Day Trading Methods

After trading with my CFD day trading plan, I have by now a very strong feel for day trading, and am looking to formulate strategies to extract consistent profits from the market. I am attempting here to share my experiences with my fellow traders.

First of all, I must tell you what you need to be a successful day trader.

You need a good CFD broker with a good platform. You can email me for suggestions. Brokerage must be small; otherwise they will eat too much into your profit.

Personally, I use First Prudential Markets. They have a very good platform.

A second consideration is of course that you have to be able to spend time on your computer.

Trading is a disciplined adventure

How would you describe day trading? Some people say it’s like swimming with the sharks, waiting to be mauled; others think of it as a ship in rough seas, waiting to be overturned by the next huge wave. I like to think of day trading as a walk in a fairy tale, hoping that a wizard appears with a sack full of coins – be content to consistently pick up small profits here and there, and avoid the temptation to go for a bag full of dollars, and in the process losing the lot.

My Definition of Day Trading

By the very nature of day trading, scalping is best defined by trades that are very short term in nature. This presupposes small consistent profits from trades that last from a few minutes to maybe one hour.

These methods presented here are high probability trades with extremely small risk stops and predefined profit objectives. It is all about doing a thousand trades to make a thousand dollars.

Risk Management

Whilst entry techniques here are self explanatory, the risk management aspect of these trades are such that they must be followed without question, or when the position doesn't perform as expected. Being relatively tight stops, the trader must be very fast in exiting when the position doesn’t perform as expected. I suggest you place a stop loss order in the market straight after entry and trail it up as the price increases. The methods here depend very much on taking losses as and when they come - taking larger than normal losses when they should have been taken earlier will undermine week-to-week profits significantly.

The Ultimate market for these scalping methods

As the ASX 20 is, in my opinion, one of the most liquid and most active accessible part of the Australian market, these methods represent the best known chances for picking consistent profits as a day trader-scalper when following the ASX 20. In today's market, the same can be said about the bigger resource stocks. However, there are times when other stocks, often on news, provide a fertile ground for scalping, but these stocks are often more difficult to discover. Market activity and news may be of help there.

Moving Average Indicated Trades:

These are what I call trend following trades

This is my all-time favourite method- it’s easy to do and is very reliable.

If you trade the ASX 20, only trade when the market trends up. If you can pick a trade after news or from market activity, you may ignore the general market trend.

Setup: Set your intra-day chart to 2 minutes. Check that the 7EMA line is above the 15 EMA line and that the price is above both lines.

Entry: Enter to go long if you see 1 green candle above both EMAs. After you entered the trade you may switch to the 5 min chart to find your exit point.
Once you are in profit, use a trailing stop loss.

 Profit exit: Take profit if 2 candles indicate that the trend has flattened out.

Stop Loss: Exit if price had dropped to 15EMA.

Re-entry: On being stopped out, look for a re-entry point as before. Same exit rules apply.

I have used this method for a long time now. You can find my recent trades on my web site: http://www.tradingaustralianshares.com/CFD.HTML#daytrades

The engulfing candle bar pattern

These setups are much harder to find, but can produce good results.

Setup: On 10 minute candlestick bars, look out for bullish or bearish engulfment.

I reproduce the engulfment patterns as applicable for this purpose in Figure 1.

Figure 1: Engulfment Patterns

Entry: Timing window: only take trades within first hour and last hour of the trading day.

For bullish engulfment: buy at market price when the white body of the current bar exceeds the high of the last dark-bodied bar (see above)

For bearish engulfment: sell at market price when the current dark body of the current bar goes lower then low of the last white-bodied bar. (See above)

For exits, follow the statements for the moving average trades.

Conclusion:

There you have a high probability scalping setup with tight risk rules. Be sure to take those losses when they invariably occur, and avoid the temptation to go for more profits by staying too long in a trade.

It’s easy to dismiss these patterns as too difficult for small profits, but be happy to move along with small consistent profits.

Trading is scalpable and very profitable if consistent. Try small positions for a start. It’s going to be real serious money if you know what you’re doing. Just remember to cut loss at the slightest discomfort. And remember: A thousand trades can be worth a thousand dollars.