What are the best stock day trading strategies?

Profitable day trading is tough but it is not impossible. Hundreds of thousands do it every day using simple strategies. This article lays from scratch, ideas you can incorporate to fix your current mistakes.

Day trading is an extremely effective way for you to get outsized gains. It allows you to trade on margin using leverage and therefore, allows you to create bigger gains but it also zooms your losses.

Unless you trade using the right mindset with the right strategies in place, day trading might bankrupt you. 

This article explains how you can use certain strategies to your advantage and start profitable day trading.


How do you start Profitable Day Trading?

It should be given enough attention that luck is important. There are no two ways about it. Investing requires luck. Trading requires it even more so. But profitable intraday is almost impossible without luck. 

Unfortunately, we cannot tell people how to be ‘lucky’ – we can teach them certain skills that they might use. We have explained 3 strategies that you can use to be profitable. You can even use these strategies to develop your philosophy. 

1. Use Momentum

Stocks that have gone up today have a higher chance of going up the next day than those that have not; Those that have gone up for a week have a much higher chance of going up than those that have gone up today. Stocks that have been rallying for a month have a much higher chance to continue rallying than those that have gone up for a week.

That is just how stocks perform because people make them dance like this. People do this because they can’t stand rising prices and not be a part of it. 

Keep a watch on stocks(and sectors) that show high volume.

Keep a list of stocks on their 52week high as they are likely to make another one. 

2. News Trading

If you get news that you can understand and interpret in a successful manner- trade on it. Here the test is to ensure that you understand the news and act quickly on it. 

If the news is favourable – reduced taxation, favourable merger, better than expected results – go long on it. 

If the news is adverse – increased taxation, government intervention, new competitors – short the stock. 

As this is intraday, you do not have to worry as much about the news being factored in, however, you should be aware that there are insiders who might have already factored in the price. You ought to be careful in a situation of this sort. 

Note: If you see high volume in stocks of companies under a conglomerate, be careful as that typically is a sign of insider trading. The conglomerate often gets favourable news after a few days. 

For example, Tata companies were seeing high volume and price growth before the Air-India announcement. (we are not accusing anybody, this might just be a coincidence)

3. BreakOut Trading

The name should give it away. 

Stocks have support and resistance levels – you can go long on a stock if it breaches a resistance level or go short on it if it breaches a support level. 

If you see high volume growth near a resistance breach – the chances of a stock going upwards are much higher. 

But in order to be profitable or more closely, to start being profitable – you need to do one simple thing, stop your losses. 

Something so simple that it rarely comes to your mind. 

How do you stop the losses?

1. You do simple things. 

In test cricket, the way to win is to stay on the crease, you stay on the crease by not getting out. Rahul Dravid played with a very simple strategy of letting tough balls just pass by – there is no need for you to hit Shoaib Akhtar’s pace when other ballers throw slower balls that are much simpler to hit. 

The thought is so simple that it never occurs to you. 

You can let tough things pass by – you will start cutting your losses. 

Avoid patterns you are unsure of – you do not have a gun at your forehead that will fire off if you don’t trade. 

2. Have a strategy  

Before you go in and trade, be aware of how much you can trade. 

Be aware of how much losses you can afford. 

Have no doubts regarding the repercussions if you turn out to be wrong. 

Know the stock, know the pattern, know the reason you are trading on it. 

3. Adopt a philosophy 

This overlaps with point number two. 

Have a philosophy that you understand and can implement. Using a philosophy very easily cuts down your losses because you let go of stocks outside it so you have fewer options. Having fewer options implies that you can dedicate a greater part of your cognitive capacity to individual stocks and thereby, increase your chances of success. 

Things to avoid for Profitable Day Trading

We have explained things you should do, now, it is also time for things you must avoid to be profitable in day trading.  

These are things that must be avoided under trading but more so under IntraDay. 

  1.  Confirmation Bias – look for disconfirming evidence. Find out reasons why this momentum is likely to end. Invert the idea. 

If your original idea was to buy a stock(While you were preparing)

Find compelling evidence to short-sell the stock. 

Then, keeping all these things in mind, take a probability-based decision. 

  1. Avoid taking unnecessary decisions – there is a probability of your success. Taking fewer decisions ensures a higher probability. 

For Example, the probability of the trade going your way is 40%, which is 0.4. If you take another trade, the probability falls down to 0.16. 

Take fewer decisions – avoid a large number of trades – be disciplined. 

Botton Line – even profitable day trading is full of losses

IntraDay trading is not easy. It is full of uncertainty and risk of permanent capital loss. 

However, it is not impossible to make money. A very small number of people make money using intraday and all of them are Disciplined, Fast, and Bold

Their discipline ensures that they do not lose big. 

Their Fast-Thinking ensures that they take quick decisions and make big money. 

Ther Boldness allows them to take losses and move on.

There is no “Risk-Free” intraday – people who tell you that are trying to sell you something.

Even profitable day trading is not devoid of losses. Even the professionals lose money, they are professionals because they have the ability to take losses with a smile and not let it hamper their thinking. The qualities they have are rare but not unique and the best part about it is that these qualities can be acquired. 

So ultimately, we can present a map that you must follow(which we have), it is up to you to decide whether you wish to follow it or not. 

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