The Bottom Line Active trading is the act of buying and selling securities based on short-term movements to profit from the price movements on a short-term stock chart. The mentality associated with an active trading strategy differs from the long-term, buy-and-hold strategy found among passive or indexed investors.
Is Day Trading for You? Good Day Trading Strategies Day traders use different strategies in their trade plans.
Their choice of strategy will typically depend on their trading and educational traders and trading methods, as well as upon their personality type.
They might also need quick reactions to take advantage of rapid intraday market movements.
4 Types Of Trading Strategies - What Are The Differences?
Despite any differences in their actual strategy, a unifying feature among most successful day traders is that they first develop and then discipline themselves to stick to a reasonably profitable trading plan. Most day traders use technical analysis as the basis for their trade plans due to the objective trading signals it can provide in normal trading conditions that help improve your odds on a day trade.
Other day traders might use fundamental information and news releases to trade on, especially when the assumptions that underlie technical analysis break down. To get you started with some good ideas you can incorporate into your own trade plan, several popular day trading strategies are described in further detail below.
Strategy 1: Market Opening Gap In general, technical analysts believe that most smaller opening gaps are filled, while larger breakaway gaps tend to indicate the market will continue in that direction.
If you trade the stock market, then pre-market stock scanning tools can usually be employed to do this quickly. Opening gap down highlighted with a blue line on the daily candlestick chart of Aprea Therapeutics Inc.
Source: TradingView. Once you find a stock that is moving strongly around the time that its stock market opens, you can look for a timely news item provoking the move to make sure it makes fundamental sense. The next step involves looking for a suitable entry point and placing your stop loss below support.
Your criteria for selecting these points should be as objective as possible. As an example of a market opening gap strategy, you might observe the pre-market high point and then place a limit order to buy at that point if a retracement occurs.
Another option might involve looking at the opening range for the first minute of trading.