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Sunday, April 13, 2008

Guide lines for Day Trading Strategy

Day trading strategy should be a good starting point for you. Ofcourse this may not be the exact way you wish to day trade, but it is intended as a guide to help you determine a day trading strategy that suits not only your timeframe, but also your personality. Trading in accordance to your personality will ultimately serve you best.

Day Trading Strategy:

If you are a day trader, your position size is likely larger due to the fact you are looking for a smaller move with your short timeframe. Keeping a tight stop is extremely important when trading larger size, as a day trading strategy gives stocks multiple opportunities to work. For day trading, the strategy is rather simple:

  • Always keep your profit objective at least 3 times greater than what you are willing to risk.
  • Allow not more than a 1% move against you from your entry point.Ideally, you are in the trade beyond the trend line and out of the trade below it. You can always get back into the trade if the stock returns to the buy point.
  • If the futures (Nifty and Sensex) make an intermediate lower high intraday (or higher low when trading the short side), exit half of your position. This implies a weakening market and can make it tougher for open positions to continue working.
  • If your stock hits a new low for the day (long trades) or new high for the day if you are short, exit the position. A day trade is intended for initial moves, so there is no purpose in widening stops to accommodate a stock moving in the wrong direction. Get out if the stock breaks a low (or high if short) as you can reenter the trade if it triggers again.
  • Once momentum fades and buyers are thinning out, take your profit. This can be done by carefully monitoring the intraday chart and the time & sales window for fading momentum.

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