5 day trading strategies for beginners

5 day trading strategies for beginners
Table Content
Scalping
Momentum investing
Breakout trading
News trading
Pullback trading strategy
Last thoughts

First things first – what is day trading? The practice of frequently buying and selling stocks during the day is referred to as day trading. Day traders anticipate that the stocks they own will increase or lose value during a very short period of time during which they hold that asset, sometimes even within a few minutes or even seconds (SEC). When we use the term “day trader,” we mean stock market participants who seek higher earnings in exchange for a considerably higher chance of loss. Day traders believe that by employing the proper day-trading tactics, their little daily gains will compound into large long-term returns.

So, what are we covering here today? Today, we’re bringing you some pointers for anyone interested in dabbling in the high-risk, high-stakes world of day trading. In particular, we’re bringing you five day-trading methods you can use if you want to make money buying and selling stocks in a single day. And here they are:

1. Start slaying with scalping

What is scalping? Scalping is a very popular day trading strategy among those who are quick on their toes and able to make quick decisions. Scalping is based on the idea that tiny wins might add up to a lot of money at the end of the day. The so-called scalper establishes buy and sell targets and follows them religiously. But scalping is all about speed. It’s not uncommon for many trades to be completed in seconds! Yes, you read that right.

Scalping is an excellent day-trading strategy for experienced traders who can make quick decisions and act on them. Scalping strategy followers have the discipline to sell soon if they see a price fall, thereby limiting their losses. So, we could say that scalping is not a day-trading method for those who get easily distracted or have attention deficit disorder. If that’s the case with you, skip it.

2. Seize the moment with momentum investing 

What’s this day trading strategy all about? A momentum strategy involves investing in a stock whose price is rising. Momentum stocks are typically rare and difficult to locate. According to Warrior Trading, only roughly 10 out of 5,000 will meet the requirements on any given day. If you’re using the momentum trading technique in your day trade, watch out for one of these characteristics in a stock:

  1. Try and look for a significant stock price change caused by catalysts such as unexpected earnings growth. 
  2. Watch out for the discovery of new therapy by a pharmaceutical business. 
  3. Alternatively, seek out news that a tiny company is about to be bought by a larger corporation.
  4. Noticed a sudden 30-40% increase in stock price? That might be your queue to make the trade!
  5. You can also look for trends or ideas via tools like StockTwits - a super nifty financial communications platform.

But whatever you do, we strongly advise you to use a stop-loss. That’s very important to use if you want to avoid losses in case the trend turns against you. The order will automatically exit a trade at a pre-set threshold point, and we couldn’t recommend it more. 

3. Catch a break with breakout trading 

Now let’s talk about breakout trading. A breakout happens when, for example, the stock price moves beyond a certain level. So, when we say breakout trading, we mean entering trades when momentum is in your favor.

A so-called breakout trade is when the stock price rises over the previous top resistance price. It’s not as simple as looking at a chart, identifying resistance, and then purchasing following a breakout. 

When applying breakout trading, you should always keep an eye on the stock trading volume, or how many shares are changing hands. Going by Fidelity, high-volume breakout trades are more likely to be sustainable at a higher price than low-volume breakouts. Lower-volume breakouts are more likely to fall below previous resistance levels, making profiting more difficult.

In most circumstances, the stock will retreat after hitting the resistance level until there is a catalyst for a higher price movement. There are more sellers than buyers above this price, stopping the price from growing further.

4. Don’t just read the news; trade on them

The penultimate strategy on our list is so-called news trading. You know how stocks react swiftly to news occurrences in the economy? For example, how a bad earnings report might cause a stock price to drop? Or when a new medicine approval from the FDA causes a stock to skyrocket? Some day traders are very good at profiting from popular news headlines.

If there is negative news, you might short-stock the company during the day by “borrowing” shares from an investment firm and subsequently selling those borrowed shares. If the stock price falls as projected, you could repurchase the shares at the lower price and turn a profit on the difference. On the other hand, if the news is positive, you go long or buy the stock altogether and sell it when the price jumps. 

5. Pull it together with pullback trading strategy 

Lastly, if you’re really into day trading, you might want to try the pullback trading strategy. Day traders who use this method find a stock or ETF that’s proven to trade in a certain trend. Then they keep a close eye on the trend until there is a price drop away from it. If the established trend is upward, then the downward price movement — or pullback — is their chance to turn a profit. 

How do they figure out the trend? Typically, a day trader will use technical charts to determine the trend of a stock. Before a pullback or price decline, you could look for an uptrend with at least two consecutive high price moves. If you were shorting the stock, you would then look for two successive decreases in price. And if the trend completely reverses after you buy in, not to worry! The trend will typically continue in the usual movements for that trend for a long time. Lastly, you might identify downturn potential among the stocks that have made the most gains.

Last thoughts

In conclusion, there are many great strategies for day trading, if that’s the path you choose to take. But please note that according to the SEC website, “day trading is exceedingly dangerous and can result in huge financial losses over a very short period.” If you want to dabble in day trading, invest only the money you can afford to lose. Either way, we wish you the best of luck and the highest returns on your investment. 

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