Today I am going to show you an example of a day trading strategy that is super simple, and it’s based on ideas from the previous episodes in this series, so it’s 100% based on price action and volume.
We are going to present more day trading strategies in this series, so make sure you subscribe to our Youtube channel.
The first thing to do is to decide what you are going to trade. At daytradetowin.com we recommend our students to trade the Emini S&P500 – it’s very easy to get started trading the Emini S&P500, and we can provide you with a free day trading platform and free, live real-time data – go to daytradetowin.com to get it.
Anyways, the first thing to do is to open up a live chart of the Emini S&P 500, or whatever you want to trade: currencies, stocks, commodities, etc. I personally would apply this to a five-minute chart, because that is what I am most comfortable with – but if you’re a shorter-term scalper or longer-term trader feel free to use this strategy on whatever time frame you want to use.
Then when you have your chart open you will start looking for candles with huge volume. The volume needs to be really high, extremely high, which tells us that there is huge interest in that particular price level where the market is trading. There is huge supply and demand – people want to buy or sell at that specific price level.
The next thing you do is to check for any news. If the huge volume is based on some news event then you will need to determine what implications that could have. I wouldn’t trade if there was an announcement made, or some economic news that was scheduled to be released. Those sort of things can cause the market to react in erratic ways.
And also one more thing – and this is important. We don’t want to trade this in the morning when the session opens. For that we have the ATO2 instead. The session open usually has extremely high volume and great volatility – but if you want to trade the session open I definitely recommend the At The Open 2 that is available at daytradetowin.com
The next thing to do is to wait for that high-volume-candle to close. It does not matter if the candle is red, green or a doji, and it does not matter if the candle is big or small. If the following candle also has the same amount of volume then wait for that candle to close.
So now you have one or two candles on huge volume. What you would then do is to find the highest high and the lowest low of those candle, and draw a horizontal line from those points.
You will now have a range – in this range there was a lot of interest. A lot of traders bought and a lot of traders sold – so it is significant – it is an important price level. We don’t really care why it was important, why there was this huge volume – because we are technical traders.
Now you just wait until you get a candle that closes outside this range. If the following candles trade inside this range you will wait for a candle to break out of the range. You want that candle to close outside the range. That will be the direction that you want to trade in.
But you do not want to enter a position yet. Because now everybody is jumping on the bandwagon and it could be a false breakout. Instead what you would do is to wait for a pullback…
So you enter a limit order at this level – if the candle closed above then you would enter a limit order to buy at the highest high of the high-volume-candles – if it closed below then you enter a limit order to sell short at the lowest low of the high-volume-candle.
Then you just wait for the market to retrace back to these price levels. The market always wants to test where it has previously been, so it is very likely that you will get a retracement back to this level. Sometimes the market does not retrace all the way back to these levels, in those cases you would read the price actions and you could enter your position based on that analysis. But if there is a pullback to the optimal price level then you will get filled.
You’ll need to be as quick as possible with your limit order – because they are filled on a first come first served basis – so don’t wait until the last minute with entering the limit order.
Sometimes there will not be a pullback at all. You can also enter this trade once you have two consecutive candles closing above or below the range. Then you would just enter in the same direction as those candles. But, this is not something I would recommend for beginners, but if you’re and experienced trader you can try this.
Then – When you’re filled you will need to manage your trade. I suggest you take profit at 1 times the ATR. The ATR is a good tool that you can use in order to base your profit target on what you can realistically expect from the market at any given time.
You can also use the high or low of the previous swing depending on if your long or short.
You’ll also need to protect yourself with a stop loss order – so that you are stopped out if the market goes against you. The easiest stop loss would be based on the ATR, but you can also use other stop loss strategies. We’ll teach you great stop loss strategies further on in this series. We’ll continue this price action trading series, so please make sure you subscribe – and if you like day trading – please give us the thumbs up and like our videos.
Hope you like this super simple day trading strategy. In our mentorship program we will teach you more than 10 different day trading strategies that are even more powerful than this one. Our next 8-week day trading mentorship program begins soon, so make sure you sign up while there are still seats available.