COMMON STOCK DAY-TRADE STRATEGIES
Some common day-trade strategies for trading stocks and indices
(1) Momentum Day-Trade Strategy
A momentum day-trade strategy is applicable to markets moving in strong trends. A momentum trader will buy a stock usually on favorable news releases and sell it when he receives a clear sign of trend reversal. A trailing-stop order may be useful for this type of day-trading.
Tip: It is better to buy an expensive stock in a bullish market than a cheap stock in a bearish market
(2) Trend-Exhaustion Day-Trade Strategy
When you implement a Trend-Exhaustion day-trade strategy you search for stocks or indices that make rapid upward or downward movements. When you indicate such moves you place orders against these rapid trends. Although this day-trade strategy is risky, it can prove profitable if your choices are wise.
Technical Analysis Tip: Use the RSI (21) on the M5 timeframe, and:
(i) Sell if RSI(21) is at 70+ and it is falling below, or
(ii) Buy if RSI(21) is at 30- and it is increasing above.
(3) Scalping Day-Trade Strategy
When you implement a scalping day-trade strategy you buy an asset planning to sell it just for a small profit. That means closing a position almost immediately after it becomes profitable. This type of strategy requires assets traded in tight spreads such as popular stock indices.
(4) Short-Selling the Stock-Market
You may buy a stock and predict that it will move upwards but you may also sell a stock predicting that is going downwards, that is called short-selling. Standard options having a stock as their underlying asset may be used instead of buying directly a stock. An intraday trader who 'short' a stock actually borrows a security and sell it. Afterward, he hopes to buy that security back at a lower price.
How to Leverage your Intraday Trades
When trading stocks, you may use borrowing money from a margin account. The margin account usually requires an initial investment of at least $2,000. In case of options, the initial investment is set to a minimum of $250. In the case of trading stocks -once the initial marginal account is opened, you may borrow up to 50 percent of your portfolio. This 50% leverage is called a margin. Be careful margin accounts increase furthermore your market risk and trading cost.
Alternatively, of buying a stock you may buy an option or future contract that it is based on the fluctuations of a stock. The risk is similarly very high so be sure that you apply the right money management.
A Margin Call
A margin call may be issued by a stockbroker when the value of a trader's margin account falls below a pre-defined limit known as the maintenance margin. Then two things may happen:
1) A trader must deposit more money into his account to cover the marginal call
2) If the call isn’t met, the broker will start selling the trader's securities until the maintenance margin is once again attained.
Under most margin agreements, a broker can sell all trader's securities without waiting for him to meet the margin call.
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