You can use a day trading strategy if you want to become a successful trader but you’re not sure where to start. If you want to learn how to start day trading you landed in the right place. Our top senior trader will teach you what it takes to become a successful day trader.
Read forward if you want to get some quality advice from one of the top short-term traders on the street.
Like with any other new business there are many new tricks you need to learn to steer you in the right direction. When it comes to day trading these tricks should get you set up with the right mindset, the proper education, help you decide what to trade, how to manage risk and basically everything you need to successfully day trade any market.
You can become even a full-time day trader and give up your 9-to-5 day job if you’re really passionate about it and are prepared to put in the necessary work. Trading is not a one-size-fits-all kind of thing because everyone is different and everyone has their own personalities.
Throughout this guide you will learn a simple day trading strategy but more importantly you will learn how to use intraday patterns to your advantage and technical indicators to better time the market.
How to Start Day Trading
The reality is that you need to put in the right amount of work and you have to have to right kind of approach to survive as a day trader. But if you’re going to learn fully and develop your day trading skills quickly you’ll be able to be a profitable day trader.
We can help you learn how to start day trading and to optimize your strategy so you can achieve your goals in a very sustainable and consistent way.
We’re going to go over a step-by-step guide on how to start day trading for a living. We’re going to discuss things starting from how to choose the right broker for day trading all the way to when to get in and out of a trade.
What is day trading?
We taught it’s appropriate to first start by defining what is day trading?
Day trading involves buying and selling of an instrument within the same day. In other words, all trades open during the current trading day must be closed by the end of the day. Day traders only look to capitalized on the intraday price movements and not giving too much weight on the long-term trends.
Choosing the right Trading Broker
It’s important to choose a reputable broker because at the end of the day he is the one who will execute your trades in the market. No matter if you trade Forex currencies, stocks, futures or options before choosing a broker you need to consider the following features:
- Regulatory Compliance: make sure your favorite broker is regulated by the major financial regulatory bodies. Your funds will be more secure if a regulated broker.
- Fees: make sure your broker has competitive commissions. As a day trader you’ll be trading more often so you need to minimize the costs of doing business.
- Speed of execution: As a day trader it’s vital to get best price possible, when you need it. You’re going to make lots of trades so it’s essential to have a good speed of execution.
- Lower Spreads and Margins: As a day trader you need lower spreads and margins so you can have better profit margins.
Do your due diligence before picking a broker. Make sure the broker you pick suits your short term trading style and goals.
A good Computer and Fast Internet Connection
It’s preferable to have a top of the range computer with fast processor and lots of memory that will not crash while you’re trading. You don’t want your computer lagging causing you to miss on good trading opportunities because this will negatively affect your performance.
Keep your computer always updated!
Another essential thing you need to secure for your day to day trading operations is a reliable and fast internet connection. Preferably you would want to have two reliable cable ISPs. In case one of your internet service provider goes down you have a backup.
You don’t want to be left with no internet connection the moment you will execute a trade that will lead to a lot of frustrations.
What Instrument to Day Trade?
As a newbie day trader, you may already have your favorite market or instrument. However, when day trading it all comes down to whether your favorite currency has enough volatility and a repeating pattern that you can exploit.
Don’t get it wrong. All markets can be day traded, however only volatile markets offer excellent day trading profit potential.
Note: volatility is day trader’s best friend!
If you’re just starting day trading the best thing to do is to try to master only one market. Don’t be the Jack of all trades, master of none!
The first step is to get to the point where you’re profitable with one instrument. When you proved yourself that you can master one market, it’s much easier to adapt and learn to profitable trades new markets.
Moving forward you’re going to learn a simple day trading strategy that our top traders use and the day trading setup that helped our top trader to turn into a seven-figure trader.
Simple Day Trading Strategy
Don’t take anything for granted and before you put any real money at work test the simple day trading strategy on a demo account. This way you can actually prove to yourself that our day trading strategies and trading tips are working.
Just practice and sharpen your day trading skills so before we put real funds in the market you’re ready to battle the smart money.
Now that we covered how to start day trading, let’s explore a few advance day trading strategies that the pros use to take profits out of the market on a consistent basis.
Day Trading with an Oscillator
Our favorite oscillator is the Stochastic RSI. But we have an issue since most oscillators are leading indicators this will lead to many false signals. The bottom line is that you really need to know an advanced technique to read what the Stochastic RSI indicator is saying.
The standard way to look at an oscillator is simply to look for overbought and oversold readings.
See chart below:
However, to be ahead of the crowd we need more advanced techniques to neutralize the many false trading signals. Moving forward we’re going to share how to professionals use the Stochastic RSI to day trade the market.
Note: we have to warn you that this strategy has a tremendous win rate of almost 90%, but the downside is that you will rarely get more than one trading signal per day. Many times you will have no trade signal!
Step #1: Apply the Stochastic RSI on the 5 minute Time Frame
Since we’re day trading the market we want to look at the price action on an intraday time frame. Another step that you need to undertake is to make sure you change the default stochastic settings to a 20 periods for the Stochastic and RSI length.
The aim of this day trading strategy is to help you determine the intraday trend and find a retracement to enter the market so you can ride the intraday trend.
So, how is the Stochastic RSI indicator going to help us achieve a 90% wining rate?
Step #2: Wait until the Stochastic RSI develops the snake effect
Don’t get the new terms get you confused. Once we’re going to explain what the snake effect is and how it looks on a price chart, it will make a lot more sense.
What we want to see is the stochastic indicator staying in a prolonged period of time in overbought or oversold territory. To simplify things we’re going to look for the case scenario when the stochastic indicator enters overbought territory for a prolonged period of time.
There are two key factors that the stochastic RSI indicator needs to fulfill in order to develop the snake effect:
- It must trade above the 80 level and the stochastic MAs need to have at least 3-4 crossovers
- Secondly, during this whole time the stochastic MAs must not go below the 80 level
One picture is worth ten thousand words!
See chart below:
As you can see from the USD/JPY chart above the multiple crossovers above the 80 levels is what generates the picture of a snake movement. That’s the origin from where we got the name of this profitable day trading pattern.
A chart will tell the story better than a lot of written words so here is an example of an incorrect snake effect.
Contrary to the popular believe system when the stochastic indicator shows a prolonged overbought reading it actually signals the presence of strong buying power. The reading you get on the stochastic indicator should be imitated by the price action.
Coming back to our initial USD/JPY 5 minute chart, we should see a sustained uptrend alongside with the stochastic reading.
To figure out what is a good entry point you need to make a list of criteria that your favorite currency needs to hit in order for you to enter the market.
Step #3: Enter a Long trade when the stochastic indicator resets
When the stochastic indicator reset and reaches oversold readings it indicates that we could be in a temporary dip where you can buy at a discount. Basically, a reset happens when the stochastic indicator goes from overbought to oversold territory.
See USD/JPY chart below:
It might not be a bad time to start considering entering the market.
Once the markets hits oversold readings after a sustained and proven uptrend, the chance of it going further down are slim. In this case scenario the probabilities of a reversal are much higher.
This day trading entry technique will give you the highest potential upside. You should aim to enter a position as close as possible to the oversold territory so you’ll have a good risk to reward ratio.
The second criterion that needs to be satisfied is a stochastic crossover.
When the two moving averages cross upwards from oversold territory, a buy order is triggered.
If you followed the rules to the letter the trade should give you a profit right from the start.
In order to have a profitable day trading strategy with a relatively high win/loss ratio you also need to have a strategy to hide your protective stop loss and an exit strategy.
See below the entry and exit strategies for day trading:
Step #4: Hide SL below key support level, Exit when Stochastic RSI is overbought
You should place your protective stop loss below a key intraday support level. For safety reasons and to avoid being prematurely taken out by false breakouts you should use a buffer of few pips.
Take profits when the stochastic RSI indicator reaches overbought territory.
Day trading the markets can be very over stimulating and a very intimidating experience for many newbie. With the right day trading strategy and the right mindset you can overcome all these hurdles. Approximate 90% of day traders fail and the reason is because people trade with emotions instead of a trading strategy.
If you have a plan and a sound day trading strategies you’re already one step ahead of the game. We recommend using small position size and work your way up. At the end of the day what matters is how profitable and consistent day trader you are.
Thanks for reading!
-The Team @ TMP