Day Trading Strategies & Tips

Introduction

Day trading is both easy and difficult. It is one of the quickest ways to get rich. But, improper planning and lack of knowledge can turn riches into rags in no time. Every day, millions (if not more) of traders try their luck; unfortunately, not many succeed. To become a successful day trader in the stock market, you need time-tested, proven strategies and techniques to give you an edge.

This article contains the top day trading strategies and tips you need to survive in the market and make consistent profits.  

Why is Intraday Trading Different From Other Trading Types?

Intraday or day trading is quite different from other types of trading, such as positional, long-term, etc. While a positional or long-term trader analyses stocks from a long-term holding perspective, day traders concern themselves with short-term movement or volatility in prices. Hence, for day traders, today’s valid day trading tips might not remain in vogue tomorrow.

A day trader can initiate two types of trades in the market. If they choose a stock with bullish momentum, they buy first and sell later. However, if the market or the stock shows a bearish tendency, day traders may sell first and buy when the price drops.

A day trader’s primary objective is to pocket the differences between the buy price and the selling price within a day and move out of the market before the closing time. Since they do not hold stocks, their capital is free from overnight risks.

Let’s now move to the four top proven day trading strategies and tips you can use to make gravity-defying profits as a day trader.

4 Time-Tested Day Trading Strategies and Tips

Before diving into the list of day trading tips, it is wise to think and behave like a day trader. A day trader is not like an average stock trader. They understand the importance of making quick decisions. The following are the top day trading strategies preferred by sensible and informed day traders in India:  

1. Momentum Day Trading Strategy

Momentum trading is one of the simplest day trading strategies traders use to profit in the stock market. Generally, the market or stocks move in three directions - up, down, and sideways. A momentum trader analyses the news and stock updates to prepare today’s day trading tips. Once they identify the momentum or the direction in which the stock or the market will move, they make entry and wait for the right time to exit. 

In momentum trading, timing is crucial. Quite often, day traders cannot earn decent returns even after knowing everything about a stock. This is because they enter the stock when much of the action is already over. Hence, you must analyse a stock’s historical price movement pattern before placing trades as a momentum trader. 

2. Breakout Day Trading Strategy   

The breakout day trading strategy is one of the most effective day trading strategies applied by seasoned stock traders. A stock usually creates a range or price band and moves within that range for a considerable time. However, if there is any positive or negative news or event in the stock, it might break that range and move into new territory. The moment a stock breaks out from its usual range, it is referred to as a breakout stock. 

While some traders place a trade the moment a stock breaks out, other traders wait for validation through the volume. If rising volumes support the breakout, the trend will most likely continue. However, if the volumes do not gather steam, the breakout might indicate misjudgement by a few traders. Hence, if you want to profit as a breakout trader, consider observing the traits and patterns of breakout stocks before investing. 

3. Reversal Day Trading Strategy

The reversal strategy is the most difficult of all day trading tips and strategies mentioned in this article. Reversal traders are also known as contrarian traders. These traders identify opportunities to go against the market or stock trend. So, if the stock is bullish, the day trader will predict a resistance level and place a sell trade the moment the price reaches that level.

Conversely, if the stock is bearish, the trader will draw a support level and place a buy trade when the price touches the support price. Contrarian traders generally use the ‘Fibonacci Retracement Level’ indicator to find the support and resistance levels.

4. Scalping Day Trading Strategy

The scalping day trading strategy suits investors with a solid understanding of price movements. If you look at a stock chart, you will see waves created by price movements. The waves are typically more pronounced for stocks with high volatility. Scalping day traders or scalpers work on short time-frame charts, such as 1-minute or 5-minutes, to ride these waves.

Like contrarian traders, they draw support and resistance lines to place accurate trades. Scalpers generally create multiple trades throughout the day and ensure that the winning trades outnumber the losing trades.

Apply Your Trading Skills With a Free Demat Account

The knowledge of the top-4 day trading strategies and tips might motivate you to test your trading skills today itself. Since you have already decided to establish yourself as a day trader, you need the right Demat and trading account. 5paisa’s free Demat and trading account can provide you with the right thrust you need to trade and succeed. The low-cost brokerage plans make the deal even sweeter.