INTRADAY TRADING
Making The Days Count
Strategies For Daytrading
by Jacob Singer
These strategies could improve your daytrading.
Trading strategies that fall under the definition
of daytrading can be confusing, because there are really three types of
daytrading: intraday trading, end-of-day trading, and daytrading. The three
kinds are similar, but there are clear distinctions.
1. Intraday trading is when a trader makes a large number of
trades in a single day, taking a one- or two-point profit and trading both
short and long positions as the market changes direction during the day.
The objective is to have all of these small trades add up to a good profit
at the end of the day. Positions are always closed out before the market
closes. This type of trading can only be done when commissions charged
per trade are very small.
2. End-of-day trading occurs when a trader takes a position in the morning
as the market opens, and once a fill is received, places a target level
to close the position. The trader places a stop-loss in case the position
moves against him or her, and closes all open positions at the end of the
day.
3. Daytrading is similar to end-of-day trading, but positions can be
held overnight. This is because the first 15 to 20 minutes of trading in
the morning usually follow the trend of the last 15 to 20 minutes before
the previous day's close. The daytrader takes a position during the day,
planning to close out either that day or the following one, whenever his
trading target is met. He will watch the position over the one or two days,
all the while adjusting his stop-loss and allowing his profits to ride.
Daytrading companies flourished at the height of the market bubble
in the year 2000. Anyone with a personal computer and a minimum of $25,000
in capital could start trading for themselves, whether at home or in special
trading rooms at daytrading companies. These companies gave the new traders
preliminary lessons on how to read technical charts and market-depth tables.
They were introduced to a simple technical strategy, usually a program
offered by the daytrading company, and most important, they were taught
which buttons to press on the keyboard and how often.
Figure 1: Charts of different periodicities. Here you
see a 30-minute, 60-minute, and five-minute chart of Nortel Networks (NT).
Overlaid on the chart is a 28-period moving average band, and in the subchart,
a 10-period RSI.
As the bull market rushed on from 1999 to 2000, many of those daytraders
made a great deal of money, and even gave up their normal jobs to pursue
the life of the intraday trader. But when the bubble burst, and during
the bear market that followed, most of those daytraders lost their capital
and gave up trading. Many trading rooms vanished in mergers or closed completely.
But is daytrading really dead? Those who survived and learned from their
experiences honed their skills on the whetstone of those bubble years.
They became professional, profit-making intraday and daytraders.
...Continued in the August 2003 issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the August 2003
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2003, Technical Analysis, Inc.
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