Volatility is the name of the day-trading game. Day traders rely heavily on a stock’s or market’s fluctuations to earn their profits. They like stocks that bounce around a lot throughout the day, whatever the cause: a good or bad earnings report, positive or negative news, or just general market sentiment. They also like highly liquid stocks, ones that allow them to move in and out of a position without much affecting the stock’s price.
The tick volume is measured by how much the price is has ticked “up” or “down” in that particular candle bar. So the more people are getting in at the time, the longer the volume line will become. This is because there will be more movement in price action with all of those entry orders flying in. So it makes sense that the volume indicator is, first of all, very accurate, and second has no real lag to it. It is currently showing you what the price action is doing the number of “ticks” on that candle bar. This results in the bar looking like this:
First, find the lowest point of the pullback to determine the “stop out” point. If the stock declines lower than this point, you should exit the trade in order to limit losses. Then find highest point of the recent uptrend. This becomes the profit target. If the stock hits your target price or higher, you should consider exiting at least a portion of your position, to lock in some gains.
Each type of trading has its advantages and disadvantages. The appeal of swing trading is that it provides plenty of opportunities to trade; the dollar risk per trade is lower than with trend trading because of closer stops; it provides greater profit opportunity per trade than day trading; and quick rewards provide emotional satisfaction. The downside of swing trading is that you must work hard all the time to manage trades; you are quite likely to miss major moves where huge profits can be made; and frequent trading results in higher commission costs.
Price volatility and average day range are critical to a day trader. A security must have sufficient price movement for a day trader to achieve a profit. Volume and liquidity are also crucial because entering and exiting trades quickly is vital to capturing small profits per trade. Securities with a small daily range or light daily volume would not be of interest to a day trader.
To succeed as a day trader, it is important to know how to pick stocks for intraday trading. Often people are unable to make profits because they fail to select appropriate stocks to trade during the day. Choosing the right stocks to book profits is an art that you will learn with experience. For beginners, here get some tips to choose stocks for intraday trading.
When it comes time to take profits, the swing trader will want to exit the trade as close as possible to the upper or lower channel line without being overly precise, which may cause the risk of missing the best opportunity. In a strong market when a stock is exhibiting a strong directional trend, traders can wait for the channel line to be reached before taking their profit, but in a weaker market, they may take their profits before the line is hit (in the event that the direction changes and the line does not get hit on that particular swing).
In addition, in the United States, the Financial Industry Regulatory Authority and SEC further restrict the entry by means of "pattern day trader" amendments. Pattern day trader is a term defined by the SEC to describe any trader who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules, the main rule being that in order to engage in pattern day trading in a margin account, the trader must maintain an equity balance of at least $25,000. It is important to note that this requirement is only for day traders using a margin account.
The Momentum and Reversal trading strategies are the #1 and #2 best trading strategies out there. These two day trading strategies are being used by thousands of our students who have participated in the Warrior Trading Day Trading Courses. In fact, in a survey of 100 of these students, over 80% are now trading profitably thanks to these strategies (click here for survey details) These strategies can be the basis for your $200/day trading plan.
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The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margin for day traders. In the United States for example, while the initial margin required to hold a stock position overnight are 50% of the stock's value due to Regulation T, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum $25,000 in his account can buy $100,000 (4x leverage) worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than her original investment, or even larger than her total assets.
By aggressively trading on margin he can produce 5% daily profits on the 100k buying power he will grow their 25k cash at the rate of 20% per day. The risk of course is that he will make a mistake that will cost him everything. Unfortunately, this is the fate of 9 out of 10 traders. The cause of these career ending mistakes is a failure to manage risk.
Spread trading This high-speed technique tries to profit on temporary changes in sentiment, exploiting the difference in the bid-ask price for a stock, also called a spread. For example, if a buyer’s bid price drops suddenly, the day trader might step in to buy and then try to quickly resell at the stock’s ask price or higher, earning a small “spread” on the transaction.
The second type of scalping is done by purchasing a large number of shares that are sold for a gain on a very small price movement. A trader of this style will enter into positions for several thousand shares and wait for a small move, which is usually measured in cents. Such an approach requires highly liquid stock to allow for entering and exiting 3,000 to 10,000 shares easily.