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Tuesday, December 6, 2011

Day trading strategies and rules for dummies

I decided to call the post ‘day trading strategies and rules for dummies’. I thought to give you a few basic trading strategies that some of day traders use and rules how to implement those in your daily trades. I am more a swing and trend trader myself, but I occasionally enjoy placing a few short term trades that I usually close the same day. In my opinion these could be a supplement to your main strategies, but should not replace them. Some of the things that you are going to read have already been covered in my previous posts so I will slightly repeat myself. I hope you will benefit from the post. 


Read my other related posts and watch a few videos below:

Forex news trading
Moving average 
Long term or intraday trading 

1: Asian range breakout 

This strategy is quite good for newbies and can be easily implemented. The rule for day trading it is to define the high and low of a given range during Asian session and place buy stop above the highest point above the range and a sell stop below the lowest point of the range. During European session volatility starts increasing and the market usually pushes the price of a given security beyond the limits of Asian session. So, one can take advantage by placing the above mentioned orders. 

In the example below you can see how gbp/jpy pair collapsed downwards during European session and had you placed a sell stop order below the lowest level of the Asian session you would have made nice profits. 

 2: trading overbought and oversold levels

This strategy works quite well in range bound markets when there is absence of a clearly defined trend and a trader can expect a reversal around important support and resistance levels when he sees technical indicators oversold or overbought on 15 minute, 30 minute or 1 hour charts. One can use RSI or any other technical indicator that is meant for checking those levels and try to combine this trading strategy with some other facts. 

One can draw a trendline on the indicator and wait for a break of a trendline and combine it with a break of price and sell or buy depending whether prices are overbought or oversold. You can see it with gbp/usd 15 minute chart example how an upward trendline on RSI indicator breaks and this coincides with a break in price of the pair. You can also spot minor 123 pattern in the price of a security, which means you can place a sell order below point number 2. Stop has to be a little above point number 3. 

3: trading fundamental news

This trading strategy was fully described in my post on Forex news trading and I do not want to expand here again on the same subject. Let me just give you a few facts. Most traders know how volatile markets become when economic news is released. This presents us both opportunities and risks. Risk is always involved since the prices fly so fast and so far that in case you have an order open and the market goes in the opposite direction your stop loss order might not be closed due to price gaps. However, if you are on the right side you can make tremendous profits trading this strategy. 

You do it by simply placing a buy stop above the most recent high (let’s say 4 hour high) and a sell stop order below the most recent low (let’s say 4 hour low). You then wait for the news to be released and when one of your orders is opened you go together with the market till it exhausts itself. 

So much regarding day trading strategies and rules for dummies. I promise to expand the post as the time goes by adding more day trading strategies.

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.