November 09, 2009 at 11:14 am | | Comments 3

Managing Day Trades Effectively

Would you rather make money by the minute, or by the day?

I’m open to either, so why not both!  I like swing trading for the set-it-and-forget-it benefits it offers, as I can structure my trade and manage it with little effort on a multi-day timeframe.  The time requirements are minimal, and the payoffs can be great.  But I also like day trading and the flexibility it offers.  I can enter the day with zero directional bias, and still find some opportunities to capitalize on from the intraday chart

Trading multiple timeframes is one of the best ways to diversify as a trader, there’s no getting around it.  But let’s explore this idea a little further of managing day trades, because that’s one subject so many seem to struggle with.

R & R

It’s no secret that the key to good trading – for most of us anyway – isn’t how frequently we’re correct, but rather how big we’re correct.  After all, we’re going to be right sometimes and wrong sometimes, so the net difference is where the rubber meets the road.  For me, that comes directly from the size of my winners as compared to the size of my losing trades, or my risk-reward ratios.  Let me repeat:  it’s not really the frequency of wins that matters… it’s the size of them.

So if that holds true, then it’s true across all timeframes.  From the position trades you might hold for a few months, to the swing trades of a couple weeks, to the day trades which might last a couple of hours, the key is risk vs. reward.

Deciding on Day Trades

In the Bandit Hideout, there’s a nightly video newsletter called the Bandit Broadcast.  It contains setups for plays across multiple timeframes, from the swing trades I’m considering over the coming days, to the day trades I’ll be making tomorrow.  The day trades are for brief, short-term moves of up to a few hours. They look like on the daily charts that they could make a quick move but not necessarily a lasting one, so instead of holding them overnight I simply look to grab them for the initial move and then ring the register and set them free.

For these plays, I’m not trying to endure pullbacks or wait around to see if it’ll keep running for several days.  So once I’ve determined if a stock is trade-worthy, I tend to watch 3-minute bars and simply look for the same kinds of chart patterns I seek on the daily charts….channels, flags, wedges, triangles, etc. The same patterns will still play out across timeframes, which I’ve long said is the beauty of chart patterns and technical trading.

The Other ‘E’

When I find a setup that looks suitable for a quick play, my attention isn’t solely based on where my entry will be.  Too many traders focus on that alone, and in return, fail to recognize the other half of the equation – the exit.

For stops, I usually set about 1% from entry as a stop (as outlined in the day trading strategy). The previous day’s low is often much farther from there, so I really just focus on today’s chart and try to first and foremost limit risk.

After that, it is a matter of gauging momentum by monitoring the volume, strength, and pace of the advance so that I don’t overstay my welcome.  I’ll gladly offer out shares in chunks on the way up, scaling out and using the strength to my advantage.  Once the momentum fades, I’m outta there.

I really like the advantages that swing trading offers me when it comes to setting up plays and letting them work, but I simply can’t deny some of the aspects of day trading which offer flexibility and potential for grabbing short-term moves.

So as you construct your day trading strategy, be sure that it’s suitable to your unique needs as a trader.  You might be willing to withstand more risk than the next trader – or less.  You might prefer to exit in pieces, or you might like jumping out all at once when your stop or target levels are hit.  Whatever your style may be, just be sure to stick to it for maximum consistency.  It’s how you’ll manage your day trades most effectively.

Thanks for stopping by and I’ll see you here soon with more. Until then…

Trade Like a Bandit!

Jeff White

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  1. Very helpful. Thanks!

  2. Thanks Jim, glad you found it helpful. Hope your trading is going well!


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