THE BEST DAY TRADING STRATEGY FOR BEGINNERS

What is the best day trading strategy for beginners? If you are expecting a silver bullet, you might be disappointed. But if you’re willing to read on, you might just learn how to find and evaluate the best trading strategy for you as someone new to trading.

So what is the best trading strategy for a new day trader?

This is my take:

A day trading strategy that beginners can use to make easy money.

A day trading strategy that beginners can use as a starting point to learn and improve, while minimizing losses.

Novice traders should not fixate on profits.

Instead, their day trading strategy should focus on two crucial aspects:

• Controlling the risk
• Developing the trader

In a nutshell, we want to maximize a trader’s skill development while minimizing risk.

Day traders who are just starting should not be led into the glamor of raking daily profits without first understanding the risks of day trading.

For a long career in the market, day traders must learn from their trades and develop the right trading attitude.

So instead of accepting any recommended strategy, look for day trading strategies:

1. With lower trade frequency
2. That go along with the market trend
3. With a simple approach to trade management

These characteristics will help to start your trading journey on the right path.

1. INFREQUENT DAY TRADES FOR BEGINNERS

Beginners should trade infrequently. For traders who are still grappling with their trading edge, trading less is better than trading more. It is a form of risk control.

Trading infrequently also gives you time between your trades to learn from them.

Taking dozens of trades in a flurry will only cloud your analysis and fuel your feelings of fear and greed. With a strategy that produces fewer trades, you find it easier to develop an awareness of your emotions and keep them in check.

Furthermore, it helps you practice sitting still in the constant market flux. Beginners often neglect to develop this ability to pursue ever more market action. (I learned it the hard way, over a long time too.)

 Money is made by sitting, not trading. – Jesse Livermore

Follow these guidelines to trade with a lower frequency.

1. Avoid scalping strategies.
2. Trade slower time frames. (E.g., Use 5-minute charts instead of 5-seconds charts)
3. Be highly selective and take only the best trades.

2. TRADE WITH THE TREND

Day traders love to boast about successfully picking the top of the day or low of the session.

Of course, when you do catch the top or bottom of the trend, you feel like a hero. When you do not, you feel like a loser trying to fight a trend that seems to go on forever.

But trading is not about heroes and losers. It is about patience and persistence.

• A trend trader must be patient and wait for a trend to develop.
• A trend trader must also be persistent in taking trades with the trend and not be tempted to pick the top or bottom.

Trading with the trend helps a beginner focus on the right state of mind necessary for consistent performance.

Of course, trend trading is not the only route to profitable trading. But it offers a conducive start as it encourages the patience to wait for the proper context and opportunity.

3. PASSIVE POSITION MANAGEMENT FOR DAY TRADING

Position management refers to any market actions you take after entering your position. This includes shifting stop-loss and target orders and increasing or reducing your position size.

A novice day trader should set the stop loss and target for each trade and leave them alone.

Initially, do not adjust your stops and targets.

Why?

A beginner is prone to adjusting their stops and targets emotionally.

More often than not, they adjust their orders because they are affected by the profit and loss figures blinking on their screens.

Of course, active trade management can add value. But only confident and seasoned traders who can manage their trades based on systematic analysis should do so.

Don’t meddle with the position when you have neither confidence in your skill nor control of your emotions. Leave your stop-loss and target alone.

Instead, take out a piece of paper and write down what you would have done if you were managing your position actively. Recording what-ifs is a great way to evaluate your judgment. Again, your focus is to learn.

Once you have a sizeable sample (>30 trades), compare the results of passive management versus if you had managed it actively. You can then decide if you want to start managing your trades actively.

Adhering to passive management can also deter a beginner from canceling the stop-loss order, our primary risk control tool.

EXAMPLE: ADAPTING THE 9/30 DAY TRADING STRATEGY FOR BEGINNERS

We can adapt most day trading strategies for beginners.

Let’s look at how we can adapt the 9/30 trading setup for beginners according to the characteristics discussed above.

1. In theory, the best trades of the 9/30 strategy are the first pullbacks after a new crossover. So let’s restrict our approach to taking only these best trades. This limitation will ensure that we do not overtrade.
2. The 9/30 trading strategy capitalizes on retracements within a trending market. So following its rules will naturally keep you with the trend.
3. Place your target at the previous trend high/low and place your stop-loss a tick below/above the signal bar. Do not adjust.

There you go, a reasonable day trading strategy for a beginner.

CONCLUSION

Perhaps you observe that the example above does not offer a great reward-to-risk ratio.

If you feel uncomfortable with such trades, simply skip them. Alternatively, modify the trading rules to tighten your stop-loss or project a more aggressive target.

At this stage, what matters most is not how much money the strategy makes. Instead, focus on keeping things simple so that you can improve on your trading plan through small and manageable changes.

Remember that the best day trading strategy for beginners is not the perfect trading setup, and it certainly does not guarantee profits.

It is simply a conducive starting point towards success.

PRICE PATTERNS FOR TIMING YOUR TRADE ENTRY

Every trader approaches the market differently. But no matter how you analyze the market, you need a trade trigger – a signal that tells you when to enter the market. It’s an essential part of your trading plan. While you have many options, price patterns stand out as great candidates.

Why?

A trade trigger must have a precise definition. A trade trigger should help you become a decisive trader. You need to know exactly when the trade is triggered and enter the market without hesitation. There’s no room for vagueness here.

A trade trigger should help you manage your trade risk. A well-timed entry can limit adverse movement and inform you when to exit if the market is not going your way.

A price pattern fulfills both requirements.

You can define price patterns clearly with identification rules.

This does not mean that you must define a Pin Bar like other traders. But you do need to stick to a consistent definition of a Pin Bar.

On top of that, a price pattern is the footprint of a short-term change in supply and demand.

Hence, it acts as a minor support and resistance feature. Accordingly, it offers a natural stop-loss level (also known as a pattern stop). This trait helps you to limit your trade risk.

Here, you will learn how to time your trade entry with three price patterns.

1. Hikkake
2. Three-Bar Reversal (with a tweak for intraday trading)
3. Pin Bar

The most efficient way to learn is by going through examples. For each price pattern, we start with its identification rules and end with a chart example.

In the examples below, we perform trend line analysis and use price patterns as triggers. In particular, we are employing the first strategy covered in this trend line trading article.

(Note to course students: All trend lines drawn are according to valid pivots.)

PRICE PATTERN #1: HIKKAKE

A Hikkake is an inside bar failure pattern. This price formation ensnares the traders who gunned for a breakout trade with an inside bar.

IDENTIFICATION AND TRIGGER RULES

1. Find an inside bar. This is Bar 1.
2. Bar 2 must have a lower high and lower low.
3. Place a buy stop order at the high of the inside bar (i.e., Bar 1).
4. Cancel the order if it’s not triggered after three bars (i.e., by Bar 5).

These rules are for the bullish Hikkake. Reverse for bearish entries.

TRADE EXAMPLE – DAILY SPY ETF

1. This chart started with SPY in a bearish trend.
2. A bearish Hikkake broke the short-lived bullish trend line. We expected the downtrend to continue.
3. However, the market formed a double bottom instead and bolstered a bullish outlook. (A bull trend line formed shortly after.)
4. A bullish Hikkake pattern formed as a shallow pullback to the trend line.
5. This bar triggered our entry as the market found support at the bull trend line. The pattern stop-loss was the lowest price reached between the Hikkake pattern and the entry bar.

Click here for more Hikkake examples and in-depth discussion.

PRICE PATTERN #2: THREE-BAR REVERSAL (DAY TRADING TWEAK)

A Three-Bar Reversal pattern occurs too frequently in intraday trading. Hence, Alton Hill from TradingSim proposed an additional criterion for intraday Three-Bar Reversals.

IDENTIFICATION AND TRIGGER RULES

1. Bar 1 closes down / is bearish.
2. The low of Bar 2 is below the low of Bar 1.
3. The low of Bar 3 is higher than the low of Bar 1.
4. Bar 3 closes above the high of both Bar 1 and Bar 2.
5. Buy with a market order as Bar 3 closes.

These rules are for bullish Three-Bar Reversals. Reverse for bearish entries.

TRADE EXAMPLE – 4-HOUR EUR/USD FUTURES (6E)

1. Depending on your trading approach, these two bearish patterns were potential triggers. We are not focusing on them here as we are looking for trend line bounces.
2. This bullish gap towards the bearish trend line threatened the bearish market.
3. However, the market rejected it in the form of a bearish Three-Bar Reversal. Our trade trigger was the close of this bearish pattern. The stop-loss point is right above this price pattern.

(The quick failure of the two earlier bullish Three-Bar Reversals hinted at a continuation of the bear trend.)

Click here for more Three-Bar Reversal intraday trading examples.

PRICE PATTERN #3: PIN BAR

A Pin Bar is one of the most popular price patterns and is a useful trigger for many trading methods.

IDENTIFICATION AND TRIGGER RULES

A bullish Pin Bar must:

• Open above a support
• Trade below the support for most of the bar range
• Close above the support

Reverse the rules for bearish Pin Bars, and look for a test of resistance instead of support.

TRADE EXAMPLE – SPY ETF WEEKLY

You often hear that you can use price patterns on any time frame. While this is not true for the more complicated patterns, it is the case for simple patterns like the Pin Bar.

This example takes on the weekly chart.

1. You don’t need a trend line to show you the bull market in this chart. However, in this example, trend line analysis is a cornerstone for trading consistency. The trend line helps us to determine which Pin Bar to pay attention to. (These are the two pivots of the trend line.)
2. Many Pin Bars formed as the market rose. But this Pin Bar triggered our trade as it bounced off the bull trend line.
3. The pattern stop-loss is just below the low of the Pin Bar.

Top Monopoly stocks in India

IRCTC –  100% Market share in Rail Network.

 

IEX -90% market share in power trading.

 

*Zydus wellness* >90% market share in sugar free product.

 

*Eicher motors* >85% market share in 250cc bikes category.

 

*MCX* >85% market share in commodity trading.

 

*Coal India* >80% market share in coal production in India.

 

*ITC* >75% market share in cigarettes.

 

*Honda Siel* >75% in portable power generators.

 

*Hindustan Zinc* >75% market share in primary zinc industry.

 

*Asahi India Glass* >70% market share in automotive glass.

 

*NRB Bearings* >70% market share in needle roller bearings.

 

*Pidilite* >65% market share in adhesives.

 

*CAMS* >65% market share in RTA within mutual fund industry.

 

*Time Technoplast* >65% market share in polymer based industrial packaging.

 

*Concor* >65% market share in domestic container cargo transport.

 

*Exide* >60% market share in lead batteries.

 

*Naukri* >60% market share in the Indian job market space.

 

*Praj* >60% market share in ethanol plant installing.

 

*Indiamart Intermesh* >55% market share in the online B2B Classified space.

 

*Borosil Renewables* >55% market share in Lab glass.

 

*Vst Tillers* >50% market share in Power tillers.

 

*Delta corp* >50% in online poker games.

 

*Vinati Organics* >50% market share in IBB.

 

*OCCL* >50% market share in IS.

 

*LMW* >50% market share in textile machinery.

 

*Bajaj consumer* >50% market share in almond hair oil.

 

*Asian paints* >50% market share in decorative paints.

 

*Colgate* >50% market share in oral care.

 

*Symphony* >50% market share in coolers.

 

*PGHH* >50% market share female care & vaporub.

 

*La Opala Rg* >50% market share in opalware.

 

*HLE Glasscoat* >50% market share in filtration & drying equipment.

 

*Maruti suzuki* >50% market share in passenger cars.

 

*APL Apollo* >50% market share in structural & pre galvanized tubes.

 

*GMM pfaudler* >50% market share in glass lined equipment.

 

*Marico* >40% market share in hair oil (coconut) & edible oil.

 

*HUL* >40% market share in soaps, household products.

 

*Nestle* >40% market share in Instant noodles. >95% in infant nutrition.

 

*Blue dart* >40% market share in air express courier service.

 

*VIP* >40% market share in luggage.

 

*USL* >40% market share in spirits/whisky.

 

*UBL* >40% market share in beer.

 

*Sundram fasteners* >40% market share in fasteners.

 

*Nocil* >40% market share in rubber chemicals.

 

*Gillette* >40% market share in razors & blades.

 

*Alkyl Amines* >40% market share in DMAHCL.

 

*TTK Prestige* >40% market share in pressure cookers.

 

*Hero Motocorp* >35% market share in 2 wheelers.

 

*Reliance* >35% market share in telecom.

 

*Britannia* >35% market share in biscuits.

 

Top Indian Companies with Monopoly

• Top Indian Companies with Monopoly
  • 1. IRCTC – 100%
  • 2. CDSL– 100%
  • 3. CAMS-70%
    
  • 4. IEX-100%
  • 5. MCX-92%
  • 6. Nestle – Cerelac – 96.5%
  • 7. HAL – 100%
  • 8. Hindustan zinc – 78%
  • 9. Pidilite – 70%
  • 10.Coal India-80%
  • 11. CONCOR – 68.52%
  • 12. ITC- 77%
  • 13.MARICO
  • 14.Zydus wellness-94%

 

Following are the list of monopolies in the Indian markets i.e. the companies that enjoy the status of being a monopoly: (Company – Market Share)

1. IRCTC – 100%

IRCTC is a state-owned entity and the only player in the Indian markets that operate in the Industry. This makes it a monopoly as consumers have no other alternative. The company was founded in the year 1845. It is one of the largest railways in the world and is one of the world’s largest employers. Rail networks are generally considered as ‘ Natural Monopolies’. This is because only one train can use the rack at a given time.

2. CDSL– 100%

CDSL CDSL (Central Depository Services limited). When you trade assets (such as stocks, bonds, ETFs, mutual funds, government securities, treasury bills, and so on), CDSL keeps track of your holdings and transactions in dematerialized form. In India, there are just two such companies: NSDL and CDSL. CDSL is preferred by many brokers over NSDL.

3. CAMS– 70%

CAMS (Computer-Age Management Services) assists mutual funds with report maintenance, data administration, and registration and transfer agent services (RTA). CAMS has a 70% market share and a market capitalization of Rs 13800 crore. In the last five years, the mutual fund business has grown significantly. Four of the top five mutual funds are among CAMS' mutual fund clients. CAMS has a distinct advantage because the entry barrier to this market is quite high, and replacing the company is extremely tough

4. IEX– 100%

The Indian Energy Exchange is the country's major electricity exchange. It's an online marketplace where buyers and sellers of electricity can exchange. It improves the electricity market's accessibility and transparency, as well as the speed and efficiency with which trades are executed. The amount of spot power traded on the exchange is steadily increasing. As the pandemic fades, the country's electricity demand continues to rise. However, this is another company that may be bought on the cheap for a long-term investment.

5. MCX– 92%

India's first commodities derivative exchange is the Multi Commodity Exchange. It enables commodity derivative trades to be traded online. A wide selection of commodities can be traded with an MCX trading account. With a market share of over 92 percent in India's commodities exchange sector, MCX has a near-monopoly.

6. HAL – 100%

The Hindustan Aeronautics India Limited represents the Indian aviation industry and plays a very important role in the Indian defense sector. The company a set up in 1940 by Walchand Hirachand and the Government of Mysore, with the aim of manufacturing aircraft in India. Today the company is state-owned and is associated with designing, fabricating, and assembling aircraft, jet engines, helicopters, and their spare parts

7. Nestle – Cerelac – 96.5%

Cerelac is the brand of instant cereal made by Nestle for infants 6 months and older as a supplement for breast milk. Nestle is one of the worlds leading nutrition, health, and wellness company which was set up in 1866 in Switzerland. It has spent more than a century in the Indian markets over the years has become an undisputed market leader in the baby food segment. It has an undisputed market share of 96.5% despite functioning in an open to all industry.

8. Hindustan zinc – 78%

Hindustan Zinc Ltd. is the world’s second-largest zinc-lead miner and holds a 78% market share in India’s primary zinc industry. The company was incorporated as Metal Corporation of India in 1966 as a Public sector undertaking. Today the company is a subsidiary of Vedanta Limited which owns a 64.9% stake in the Company while the Government of India holds a 29.5% minority stake.

9. Pidilite – 70%

Pidilite’s product range includes adhesives and sealants (Fevicol and M-seal), construction and paint chemicals (Dr. Fixit), automotive chemicals, industrial adhesives, and industrial & textile resins. It is the leader in the adhesive and industrial chemical market with a market share of 70%.

10. CONCOR – 68.52%

Container Corporation of India Limited (CONCOR) is a Public Sector Undertaking managed by the Indian Ministry of Railways. The company was set up in 1966 with the aim of containerizing cargo transport in the country. Concor’s core businesses include that of cargo carrier; terminal operator, warehouse operator & MMLP operation. They hold a market share in domestic business of 68.52% in 2019-20.

11. Coal India – 82%

Coal India Limited is a coal mining and refining company. It is also the world’s largest coal-producing company in the world. It is owned by the Union government of India and is managed by the Ministry of Coal. The company contributes up to  82% of the total coal production in India. It was only this year that the government announced that the coal sector would now be opening up for commercial mining possibly ending its monopoly in the future.

12. ITC- 77%

Although the company has diversified into a conglomerate in the last century. Despite this, its cigarette business still holds 77% a strong position in the Indian markets. This can be attributed to the expertise the company has developed in the field and a willingness to develop products to match the evolving taste of different types of consumers.

ITC’s wide range of brands includes Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal. Apart from a market experience, another advantage that the brand has is its supply chain and distribution network which spans across the country.

13. Marico – Oil Products – 73%

Marico is one of the well-known FMCG companies in India but the majority of its success lies in its two brands ‘Saffola’ and ‘Parachute’. The company has come a long way in the segment despite being around for only 3 decades. Safola which competes in the premium refined edible oil segment has maintained its market leadership with a share of 73%. ‘Parachute’ on the other hand holds a market share of 59%. These also form up to 90% of their income.

14. Zydus Wellness 94%

With consumers increasingly becoming health conscious and opting for sugar substitutes, Zydus Wellness feels its brand `Sugar Free has the potential to double its sales in the next three to four years.

`Sugar Free has 94 per cent market share in the sugar substitute category, which is estimated to be Rs 300-350 crore market.

"We are focused on developing this category. We believe Sugar Free as a brand could grow much faster and double in the next three to four years as more and more consumers adapt to Sugar Free," Zydus Wellness Chief Operating Officer Tarun Arora told PTI.