from multiple market participants, and then automatically match and execute orders. Level 2 is a subscription-based service that provides real-time access to the NASDAQ order book composed of price quotes from market makers registered in every NASDAQ-listed and OTC Bulletin Board securities. Together, they can give you a sense of orders being executed in real time. Intraday candlestick charts. Candles provide a raw analysis of price action. (More on these later.)
Day Trading Like a Pro: Deciding When to Sell.
Before you actually jump into the market, you have to have a plan for getting out. Identifying the point at which you want to sell an investment is called Identifying a price target. Some of the most common price target strategies are:
In most cases, you'll want to exit an asset when there is decreased interest in the stock as indicated by the Level 2/ECN and volume.
Day Trading Pro Tips: Charts and Patterns.
Previously, we mentioned three tools for determining entry points – that is, deciding the opportune moment you're going to buy a stock (or whatever asset you're trading). The most technical are intraday candlestick charts. We'll focus on these factors:
There are many candlestick setups that we can look for to find an entry point. If properly used, the doji reversal pattern (highlighted in yellow in Figure 1) is one of the most reliable ones.
Figure 1: Looking at candlesticks - the highlighted doji signals a reversal.
Typically, we will look for a pattern like this with several confirmations:
First, we look for a volume spike, which will show us whether traders are supporting the price at this level. Note that this can be either on the doji candle or on the candles immediately following it. Second, we look for prior support at this price level. For example, the prior low of day (LOD) or high of day (HOD). Finally, we look at the Level 2 situation, which will show us all the open orders and order sizes.
If we follow these three steps, we can determine whether the doji is likely to produce an actual turnaround and we can take a position if the conditions are favorable.
Day Trading Pro Tips: How to Limit Losses.
Trading on margin means that you are borrowing your investment funds from a brokerage firm. When you trade on margin (and bear in mind that margin requirements for day trading are high), you are far more vulnerable to sharp price movements. Margins help to amplify the trading results – not just of profits, but of losses as well, if a trade goes against you. Therefore, using stop-losses, which are designed to limit losses on a position in a security, is crucial when day trading.
A stop loss order controls risk. For long positions a stop loss can be placed below a recent low, or for short positions above a recent high. It can also be based on volatility: For example, if a stock price is moving about $0.05 a minute, then you may place a stop loss $0.15 away from your entry in order to gives the price some space to fluctuate before it moves (hopefully) in your anticipated direction. Define exactly how you will control the risk on the trades. In the case of a triangle pattern, for example, a stop loss can be placed $0.02 below a recent swing low if buying a breakout, or $0.02 below the pattern. (The $0.02 is arbitrary; the point is simply to be specific.)
One strategy is to set two stop losses:
A physical stop-loss order placed at a certain price level that suits your risk tolerance. Essentially, this is the most money you can stand to lose. A mental stop-loss set at the point where your entry criteria are violated. This means that if the trade makes an unexpected turn, you'll immediately exit your position.
However you decide to exit your trades, the exit criteria must be specific enough to be testable – and repeatable.
The Bottom Line.
Day trading is a difficult skill to master, requiring as it does time, skill and discipline. Many of those who try it fail. But the techniques and guidelines described above can help you create a profitable strategy, and with enough practice and consistent performance evaluation, you can greatly improve your chances of beating the odds. There is one final rule we should mention: Set a maximum loss per day that you can afford to withstand – both financially and mentally. Whenever you hit this point, take the rest of the day off. Stick to your plan and your perimeters. After all, tomorrow is another (trading) day. If you want to learn proven, profitable strategies you can start using today, from an experienced Wall Street trader, then check out Investopedia Academy's "Become a Day Trader" course.

Daily options trading strategy

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Daily options trading strategy

Weekly options have become a stalwart among options traders. Unfortunately, but predictable, most traders use them for pure speculation.
But that’s okay.
As most of you know, I mostly deal with high-probability options selling strategies. So, the benefit of having a new and growing market of speculators is that we have the ability to take the other side of their trade. I like to use the casino analogy. The speculators (buyers of options) are the gamblers and we (sellers of options) are the casino. And as well all know, over the long-term, the casino always wins.
Why? …because probabilities are overwhelmingly on our side.
So far, my statistical approach to weekly options has worked well. I introduced a new portfolio (we currently have 4) for Options Advantage subscribers in late February and so far the return on capital has been slightly over 25%.
I’m sure some of you may be asking, what are weekly options. Well, in 2005, the Chicago Board Options Exchange introduced “weeklys” to the public. But as you can see from the chart above, it wasn’t until 2009 that the volume of the burgeoning product took off. Now “weeklys” have become one the most popular trading products the market has to offer.
So how do I use weekly options?
I start out by defining my basket of stocks. Fortunately, the search doesn’t take too long considering weeklys are limited to the more highly-liquid products like SPY, QQQ, DIA and the like.
My preference is to use the S&P 500 ETF, SPY. It’s a highly-liquid product and I’m completely comfortable with the risk/return SPY offers. More importantly, I’m not exposed to volatility caused by unforeseen news events that can be detrimental to an individual stocks’ price and in turn, my options position.
Once I’ve decided on my underlying , in my case SPY, I start to take the same steps I use when selling monthly options.
I monitor on a daily basis the overbought/oversold reading of SPY using a simple indicator known as RSI. And I use it over various timeframes (2), (3) and (5). This gives me a more accurate picture as to just how overbought or oversold SPY is during the short-term.
Simply stated, RSI measures how overbought or oversold a stock or ETF is on a daily basis. A reading above 80 means the asset is overbought, below 20 means the asset is oversold.
Again, I watch RSI on a daily basis and patiently wait for SPY to move into an extreme overbought/oversold state.
Once an extreme reading hits I make a trade.
It must be pointed out that just because the options I use are called Weeklys, doesn’t mean I trade them on a weekly basis. Just like my other high-probability strategies I will only make trades that make sense. As always, I allow trades to come to me and not force a trade just for the sake of making a trade. I know this may sound obvious, but other services offer trades because they promise a specific number of trades on a weekly or monthly basis. This doesn’t make sense, nor is it a sustainable and more importantly, profitable approach.
Okay, so let’s say SPY pushes into an overbought state like the ETF did on the 2 nd of April.
Once, we see a confirmation that an extreme reading has occurred we want to fade the current short-term trend because history tells us whenВ a short-term extreme hits В a short-term reprieve is right around the corner.
In our case, we would use a bear call spread. A bear call spread works best when the market moves lower, but also works in a flat to slightly higher market.
And this is where the casino analogy really comes into play.
Remember, most of the traders using weeklys are speculators aiming for the fences. They want to take a small investment and make exponential returns.
Take a look at the options chain below.
I want to focus on the percentages in the far left column.
Knowing that SPY is currently trading for roughly $182 I can sell options with a probability of success in excess of 85% and bring in a return of 6.9%. If I lower my probability of success I can bring in even more premium, thereby increasing my return. It truly depends on how much risk you are willing to take. I prefer 80% or above.
Take the Apr14 187 strike. It has a probability of success (Prob. OTM) of 85.97%. Those are incredible odds when you consider the speculator (the gambler) has less than a 15% chance of success. It’s a simple concept that for some reason, not many investors are aware of.
One Simple System to Win Nearly 9-out-of 10 Trades.
Regular investors dream about these kinds of opportunities – but few ever believe they’re real. Like dragons, the idea of making money on nearly 9-out-10 trades seems the stuff of legend… or if real, reserved exclusively for the market’s slickest traders. Yet, it’s very real. And easily within the reach of regular investors. You can learn all about this safe, simple strategy – and the next three trades shaping up right now – by clicking this link here. Slay your own dragon – Go here now. В.

My Simple Strategy for Trading Options Intraday.
I rarely come across a trader that has not traded options. Options strategies come in many shapes and forms, but they are all intended to do one thing: make money. I’ve been trading since 1980 and was at one time one of the largest options traders in the brokerage industry until the crash of 1987, which brought a new realization that holding a leveraged position overnight could be devastating, and it was.
Though I still trade options, I have a totally different perspective on how and when to trade them. First, I am an S&P futures trader. I have been trading and following the S&P futures since they began trading in 1982. So I have learned to trade options based on the one thing I know best, the S&P 500 futures.
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The S&P 500 future of the 1980’s was much different than the futures we know today. Because of the boom in technology over the past 15 years, most of the trading done today is all electronic as opposed to picking up the phone and calling a broker or the pit. And the economy of today is now global instead of being country specific. These factors have led the trading industry to look at the markets in a broader perspective where our markets will react with what happens in Europe or Asia.
Not only this, but the markets are becoming a 24 hour market instead of just the standard 8:30 am – 3:00 pm CT (9:30 am – 4:00 pm EST) here in the U. S. Since the markets are based on a 24 hour basis, we now can see how the world values our markets and get a better understanding on how our markets will perform based on how the world has traded.
I start my trading day early (5:00 am CT/6:00 am ET) to begin to get the direction of the markets going through Europe and coming into the U. S. open. The E-mini S&P Futures (E = Electronic) is the choice of S&P futures traders in this day, and mine, because it is always electronic and trades virtually 24 hours a day. The direction the E-mini (the term used for the E-mini S&P futures) is trading gives signals to how the U. S. markets will open. Though equity options cannot be traded until after 8:30 am CT (9:30 am ET), I can begin to start setting up my trading strategy based on what the E-mini has done throughout the night.
The majority of stocks (around 70%) will move in the same direction as the E-mini. Knowing this, by the time the U. S. opens at 8:30 am CT (9:30 am ET), I know if the majority of stocks will open down or up based on what the E-mini has done throughout the night. Once the U. S. market opens, the U. S. gets to “vote” on the direction of the world markets. Because of this, I like to give the market one hour before entering into an options trade. This gives the U. S. market time to digest the move of the world markets and any economic news that has been announced. Looking a Chart 1, you can see the direction of the world markets and how it affects the U. S. markets.
To trade options, I use a basic strategy. If the market is going up, I buy calls or sell puts. If the market is going down, I sell calls or buy puts. I prefer to be a seller of options rather than a buyer; however, there are some equities that move well enough in a day that buying the option pays better than selling the option and waiting for it to deteriorate. Apple is a good example of this. Apple is one of the stocks that track very well with the E-mini (for this reason I will use it as an example in this article). Chart 2 shows a daily chart of Apple (AAPL) and the E-mini (ESM9). Though stocks have individual news and can move more at times (or less), they will generally trend with the E-mini.
As stated earlier, I like to give the market the first hour of trading to get the “noise” out of the market. I then look at where the E-mini is trading based off of its open (up or down) and the overall direction of the market for the day, and see if Apple is trading in the same direction based off its open. If so, I will buy an at-the-money, or first strike out-of-the-money, call if heading higher, or put if heading lower. I then give the market 30 minutes to see if the direction I traded is right. If so, I place a stop at half of the value I paid for the option, i. e. – If I bought the option for $5.00, I place a stop at $2.50. If the market has turned and I am not getting paid, I will get out of the position and look for another opportunity later. If the trade is going in my direction, then I will reevaluate it at 1:00 pm CT (2:00pm ET). If the market reverses, then I get out. If the market continues in my direction, I stay with the trade and move my stop just to the other side of the open by about 10 cents and then look to re-evaluate the trade at 2:30 CT (3:30pm ET) before the market closes.
Chart 3 shows Apple and the E-mini on May 26, 2009. The E-mini started higher and continued the trend going into 9:30 am CT (10:30 am ET). Apple was following the trend and was trading around $128-$129 at 9:30 am CT (10:30 am ET). The closest strike would have you buying the June 130 call on Apple. Chart 4 is the Apple June 130 call (APV FF) that you could have entered around $4.20-$4.30. At 10:00 am CT (11:00 am ET) it was trading at $4.35 was holding up. At this time, a protective stop would be put in at $2.10 and left for reevaluation at 1:00 pm CT (2:00 pm ET). At 1:00 pm CT the call was trading at $5.65 and the stop was adjusted to $2.40 (10 cents below the open of $2.50) and left to see where it was at 2:30 pm CT (3:30pm ET). The market had pulled back a bit, and the call was at $5.10 which was 55 cents below where it was at 1:00pm CT, so the trade would have been exited at that time with an 80 cent profit.
This is just one example of a stock that can be traded throughout the day. If I can’t get into a trade at 9:30 am CT (10:30 am ET), I will look to enter after 1:00 pm CT (2:00 pm ET) and follow the same procedure going into the close. Using the direction of the futures to get the trend shifts the odds in your favor of getting paid. There are many stocks out there, just verify that they trend with the E-mini before using them in this manner. Happy trading!
Tom Busby is founder of DTI and a pioneer in the trading industry as a world-recognized educator. He takes a complex subject, the global markets, and puts it into an easy-to-understand language for all levels of traders and investors. With guest speaking spots on Bloomberg and CNBC, Mr. Busby is also the author of two best-selling books, Winning the Day Trading Game and The Markets Never Sleep. He is a member of the Chicago Mercantile Exchange Group and has been a professional securities trader and broker since 1977.
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It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER - OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.