Watch our video on how to day trade for a living.
Do you want to day trade for a living? Day trading for a living is possible if you put the time into practicing and learning. It had taken me a lot of time practicing in a simulator before I started to see the patterns and anticipating moves. As a result, I have a few tried and tested strategies that work for me.
Do you want to know why they work for me? It’s because I look for specific candlesticks setups and specific technical indicators. As a result, when combined, they’re dynamite.
I’d suffice to say nine times outta ten, when the candlesticks patterns I look for line up with my stock entry criteria, the trade is making me money.
So for today, I’d like to share with you the eight most important technical indicators I look for before entering a momentum day trade.
In fact, we have a day trading course to teach you how to day trade for a living.
First things first, I won’t enter a trade unless the following criteria present itself:
To day trade for a living you need volume. Volume is the number of shares traded over a given period. The higher the volume, the more active the security.
Why's volume so important? Because volume precedes price! Therefore, it's used to confirm trends and patterns. Otherwise, it may be a false rally.
Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move low volume. If volume is starting to decrease in an upward trend, it's usually a sign that the upward run is about to end. In other words, a reversal is coming.
Another key point to remember; when looking at a stock with large price movement, examine the volume. See whether it tells the same story. An example would be a stock with a surge in price. You might think it’s a great stock to buy and jump on the bandwagon. If it has a surge in price with a decrease in volume this shows a lack of interest. It's warning of potential reversal.
In fact, if you want to trade breakouts, a volume surge is mandatory to confirm that it's in fact, a breakout.
As a rule, I want to identify a stock that has an average of 300,000 shares traded per day. Which means there’s a lot of people willing to buy what you’re selling or vice versa.
This is because I want to be able to quickly enter and exit a trade. In other words, I don’t want to be stuck with a stock I can’t unload. Keep in mind this is my preference and sometimes I adjust it to 500,000. You might like to keep the numbers higher at a million or lower at 100,000. If that works for you, great!
To day trade for a living check out VWAP. VWAP or the Volume Weighted Average Price is probably one of the most important day trading technical indicators.
In fact, I know of some traders who only use VWAP and Volume to confirm their entry and exit points. VWAP is a moving average that takes into account the volume of the shares being traded at any given price. While other moving averages are calculated based only on the price of the stock on the chart.
What's more, VWAP considers the number of shares in the stock being traded at each price. Thus it lets you know if the buyers or the sellers are in control of the price action.
So, if I want to go long on a stock I ensure the candlesticks are above VWAP. The opposite is true if I want to short; the candlesticks must be below VWAP.
To day trade for a living you need to check the float. The float is the number of shares available to trade on the open market. This number does not include the shares held by insiders and employees.
The float should be greater than 300,000 just to ensure you’re trading a stock that is actually liquid. But it should also be less than 20 million.
Why should you look for stocks with less than 20 million shares traded? Because these are the stocks that will generally move and move quickly because they're less liquid.
Stocks with floats over 20 million typically don’t have the big daily price moves you want for day trading.
My strategy here is to day trade for a living with more affordable stocks. You can change this price if you’d like. Alternatively you can consider day trading options if you want to trade higher priced stocks.
Exponential Moving Average (EMA) is a moving average where more weight is given to the most currently available data. Because of this, it reflects the latest fluctuations in the price of stock more than the other moving averages do.
I use the 9 and 20 Exponential Moving Average indicators on my charts. The crossing of these lines signifies a shift in price direction. Simple as that.
Now you have the option to use the 13 EMA as well. It all depends on what you're comfortable with. Personally, I'm using the 9/20 EMA crossover to verify my entry and exit points.
In a nutshell, the Simple Moving Average (SMA) is a moving average that's calculated by adding up the closing price of a stock for a number of time periods then dividing that figure by the actual number of time periods.
When I'm going long on a stock, I want the candlesticks to be above the 50 SMA (simple moving average). Likewise, when I’m going short on a stock, I want the candlesticks to be below the 50 SMA.
Keep in mind $0.05 is my personal choice, and quite frankly, it helps to filter out those stocks with a monster spread. What I tend to see with stocks with large spreads, they jump around, a lot. And this isn't what I want when trading.
Finally, there needs to be some sort of fundamental catalyst that’s causing the stock to move. This could be as simple as the company meeting or failing to meet earnings.
Or in the case of biotech stocks, major news such as a breakthrough in the fight against cancer. If not, you could be the victim of a pump and dump scam. This is where people and/or chat rooms falsely inflate the value of a stock causing it to skyrocket.
I'm not going to name names here but moderators of some rooms shout out "I'm long XYZ" just so the 1,000 members in their room buy it. As you expect, the price of XYZ soars and the moderator, who's already long on the stock, quickly unloads it (to the unsuspecting members of his chat room) and makes a hefty profit.
And like clockwork, the falsely inflated stock tanks. The students scramble to unload the stock but can't because there are no buyers for it.
With this in mind, it's probably a good time to mention that if you're part of a trading room that does this, get out and get out fast. Learn to read the indicators and make your own informed decisions.
In fact, our trading rooms are anti-pumping. As a result, you're able to day trade for a living much more safely.
For this example I decided to quickly look up TVIX. I choose TVIX because it's charts are relatively clean and I could easily see a set up that met all my criteria.
You can see the volume starting to come in and a shift in direction. This was confirmed by the 9 EMA crossing over the 20 EMA and a move above VWAP and the 50 SMA.
On my chart I also have the 200 SMA as well. As you can see, all the confirmation indicators would suggest a strong buy signal.
I'm a firm believer that if you keep things simple you'll have the clarity to see where you need to go and what you need to do. Because of this I like to keep my charts clean and not overwhelm myself with indicators. Quite frankly, I could probably even remove a few to see if it would be easier.
Nonetheless, I want you to know that if you're ready to start day trading we are here for you. We want to make your journey simple, seamless and without stress.
We don't pump stocks in our trade room, that's not our style. Come check our service out, I promise you won't be disappointed.
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