Day trading forces you to make quick trading decisions while receiving the profit or loss every day. If you like to trade in a day then you will be interested to know my advice on day trading that I have collected in today's article.
Not all tools are the same
If you read books on technical analysis, most of them will tell you that the trends in the market occur in 30% of cases. However, I found that this is not entirely true. For some trading tools trend movements occur more frequently than others.
I tried to use a simple strategy of trend trading:
Buy on the breakout of the high of the previous day.
Hold long positions until the price reaches the low of the previous day, where a short position.
Hold short positions as long as price does not break the previous day's high, which opens the long position.
Take profit fixed – 50 points. Stop loss triggered in a coup position.
At the bottom of the trading results for this strategy on two trading tools that prove my point.
GBP/USD yield curve moves up:
This suggests that GBP/USD strategy trend trading works well.
AUD/CAD – yield curve moves down:
Now we see the yield curve moving down. This means that for AUD/CAD strategy trend trading does not work.
We can conclude that a trader who trades within the day, it is important to know what trading tools are most often traded in the trend or consolidation. This will allow us to use the appropriate trading strategy for each type of market.
How to understand the potential of trading tool?
The market is like a car running on gasoline. He can go very far with the amount of fuel in the tank is sufficient. However, when the gasoline runs out, the car will stop.
How can we understand the potential price movement? We can use the ATR indicator and to observe its historical volatility.
EUR/USD daily ATR:
As you can see, EUR/USD has an ATR of 50 points. This means that EUR/USD is moving about 50 pips per day.
This does not mean that EUR/USD will turn around every time he made a movement of 50 pips for the day. He can pass and more than 50 points. But if the market will move is equal to 2 ATR for the day, so he'll probably be exhausted and is unlikely to reach new highs or lows.
EUR/USD – the price is set after achieving the 2 ATR:
How to determine the turning points of the market?
Intraday trading is a fast pace.
The level that was observed a few days ago, may be useless, so you have to regularly redraw the levels.
One thing I found useful in my trading is to determine highs or lows of the previous week.
Because it is an extreme point of price movement before a reversal takes place. It is also the future landmarks of where the market may find support or resistance.
To determine the highs and lows of the previous week.
To draw horizontal levels.
However, some trading instruments are much stronger bounce off of weekly highs or lows than others.
How to understand that the market can occur a strong movement?
The volatility in the market is constantly changing. The market moves from low volatility to high volatility and Vice versa. This means that if the volatility of the previous days low, soon it will increase.
Below is an example:
How can you use it for intraday trading?
If you enter a trade in low volatility, you can think about how to expand the size of the take profit as price can make a big move in your favor when volatility increases.
One of the ways to trade is to take half of your profit with risk reward ratio 1:1, and for the remaining part of a position use trailing stop.Also, you should not trade on a rebound, when the price is in a state of low volatility for a long time, because at any moment a breakdown of the level and a sharp price movement can occur.
Volatile watches on the market is an opportunity to earn
What is the most profitable trading session to trade? Obviously in London. During this period there will be much more trading opportunities.
You need to know the news release time.
During the news release, the spread widens because there is a lack of liquidity in the markets. So, if your stop loss is placed close to the current market price, it will most likely be affected.
Therefore, before the release of news is best to get out of position or to expand your stop-loss, to be ready for price fluctuations. In the first case, you may be out of the market if the price moves in your favor after the news is released. And in the second case, you can lose more than originally calculated. Therefore, each of the methods has its pros and cons.
Intraday trading and profitable trading opportunities
Support and resistance levels on a lower timeframe are not as significant as compared to higher timeframes. This means that the price rebound on a lower timeframe can be as low as 20-30 points, while the price rebound on a higher time frame can occur by several hundred points.
To find a profitable trading opportunity, we can wait for the price to approach the level of support or resistance on the higher timeframe, and on the younger timeframe to trade on the price rebound from the level.
Consider an example. The price approaches the support zone on the daily timeframe:
We are waiting for the breakdown level on a lower timeframe. At this moment we will see a series of lower highs. Next, we need to see a false breakdown when the price rises above the level. This signals that buyers are now in control.
Higher highs and lows prices should be based on a higher timeframe.
Let's sum up
We learned about the 7 rules of intraday trading, which work well:
We must consider the trading instruments on which we trade. For some of them, trend movement is more typical, for some - consolidation.
The price is unlikely to be able to move more than the average 2 ATR per day. In this way, you can use the ATR value as an indicator to determine how far the market can go.
The high or low of the previous week are important levels to pay attention to.
If the volatility of the markets has been low in the past few days, it can be expected that the volatility will increase in the near future.
It is best to trade in the most volatile trading session.
Stay up to date with the news, as the spread tends to expand at this time.
The best entry points to the market will be near support and resistance levels on higher timeframes.