Do I day trade?

Although 90% of the trades I take are long term buy/short and hold positions, I do still take the occasional day trade if I am in the office all day. The idea of trading from home is that the job provides you with the freedom to be able to do what you want, whenever you want so I do try to avoid sitting in the office all day, everyday.

Day trading involves a higher frequency of trading with more exits and entries from the markets vs traditional investing and long term speculating which is what I prefer to do. In the past, before advances in technology and ever increasing competition in the markets, it also used to be more costly to day trade due to the costs of entering and exiting many trades. However, it is now much quicker, easier and cheaper to day trade.

So in short, yes – I do day trade but not always and I follow a very strict set of rules as part of a mechanical day trading strategy I have developed. I won’t go in to the full details of this strategy in this post because it’s too much. I have compiled a full day trading strategy guide which you can get on amazon by clicking here or going to the downloads page on this blog.

I will show you an example of a recent day trade as per my strategy and I will talk you through why it works and what to look for. As always, I like to keep things simple when analysing the financial markets so you will see a fairly clean and tidy price chart and no “confusing “indicators.

The setup:

GBPUSD 15min chart

Here is a list of what I have visible on the chart:

  • GBPUSD market price on the 15 minute timeframe.
  • 200 exponential moving average (ema)
  • Standard daily pivot levels
  • Simple trendline drawn on

That is all you need. I have the 1.31 support zone marked on with a line from previous analysis so it is left on here for my own reference. Let’s look at what we can see on the above chart.

Firstly, it is very obvious that the current near term trend is bearish. I have marked on the lower highs in yellow to show this. You don’t really need a trendline on there because the 15 minute timeframe chart is normally a little messy for accurate trendlines. You can see the current trend is bearish just by looking at the chart.

If you then incorporate the 200 ema in to your analysis you will see that price is running below the 200 ema with any tests of the ema being swiftly rejected. This is good because it helps back up our bearish bias.

Next up, we have the daily pivot levels. If you don’t know what these are then I would recommend researching them and how learning how they work. I will do a post on daily pivot levels in the future as I think they are really handy for trading daily price movements. Price was trading below the daily pivot level in the morning trading session before it came up tested and failed to break above the daily pivot level. The 15 minute candle stick then closed bearish with a little wick rejection of the daily pivot. This also formed a new lower high.

More important than any analysis or trade entry is knowing where to put your stop loss and to plan where and when you will exit the trade. This is the key to risk management and maximising profit… remember, one of the golden rules of successful trading is to make sure your winners are bigger than your losers. A good reward:risk ratio can make up for a below average win rate %.

Stop Loss Placement – When day trading I like to keep my stop losses nice and tight and place them 10 pips above the current high. In this case that was 10 pips above the high of the candle that tested and rejected the daily pivot level.

Profit Targets – I always have an initial profit target set at the daily S1 level (support 1) when shorting or the daily R1 level when entering a long position. However, I manage day trades manually to ensure I get maximum profit from the trade for the related risk. If momentum is apparent in the market when approaching my first profit target then I will capitalise on this and continue to ride the market momentum further. This can turn a quick 2:1 RR trade in to a 3 or even 4:1 trade.

Let’s look at this GBPUSD day trade and see how price moved throughout the rest of the day.

GBPUSD 15min chart

As you can see, price quite quickly dropped from the rejection of the daily pivot level and this is why they are very good to use when trading. Price quite often reacts to the daily pivot level, add it to your charts and see for yourselves. You will also notice that price gained a lot of bearish momentum and it therefore was worthwhile holding this short position past the S1 leave down to new lows. This trade finished with a total R:R ratio of over 3:1.

There are a few other extra “advanced” techniques you can use when day trading to further increase your overall profitability and general win rate %. I teach these techniques and also how to analyse and spot day trade entries in my book – Learn to Day Trade The Financial Markets. You can buy this on Amazon.

Learn to Day Trade The Financial Markets by Charlie Bowden

Click here to download the book from the Amazon book store!

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