In this blog I will share my technique for day trading. Before I get into the details I would like to point out there are multiple ways to skin a cat so there isn’t a single method, however, whatever technique you pick it must be repeatable and you should be able to apply this in varying marketing conditions In other words you want to rinse and repeat. Since each trader is different and all have different trading mentality based on their risk factors, account size and level of patience it is important we pick up nuances from different traders and build a strategy that works best for you.
Irrespective of what strategy you develop and whether it is manual or fully automated you must manage the risk on your trade. If there is one thing, I can emphasize for traders who are relatively new always think “Risk” before “Reward”. In other words, you can win big, win small, however, you want to lose small. This business is about preserving your cash. The general rule of thumb I follow is that I do not want to lose more than 1% of my portfolio on any given trade. So, for example if my portfolio is 100K, I do not want to lose more than $1000 on any given trade.
Now let me dive into my specific trading style. Given my background as a Physicist and Computer Engineer my emphasis has always been on automating the trades. As I had mentioned every trader is different and, in my case, I want to eliminate emotionality out of trading. Hence, I have developed a trading strategy called the “Ultimate Trading Strategy” that runs on top of ThinkorSwim platform and enables me to trade stock that have momentum behind them. This software automatically scans the market each day presenting me the best long and short opportunities. This strategy is based on the concept of multi-timeframing. What I look for is that a trading signal must align on 4 timeframes before I consider a trade. For example, if one uses the simple crossover of 9 EMA over 21 and you trade the 15-minute chart, I want this crossover to be true for 3 additional timeframes. In total 15 Min, 30 Min, 1 Hour and 4 Hour must be aligned. Since one indicator represents a single data point, I have incorporated over a dozen signals on multiple-timeframes and look for alignment before a formal buy/sell signal is triggered. Remember when you build an automated strategy you have the luxury of incorporating several checks and balances into the system because you are utilizing the vast computing resources available to you.
In this example the bottom 4 rows represent that 9 period EMA greater than 21 period EMA when colored in green and the top rows shows green when all timeframes are aligned. As you can see when we had a gap on the 15 min and 30 min the 9 Period trading below the 21 Period and hence did not provide the highest probability. But when all timeframes were aligned, we had a profitable trade. Now with automation once can take several technical indicators and combine them stacking the probability in your favor
I discuss the nuances in my video below, I hope you find the information helpful.
Day Trading Tutorial Link: https://www.youtube.com/watch?v=0ndHdHA327g
YouTube Channel: https://youtube.com/mandeepbhullar