For a day trader, each day is war.
Just as a general with a detailed plan of action who eventually wins the war, the more the preparation that is put in prior to the commencement of the trading day, the greater the chance of a success.
Many a time, a trade is terminated prematurely, only to face the mortification of seeing the price zooming up. A well-drawn trading plan can help avoid such a situation. A trading plan should have: (a) entry level, (b) exit level and (c) stop loss.
Previously, we dwelt at length on the stock selection criteria. That would be the genesis of the trading plan. It would be a good idea to have a list of stocks for going long and another list for shorting. As the trading day unfolds, the stock that can be traded that day will become apparent.
Determining the entry levels in the stock should be done with the help of intra-day charts. Technical tools that are used during day trading should not be too many, either. Each day-trader should make a trading system comprising one or two oscillators to generate a buy signal. Oscillators can be combined with trend lines and patterns on the bar chart or candlestick charts. The price reversing from supports would also be a good place to initiate a buy. It would be best to stick to one or two oscillators alone, as greater the familiarity, the greater the degree of comfort.
Exit levels in day trading can also be determined with the help of technical tools. Some examples are sell signal in the oscillator, trend line and reversal from previous peaks, to name three. Apart from these technical levels, the trader can also determine exit levels with the help of a certain minimum expectation per trade. For example, the minimum expected return per trade could be 1 per cent.
Stop loss levels are the most important part of a trading strategy. The minute the entry point is decided, the stop should be placed a few points below. As soon as the trade moves in to profit, the stop should be moved up to protect profits. Day traders who excel in taking losses dispassionately definitely win big in the end.
