Day Trading

Structuring Your Edge

To succeed, you cannot simply "guess" direction. You need a playbook of repeatable, statistical setups. A professional day trader waits for the market to come to their levels, rather than chasing price.

1. Scalping: The Sniper Approach

Scalping involves taking advantage of small price changes, often netting only a few cents or pips per trade.

• The Setup: High-frequency trades lasting seconds to minutes.
• The Edge: Exploiting the "spread" or small imbalances in the order book (Level 2 data).
• Requirement: Requires the lowest latency execution and low-commission structures, as fees can eat up profits.

2. Momentum Trading: Riding the Wave

Newton’s First Law applies to markets: an object in motion tends to stay in motion. Momentum traders look for stocks moving with high volume.

• The Setup: Identify a stock "gapping up" on news or earnings. Wait for a pullback to a key moving average (like the 9-EMA or VWAP) and enter on the resumption of the trend.
• The Edge: You are trading with the flow of institutional money.
• Indicator: Volume is the fuel. If price rises but volume drops, the momentum is dying.

3. Breakout Trading: The Volatility Expansion

Markets cycle between contraction (consolidation) and expansion (trending). Breakout traders hunt for the expansion.

• The Setup: Identify a tight range or "flag" pattern where price has coiled. Place an entry order just above the resistance level.
• The Edge: When resistance breaks, stops are triggered (short covering) and FOMO buyers jump in, creating a violent move in your favor.
• False Breakout Danger: Always wait for a candle close or volume confirmation to avoid the "bull trap."

4. The Shield: Risk Management

Your strategy gets you into the trade; your risk management keeps you in the game.

• Stop Losses: Hard stops are non-negotiable. Mental stops do not work when fear kicks in.
• Risk/Reward Ratio: Aim for a minimum of 1:2. If you risk $100, your technical target must offer a realistic $200 gain. This allows you to be wrong 50% of the time and still be wildly profitable.

Conclusion Day trading is a career of pattern recognition and probability management. It is simple to understand, but difficult to master because it requires conquering your own human nature. Start with a simulator, treat it like a business, and respect the risk.