when it comes to the world of trading, Strategy is everything. Having a strategy is the main difference between trading and gambling. in this article. We will go through different types of Day Trading Strategies and examples of executions
Day Trading Strategies 1: Scalping
In Day Trading, scalping is one of the most popular strategies, this is due to the low time commitment, relatively low risk, and no overnight risk. Traders are in and out within a few minutes if not seconds.
For scalping strategies, the market must be liquid and the bid and ask spread should be minimal. Entry and exit parameters will differ depending on the trader’s strategy and the market. here are 2 examples:
Capitulation Scalp Trade
Capitulation trade can be a whole-day trade or a scalp depending on the context. Generally the larger the extension the larger the mean reversion will be. We will start looking a the speed of the move + the volume, ideally, we would want the volume to exponentially increase toward the end of the move.
An example of a quick capitulation scalp would be in ticker COIN after the recent Bitcoin Run-up. This idea was shared by Lance Breitstein on his Twitter here
After a big run from COIN following the price of bitcoin, it starts to pull back after the SEC etf news. however, the pullback was too fast and too aggressive. this provides an opportunity to scalp to the long side
On the opening of the 2nd of Jan 2024, COIN consolidated for a few mins before unwinding
After the unwind and the volume pick, the break of a star candle gives an entry trailing the candle low as a stop,
this trade gives you an entry at 163 and an exit at 167.8. for a 2.9RR trade.
Roughly 15-minute trade netting you a profit of 2.9R
Day Trading Strategies 2: Momentum Trading
Riding momentum in the stock market could be arguably the most profitable strategy out there. however, to have an entry that gives little drawdown and catches the meat of the move is the most challenging part
Episodic Pivot :
Episodic Pivots is a trading strategy that has been made popular by traders like Qullamagie and Pradeep Bonde (Stocks Bee).
Episodic pivot happens when an unexpected earning report or news hits a stock after it has been moving sideways for a while. The exact details and prerequisites of the strategy differ from trader to trader however what Qullamaggie mentions on his website here is :
these requirements are always static. Depending on the market, some traders may choose to tune some of it
Example of an EP trade and explanation by Qullamaggie
to learn more about Episodic Pivots click here
Day Trading Strategies 3: Fading Pump and Dumps
Microcaps tend to have massive gaps overnight. This could be because of news on the stock or sometimes on pure air with tiny floats. Microcaps can move very aggressively in a very short period. 50-200% overnight is not something new.
However, as fast they go up, they come down. this makes shorting small caps a very popular strategy
learn more in Shorting Small Caps. Over-crowded?
on AIMD, the stock gapped up without any reason into Friday trading hours, after the failure to push for new highs, I took a short position for the unwind, with an entry at $2.71 and a close of 2.06 for a 23% gain. these executions are presented by the red and green arrows on the chart
Here on ENVB we get similar action, stock gaps up during premarket on no solid news and ends up fading, giving back all the gains it made
Entry signals will differ between traders, some will use Level 2 and others will use candle patterns. I use a combination of candle patterns and % of the move
However not all pumps and dumps are easy short, some will play games. They will tend to soak shares before sending it on another rally to squeeze short and attract more breakout traders
which brings us to the last strategy……
Day Trading Strategies 4: Longing Pump and Dumps
Even if we know most of the small-cap pumps will end up with a dump. That doesn’t mean we can’t take advantage of that when the opportunity with decent risk reward shows up
SGD Is a ticker that gapped on the 8th of March 2024, after the ticker went from 0.5 to 1.2 it consolidated at 1$.
Given the stock history of being a runner. This became a high-probability setup that will go for a second round
These factors considered in real-time I took the long risking 15c. Which resulted in 48% on the trade
The stock ended up going up to 2$+ which could have been a much bigger win. However, it’s very important to not overstay your welcome with such stocks
Final thoughts:
There are many strategies in the market. However, I highlighted in this article the most popular ones that are relatively easy to get into. There are countless quantitative and qualitative strategies in the markets
Good luck with your trading!
