Day Trading Videos –

Finding the Most Active Stocks to Day Trade [Video]

There are thousands of stocks you can trade on any given day. For that reason, picking the most active stocks each day can help you narrow your universe of ideas.

The potential number of trade opportunities can feel overwhelming to the untrained eye. For example, do you pick popular stocks like Apple or Google to trade? Or, do you just play IPOs and shoot for a quick flip based on the hype? All of these questions have to be fleshed out as a part of your daily trading plan.

Each day, it should be your goal of scanning the market for the best “stock movers today.” Your goal is not only finding stocks that best fit your trading methodology, but which are also the biggest market movers. The task is not as simple as just having a list of high volume stocks that you can trade every day and make boatloads of money.

Learning how to find the best stocks to day trade requires work and quite a bit of research on your part. In this article, we’ll illustrate 7 tips and tricks you can use to find the most active stocks to day trade, the biggest pre market movers, and the highest volume stock each day.

Start Your Day Early Searching Pre-Market Gainers

Regardless of which approach best fits your day trading style, the one thing required for each selection process is that you must get an early start to the trading day.

Gone are the days where you can arrive at 9:15 am, log on to your broker, and start placing trades. The market is getting faster and faster with the increased trading volume from hedge funds. At a minimum, you should start your prep work at 8 am market time.

This will provide you enough time to conduct your morning research and configure your monitors with the stocks you are actively tracking for the day. As part of this process, you will want to pay close attention to the pre-market gainers that are populating your scans. These are usually the best day trading stocks.

#1 Find the Best Stocks to Day Trade with Biggest Pre-market Movers

For those of you that have been trading for some period of time, you will know that the pre-market is one of the street’s favorite ways to take advantage of you.^[1] A stock could be up 6% in the pre-market only to open up 2% at 9:30 am. The reason for the large price swing is due to the thin volume that can carry a stock in either direction outside of the regular trading session.

We recommend starting your scans around 8:00 am sharp, well before the opening bell. This gives you a full hour and a half before the market opens to conduct your research. Along those lines, here is a list of what you want to look for when scanning for the best stock movers “today”.

Stocks gapping at least 2-5%. The gap needs to be healthy. However, since 2020 and the pandemic, pre-market stock movers are gapping higher and higher
Volume needs to be somewhat heavy. If you see a stock up 20% on 200 shares, then look the other way. Ideally, Relative Volume should be well over 100%
Once you see a stock that is up on decent volume, you’ll want to check the news and whether or not there is any dilution risk.
Make sure you review the broader value of the futures market for the major indices (Dow, NASDAQ and S&P). While breakouts can move independently of the market, it’s always a good idea to go in the direction of the broad market.

Setting Up Your Scans for Today’s Biggest Premarket Movers

Your trading platform should provide you with the pre-market movers; however, if the scans are not thorough enough, below is a list of resources:

NASDAQ pre-market values
Stock Market Analysis – list the pre-market movers every morning
Stock Market Watch – provides top gainers and losers but also displays the pre-market value of the major indices.

There are other high powered scanners out there, but to be honest, all you really need is a method to see the top gainers and losers. However, here at TradingSim, we offer a simplified scan filtering engine that will help empower your training experience. There’s no better way to get your feet wet finding the biggest premarket stock movers.

TradingSim Scanner Tutorial

The constant need for more information throughout the day will likely lead to overtrading or too much confidence.

Not to mention, some of these scanners can get pretty costly. You need to prove you are able to make money with the most basic of scans before scaling up to the pricier options.

Examples of these pricier scanning options are Trade Ideas and Finviz. What these sites lack in design they more than make up for in their ability to provide you with more scans than you can ever dream of needing.

Choosing the Best Penny Stocks to Trade?

Now that we have covered the more conservative point of view for pre-market trading, let’s delve into the wilder side of trading – low float stocks.

Low float stocks are not for everyone as the price moves are significant. ^[2] These low float stocks are likely penny stocks that trade under $5 dollars. Since the covid crash of 2020, these penny stocks have become much more popular and liquid. Some of them may reach into the 100s of millions of shares traded. However, they can be risky.

Please note, if you go down this path, do not use more than 5% or 10% of your bankroll on each trade. This is more of a game where you play the pop, but you are not making a long-term investment. Odds are that these stocks are priced cheaply for a reason and will eventually drop quickly.

For an example, check out our article on the 1-3pm Bloodbath Setup. It’s a great way to play penny stock movers to the short side.

Find a Clean Pattern with the Highest Volume Stocks Pre-Market

As we mentioned earlier, you want to avoid charts that have low volume in the morning. How do you know you are dealing with a chart with low volume? Just check out the image below.

Basically, if you feel like you are looking at stars in the midnight sky, the volume is too thin. When we say stars, we’re not talking about candlesticks – we mean literal dashes on the charts.

The pattern you trade is solely up to you. Some of you may like ascending triangles, while others may look for red to green setups (meaning the stock starts lower but later exceeds the morning highs).

Scanning for the Biggest High Float Market Movers Each Day

If you’re not interested in low float penny stocks, you’ll want to find the highest volume stocks with high float. Why high float?

These are the stocks that can safeguard your investment with a more certain move in the morning.

On average, you’ll find between 2 and 5 stocks that have both the volume and the necessary float requirements to be a real market mover.

The key for you is only trading one or two of these setups per day.

Running your scans, you should see a list of stocks like the one below:

As you can see, there are a few stocks on both the long and short side that are likely good candidates for an opening range breakout or breakdown trade.

Now that we have covered pre-market movers at length, let’s shift our focus back to other ways of identifying great day trading opportunities using the most active stocks of the day.

#2 Finding the Highest Volume Stocks Today

Assuming you have hundreds of thousands of dollars at your disposal you will need a stock with enough volume to allow you to quickly enter and exit the trade with ease. Everyone’s criteria may differ, but our personal minimum is about 40,000 shares per 5-minute bar.

This, of course, depends on the price of the stock and the float. Perhaps you don’t have a large account. If not, be sure to check out our small account strategy.

If you have a brokerage account, your respective firm should have a most active stocks list. This is a good place to start, but will only contain the top 20 or so stocks. You’ll need a scan that is a little broader and provides you with trading opportunities that are not being tracked by every investor. You may want to also find stocks that are rising on high volume relative to their average volume.

For example, if a stock normally trades 2 million shares a day but has 5 million shares traded before 10am, this is something of note. You may be saying to yourself, well these will show up in the most popular stocks in my trading platform. Unfortunately, this is not always the case. Again, your brokerage platform may only return a maximum number of stocks (i.e. top 10, 20).

If your trading platform does not provide you with a robust screener for the highest volume stocks, below are some great resources:

Unusual Volume provided by Yahoo Finance. ^[3]
Bar Chart provides a list of over 200 symbols ^[4]
The Street provides not only the high volume stocks but also has a scan for stocks trading under $5 for all you penny stock lovers out there ^[5]

#3 Develop your Own Watchlist for Daily Market Movers

You will need to develop your own list from stocks you follow on a daily basis. Again, due to a large number of stocks on the exchanges, it’s best to focus on specific sectors. Below is a list of popular ones:

Banking
Precious Metals
Semiconductor
Automotive
Pharmaceuticals
Retail
Internet

Once you have one or two sectors you would like to follow, begin to track the movement of the top issues. Give yourself a few months of consistently watching the stocks and the sectors in terms of their price movements.

As a follower of the Richard Wyckoff method, you’ll learn that each sector and stock will have an ‘operator’ that is in control of the market action. This operator is the collective investors or market makers with the most money in the stock; therefore, they have a controlling interest.

Using Gold as an Example

Let’s take an example from the ’08 market.

Every day like clockwork stocks Royal Gold (RGLD) and Golden Star Resources (GSS) would have sharp reversals at 10 AM. A system of buying or selling short on breakouts of the morning’s trading range would fail consistently with these precious metal stocks.

While experience would’ve taught you to avoid this particular sector for 6 months, you could use the watch and learn approach to understand how a particular market moves in order to gain an edge over other traders.

The one challenge with building a list is limiting the number of stocks you watch within 1 or 2 sectors down to the biggest market movers. You are manually tracking these stocks and building a sense of touch for how they trade. At most, you should only track 10 stocks per sector, so this gives you a maximum of 20 stocks you can follow at any one point.

This should give you a feel for not only the stocks in the sector, but if they are real stock movers, and whether or not they fit your strategy.

#4 Keep Up with Historical Market Movers

Instead of looking to someone else for advice on what the best stocks to day trade are, how about looking at your own trade performance. There is at least one stock you trade on a regular basis for one reason or another.

Funny thing is you will not be able to explain why you keep gravitating to that particular security. Call it your soul mate or just your stock of choice. Your comfort level with the stock will make you feel like you “own” its movements.

You can move in and out of the stock with ease and generally make a profitable trade on each attempt.

For me, I couldn’t get enough of Baidu Incorporated (BIDU). For all of you fans of the show Scandal, she was my Olivia. I would track BIDU every day even if she wasn’t moving much. For some reason, I was able to predict her movements and never found myself fighting the trade.

So, look back over your trade history. Is there one stock market mover that keeps popping up on your list of trades?

This is a more recent technique for scanning the market. It can be a bit tricky, however. The reason for this is that searching social media sites or reading news events might positively or negatively impact your view on a stock.

We recommend basing your trade decisions solely on the price and volume action of the stock. That being said, there may be some underlying sentiment on social media that is worth knowing.

Play StockTwits

StockTwits streams the hopes and random thoughts of investors for many securities. They even have a market sentiment factor which displays at the top of each wall for the respective stock.

In terms of which stocks most active stocks to day trade, if you visit the homepage you will see a list of stocks across the top which are trending.

These are stocks that members are actively discussing as Stocktwits plays. You will quickly notice that these are the stocks in the news. Nonetheless, there are times when members are discussing a move in a stock during the middle of the day before a news publication is able to produce an article.

The best method for using StockTwits without a doubt goes back to the list of pre-market movers. You can, of course, look at the news event which is pushing the stock higher or read the latest press release from the company, but StockTwits allows you to get a real pulse of the market.

You can actually use StockTwits as a method to validate exactly how much interest there is in the stock.

If you see a stock up 10% but with only two tweets, it’s likely not in play.

However, if you can find the stock that is up on heavy volume and the board for the respective security on StockTwits is very active, you likely have a stock in play.

Remember, it’s not about the level of bullishness or bearishness on the board – all you care about is if people are talking about the stock you have an eye on.

Swaggystocks.com Popular Active Stocks List

Similar to StockTwits but with a twist, is the popular sentiment lists being viewed on swaggystocks.com. Swaggystocks essentially crawls many of the popular social media outlets like Twitter, WallStreetBets, Reddit, and more. They compile the most mentioned stocks into cute little charts that tell you what’s trending.

swaggystocks.com social media sentiment indicator for most active stocks — swaggystocks.com social media sentiment lists

The cool thing about swaggystocks.com is that they offer many different social sentiment lists that are updated frequently throughout the day. What this can do for the retail trader is give insight into what stocks are most active. You might find a potential market mover or high volume stock from this list.

Of course, as with any stock in play, you want to have a setup and a trade plan. Don’t be a bag holder just because AMC is being mentioned a lot on Twitter. Stick to your edge.

TradingSim Historical Market Movers Scanner

TradingSim’s market movers scan provides a list of the top 50 losers and gainers for every session in the market going back 3 years. For most brokers, they don’t keep track of this data. To that end, you’ll have a tough time identifying which stocks were trending on a given day in the past.

Market movers inside TradingSim will allow you to pick a random day 6 months in the past and actually see what the most active stocks were for that day. Just as you would research and track the hot stocks for each morning, market movers automatically provides this function for you on historical days. This way, you can just focus on practicing day trading.

#6 Monitor the Earnings Calendar for Potential Active Stocks

One event that is sure to bring about increased volatility is the reporting of earnings. This occurs quarterly throughout the year.

Be sure to keep track of who is on deck for the week. That way, you can start to monitor how the stock is trading going into the earnings announcement.

To be clear, we are NOT advocating you place a trade before the earnings are reported, because this is another form of gambling. You will, however, want to know who are the upcoming market movers and most active stocks for that day, so you can add them to your watch list.

This will reduce the amount of research required prior to the market open. Below is a list of sites that publish earnings calendars:

#7 Focus on One or Two Stocks from Your Most Active Stocks List

Focusing on one or two securities is all about keeping it simple. In all of the above examples, you would need to scan, watch, and react quickly on a daily basis to a large number of issues.

If this is something that you feel is too much and you want to become a master of something simple, then look to trade the same one or two issues every day. Or, at a miminum, choose only a few of the highest volume gainers or most active stocks each day.

Selecting a Stock to Trade from Your Most Active Stocks List

When selecting a stock to trade, you have two approaches: (1) select the most popular stock or (2) pick your favorite stock based on your past trading performance. #2 will largely depend on your own trading preferences, so we’ll cover a few top stocks for day trading:

AAPL (Apple) – high volume and great price action. The popularity of the company has transferred over to the stock’s popularity in the trading community
S&P 500 Spiders (SPY) – While this is not a stock but an ETF that follows the S&P index, the volume is huge and provides the means for you to trade the index without trading futures
QQQ – formerly known as the QQQQ has been a fan favorite of active traders for over a decade
TSLA (Tesla Motors, Inc.) – if you like volatility, the stock moves as fast as its cars
NFLX (Netflix) – the CEO is willing to make bold decisions, this has translated into significant price swings in the stock
FB (Facebook) – there are few stocks that have polarized traders as much as Facebook

It’s safe to say we are a little biased towards the NASDAQ when it comes to day trading. The NASDAQ’s ability in the late 90’s to facilitate order flow has forever stamped them as the preferred index for active traders. You’ll typically never fall short of a daily market mover or high volume stock on the NASDAQ.

Below are the benefits of trading one or two stocks:

Learn the trading pattern and personality of the stock
Identify the technical indicators best suited for the security
Less stress
Less work to do before and after the market close

In Summary

There are multiple ways to select the best stocks for you to day trade. Remember, trading is a journey, so don’t try to figure it all out in one day. Just make sure your scan provides you the means to trade high volume stocks with a sound system that consistently makes you money.

If you do decide to create custom scans, you will want to focus on the following key areas:

high volume stocks
gappers
pre-market movers
red to green and green to red moves
consecutive number of red or green candles
biggest stock gainers and losers

Results for these 6 scans will provide you more than enough as a new trader.

We hope you found this article to be helpful in your quest to find the most active stocks to day trade. If you would like to see how we can help you further, come over to Tradingsim.com and give our market movers a shot. We’re sure you’ll find our top stock mover tips useful.

Here’s to good fills!

Photo Sources

Stock Ticker – francisco.j.gonzalez

External References

Cramer, Jim. (2019). Don’t Mess Around with Pre-Market Trading During Earnings Season. CNBC
Low Float Stocks. lowfloat.com
Most Active Stocks. yahoo.com
All US Exchanges Volume Leaders. barchart.com
Most Actives. thestreet.com

Are you a day trader? If yes, then you will definitely find this article helpful as you begin to navigate the world of day trading breakouts.

Today we are going to discuss 4 strategies for how to trade intra-day breakouts. But, before we jump into the meat of the article, let’s first align on the definition of breakouts and some of their key characteristics in this short video.

What are Breakouts?

A breakout occurs when price clears a key level on your chart.

These levels could be a trend line, support, resistance, a prior high, or a key Fibonacci level. Remember, levels on your chart are psychological and represent the sentiments of day traders at a respective price level.

When you think of day trading breakouts, what comes to mind? Stocks making daily highs, two-day highs, weekly highs, all-time highs? As you see, breakout means a lot of things to a lot of people.

So, why do so many people lose money day trading? Why are traders constantly buying stocks when they hit intra-day highs, only to have them roll over within minutes. How many times have you shorted a stock on a breakdown through a critical support level, go get coffee, come back and see the stock has bounced and you just bought a five-thousand dollar no foam, soy latte?

Well, in this article we’ll give you the “secret” that so many breakout day trading professionals use every day to take themselves from ordinary to extraordinary.

Day Trading Breakouts Misconceptions

If you buy a breakout or sell a breakdown, you’ll make money, right?

Do you believe this statement? If so, immediately contact your broker, withdraw your funds and put them in a savings account.

If you follow this system, you will lose money. ^[1] Often times, professional floor traders and the like will wait for stocks to break new lows, look for large buy orders in the tape, and then start scooping up every share in sight.

This will leave you, the novice trader, looking at your screen scratching your head and asking yourself the question, how did this happen? My technical indicators were in alignment. The stock has been below its simple moving average the last 10 bars. The last 15 bars have been down, now when I put on my short position, the stock has the bounce of its life.

If you are ready to end your streak of tough trading days, continue reading.

Avoid Trading Breakouts During Lunch

In the morning, there is news, earnings, gossip, and a multitude of other reasons that cause stocks to move swiftly with heavy volume. Then around lunch, traders take a step back and begin to digest all of the events from the opening bell.

This does not mean there are no good breakouts in the market, but the odds of finding the stocks that will move are not in your favor. It’s a known fact on the street that lunchtime trading is for accumulating sizeable positions that you can then unload at some point in the future.

That is why, during the middle of the day, stocks go through an endless process of breaking out and failing, over and over again. This process is known as intraday accumulation. Think for a second, if you are attempting to accumulate 200,000 shares of a stock. Could you just run out there and put one large order in the market without anyone seeing you?

Maybe on a stock like Apple, but this is a much harder task in a stock that is not traded heavily.

Well, if the trading is light, You just put the trade on in the morning. Wrong.

When Momentum Stops

If you put the trade on after the morning gap, you can easily get caught up in the morning volatility and may not get the best price. However, if you wait until the afternoon, you can quietly accumulate shares, 10,000 or so each time you buy, without many noticing.

So, if you were doing this, would you want the stock to breakout? Of course not, this would mean you would have to pay more per share.

So, instead you keep things quiet and by 2 pm, you’ll have been able to acquire your 200,000 shares, over the last 3 hours, under the radar. If you are a smaller trader, why get trapped taking on positions during the accumulation period?

Why put yourself through the emotional stress of watching your stock breakout and fail, over and over again? If you only remember one thing from this article, the middle of the day is for hedge funds and large institutions to build sizeable positions, not for you to day trade breakouts.

If you’re not convinced to avoid lunchtime trading, at least do yourself the favor of putting on no more than 2 trades per day. The trick about the midday breakouts is that you have to be extremely patient.

Example of a Midday Day Trading Breakout that Works

Below is an example of a midday breakout.

The one thing you will notice here is that the breakout took place right before 1:30pm. From about 11 am to 2 pm the stock drifted lower. If you were trading during this timeframe you would likely lose money and rack up more commissions. It was nothing but choppy action.

The real breakout finally brought an expansion in both price and volume around 12:30pm, with a second breakout at 1pm.

Now, what was the secret sauce that lets us know the breakout was real? Do you think the expansion in price was enough? Is it how high the stock is trading above its 200-day moving average? Nope.

It was the movement of the stock above the volatility contraction pattern. If you are day trading on the long side and have not studied volatility contraction patterns, volume dry up, and pocket pivots, then you do not know what you are missing.

Do you get a feel now for what it takes? You have to exercise extreme patience and wait for the right setups. It also helps to have a bigger picture idea. This LGVN was a classic example of a liquidity trap.

When to Make Money Day Trading Breakouts

The “secret” for day trading breakouts is knowing when to trade them.

There are typically only 2 to 3 hours per trading session you can day trade breakouts on an intraday basis. That’s right. If you are day trading breakouts, you only have about 2 hours a day where you can make money easily, quickly, and without much effort. This time frame is usually between 10am and 12pm, with some exceptions.

In addition, there are two indicators you ought to have on your chart. Those are Fibonacci (retracements and extensions) and pivot points.

These provide you the support and resistance levels for where to enter and exit trades.

The other key point, assuming you are not scalping, is that you should only look to place 1 to 4 trades per day. There is no need to over trade. If you play it right, the plays will more than pay for themselves.

What Times Work for Day Trading Breakouts

The optimum times to day trade breakouts by scalping is during the first 30 minutes and the last 30 minutes of the day. The volume during these time windows makes them ripe for entering and exiting trades. ^[2]

For smaller cap, bigger-picture ideas, 10am-12pm is usually best for a base to build, with a late morning breakout. These are usually squeezes in the smaller float stocks like the LGVN example above.

Most traders say stay away from the morning and late afternoon trading because it’s too volatile, right? Well, that is partially a true statement, if you just go out into the market putting on trades without any defined rules or systems in place. We like the 1 Minute ORB for trading off the open.

Identifying Winning Breakouts

Avoid stocks that have extreme volatility
- Trading low float stocks looks really cool when you are watching YouTube videos of your latest start-up millionaire. However, trading them is a completely different story. We’re not saying there aren’t those crushing them on a daily basis – You just have to wait for a proper setup like the volatility contraction pattern. As stated by Peter Leeds, author of Penny Stocks for Dummies, “Rapid and sudden price spikes typically don’t last.” ^[3]
Do not fade gaps
- Yes, gaps get filled. The question is, will it get filled in the timeframe you need it to. If you are day trading breakouts, you need things to happen quickly and precisely. You do not have time to wait around for the stock to act appropriately. Remember, it is always easier to go with the trend.
Avoid thinly traded stocks
- If the stock has awful spreads, this will only eat into your profit margin. Also, when it comes time for you to exit the trade, you will likely get horrible pricing and have a tough time exiting your trade.
Only trade stocks that have a sizeable price range
- Remember, the goal here is to day trade breakouts. The greater the recent trading range, the greater your odds are of being in a stock that has room to trend.

4 Explosive Strategies for Day Trading Breakouts

Now that we have covered the basics of breakouts, we are going to delve further into four breakout strategies you can use when day trading.

#1 – Day Trading Breakout + Volume Indicator

Again, traders use breakouts as a trigger for entering a stock. But, for how long?

Let’s explore a simple strategy where we leverage the volume indicator as our tool for assisting in trading breakouts.

Above is a 10-minute chart of AT&T.

The red line signifies the resistance level of a bearish trend. We have highlighted in the green circle the exact moment AT&T breaks out above the downtrend line.

At the same time, the volume with AT&T is increasing in a bullish direction. Thus, we go long with the breakout candle.

The next 5 candles are bullish, and volume is expanding on the up move. We hold our long until we get the first bearish volume bar with increased volume. This happens after 5 periods and we exit the position as shown in the red circle.

Just to clarify, for a proper exit signal, you want to see the volume increase relative to the last few candlesticks and the price to also go counter to the primary trend. This is an early indication that the impulsive move is in the process of at least slowing down, if not reversing.

This trade brought us a profit of 25 cents per share for less than an hour’s work. Notice that after we exit the market, the price starts consolidating and then drops significantly.

#2 – Day Trading Breakout + Volume Weighted Moving Average (VWMA)

Another way to analyze volumes with your breakout strategy is to include a VWMA.

Since breakouts occur only a few hours a day with high volume, the VWMA could also prove a valuable confirmation tool.

The reason for this is that during times of high volume, the VWMA will experience a deeper incline and further separate itself from the price.

Conversely, when the price trades closely to the VWMA after a breakout, this can be an early indication that the breakout is a false buy signal due to light volume.

The example below shows how to trade a breakout with the help of the VWMA:

This is the 10-minute chart of Bank of America. We use a 20-period VWMA. The red line indicates a bearish trend. The trend line is tested 5 times before Bank of America finally breaks out, which is highlighted in the green circle.

The price opens the next week with a gap through the trend line and the VWMA. This is when we go long.

Notice that when the volume is high, the VWMA creates a lot of distance between itself and the price action. However, as the volume begins to dry up, the price hugs the VWMA tightly.

For this reason, the price is more likely to break the VWMA during lower volumes, as the bulls are not stepping in to fuel the next round of buying.

Once the price breaks the VWMA, we exit our long position as highlighted in red above. This position brought us a profit of 36 cents per share for few hours of work.

#3 – Scalping for Breakouts with a Short Period Exponential Moving Average

Since the EMA places a higher emphasis on the most recent price action, the EMA will trigger exit signals well before a trend terminates. While we may miss the lion share of the profits, this strategy allows us to make smaller, consistent gains.

Have a look at the following example, which shows how the EMA breakout scalping strategy works:

This is the 10-minute chart of Twitter. We use a 5-period EMA in order to catch the short-term price movements. We spot a triangle on the chart and we wait for a candle to close below this support line as an indication of a breakdown.

This happens in the green circle and we open a short position. Four large bearish candles occur after our entry, which is great for our pockets.

After this rapid drop, the price begins to hesitate and eventually breaks the 5-period EMA to the downside. We get four big bearish candles afterward. After the rapid drop, the price starts hesitating and breaks the 5-period EMA in a bullish fashion, at which point we exit the trade. We were able to capture 51 cents of profit per share for under 90 minutes of work.

#4 – Day Trading Breakouts + Price Action Trading

There is another, very simple option when trading breakouts intraday. Sometimes the technical indicators and MAs are just too much. If you don’t like overly complicated charts and you want to keep things simple, you will love the breakout price action trading strategy. Price action trading is one of the most straightforward methods for active trading.

This is because you only need candlestick formations or support/resistance levels to make a trading decision. No flashy indicators or awesome oscillators to fret about.

Again, do not use any indicators or moving averages! Let’s review an example, to further illustrate this point:

Above is a 10-minute chart of Facebook. After a bearish downtrend, the price develops into one of the most famous candlestick reversal patterns – the evening star. The price then breaks out and creates a double bottom formation, where the second bottom was higher than the first.

We create a resistance line above the double bottom formation as our trigger for entering a long position. Once price breaks this resistance level, we go long with our first target equal to double the size of the double bottom formation.

We also draw a trend line in green, which represents support for the up move. We stay in the market until our new trend line is broken, which is indicated by the red circle. This trade brought us a profit of $1.70 per share.

So, which strategy is the best for day trading?

We believe the key to breakout trading success is hidden in the volume present during the breakout.

Thus, we recommend a combination of the first and second strategies.

How to Manage the Trade When Things Go Wrong

No matter how good you are – you’ll lose 30% to 40% of the time. This losing percentage is the same for day trading breakouts. Even if you execute every setup listed in this article perfectly or if you take these ideas and build upon them. There is simply no way around it.

So, in order to manage the unavoidable, let’s dive into how things can go wrong and what you can do to address the matter.

#1 – Take Profits

One thing you’ll need to decide as a trader is how you will take profits. Now, if you are trading low volatility stocks you can hold your entire position until you get a sell signal.

If you are trading the high flyers, we recommend selling your position in thirds. When stocks are shooting higher, they will have moments where they surge and then retrace.

Therefore, enter your position on the breakout and then sell a third every time the stock pops.

If the stock does shoot up 10% or 20% in a matter of minutes, just go ahead and close the entire position. Realize you just made 20% in minutes – this is not normal.

So how is this helping you manage the trade when things go wrong? Well, by selling in thirds you are ensuring that you are walking away with some profits as the trade goes in your favor. Therefore, if there is a major reversal – you will walk away with something.

#2 – Money Management

This one is straightforward. If you are trading the high flying stocks that are printing 5% range bars – do not go in large! It is very hard to succeed at trading going large in volatile penny stocks.

Never use a large portion of your trading account. Depending on the size of your account, consider trading with only 5% to 10% of your total account value per trade.

Consistency and compounding are the key.

The point of this section is to tell you to not go into trades with 50% or 100% of your account value. If you use this strategy, at some point you will blow up your account.

#3 – Watch the Time

If breakouts are going to fail. one of the early signs things are going wrong is time. If the stock does not move quickly, in other words. Now, this doesn’t mean it’s a trap where price just crashes lower, which is a clear sign things are wrong.

What we’re talking about is the stock breaks out and then just hovers around the breakout level. You will find yourself sitting there and looking at your screen wondering what’s going on. Watch the price action and if the key breakout levels don’t hold, it could be a failed breakout.

Now you will need to determine based on your time frame how long a stock can hover around the breakout area before you realize things are off.

#4 Profit/Loss Ratio

For every trade you need to identify profit and risk levels. This is because you have to, at a minimum, risk the same amount of money you hope to make.

This way if you win more than you lose, you are sure to make money by the end of every month.

If you just enter trades without targets, you’ll either sell too soon or you will let things run too long and exit without. You may even let a winner turn into a loser.

Next, you need to make sure you really understand the risk of the loss. Don’t just look to the most recent low on the chart, but really understand the percentage you are risking on the trade.

If you keep the ratio in your favor on each and every trade, the only thing you need to do is focus on developing a winning strategy.

Conclusion

While our chart examples were of 10-minute intervals, the techniques will work on other timeframes such as 5-minute and hourly
Breakouts are one of the crucial aspects of day trading.
The setup can occur when the price goes through a crucial level – support, resistance, trend, channel, Fibonacci level, chart formation, etc.
Breakouts give clear entry points, but they do not provide clear exit points.
We use different on-chart tools in order to identify exit points when trading breakouts.
Avoid trading breakouts during lunch time.
Market volumes are crucial when trading breakouts.
Two of the best instruments to measure volume during breakouts are the volume indicator and the VWMA.
The EMA is another great tool for trading breakouts.
Breakouts + EMA create a strong price scalping strategy.
Breakouts can be traded with simple price action techniques without any indicators.

External References

Day Trading Your Dollars at Risk. (2005). U.S. Securities and Exchange Commission
Wigglesworth, Robin. (2018). The 30 Minutes that Have An Outsized Role in US Stock Trading. Financial Times
Leeds, Peter. (2016). ‘Penny Stocks for Dummies‘. Wiley. p. 57

Assuming you have either started day trading or are looking to get into the game, we are going to shock you in this article. What we’ll cover will hopefully save you many months of headaches and help you learn how to trade the first hour of trading like a pro.

Before we dive in, check out this short video from our founder: professional day trader, Al Hill.

Recent studies have shown the majority of trading activity occurs in the first and last hour of trading ^[1]. As you begin to only focus on the first hour of trading, watch how simple it all becomes.

Chapter 1: Why the First Hour of Trading

Simply, the first hour of trading provides the liquidity you need to get in an and out of the market. On average, the market only trends all day less than 20% of the time.

Most new day traders think that the market is just this endless machine that moves up and down all day. In reality, the market is boring if you know what you are doing as a day trader or have technical trading signals sent to you.

The one time of day which consistently delivers on sharp moves with volume is the morning. Assuming you are doing this for a living, you will need some serious cash. Day trading isn’t something you should undertake with your lunch money.

If you were trading with $100,000 per trade, how much volume do you think your stock needs? Your first response should have been, “what’s the price of the stock?”

Assuming you were already thinking that, you need tens of thousands of shares trading hands every 5 minutes. The reason for this is that you need enough volume to enter the trade, but also enough that you can potentially turn around in a matter of minutes and close out the same trade you just put on.

Let’s Get more Granular on Time Frames

The First 5 Minutes

Now that the market has opened. the first noticeable increment of time is the first five minutes. We have no study to back this one up, but from our own experience and talking with other day traders the 5-minute chart is by far the most popular time frame.

Within the first 5-minutes you will see a number of spikes in both price and volume as stocks gap up or down from the previous day’s close. This will often be driven by some sort of earnings announcement or pre-market news. This first five minutes is arguably the most volatile time of day.

There is no defined range and odds are the previous day’s range has been eclipsed by the gap. With no clear boundaries for where to go, to short or buy after the first 5 minutes, is nothing more than a gambler’s paradise. If you are serious about your trading career, stay away from placing any trades during the first 5 minutes.

We will say there might be one exception to this rule, the 1 Minute Opening Range Breakout. Feel free to study this in your spare time.

Chart Examples of First Hour of Trading

Below is a chart of NII Holdings (NIHD) which is one of the more volatile stocks on the Nasdaq. NIHD gapped up on the open to a high of 9.05, only to close at 8.73 5 minutes later. How do you think NIHD trended over the next hour?

Let me not keep you waiting too long. All of you advanced day traders will say that the stock continued lower because the stock had such an ugly candlestick on the first 5 minutes. Well, guess what, in this instance, you would be correct.

5 minute reversal bar — 5-minute reversal bar

Remember we are day traders. You are probably saying to yourself, well I can place a buy order above the first 5-minute candlestick and a sell short order below the low of the candlestick. You may even take it one step further and place your stop order neatly behind the high/low of the first candlestick to box in your risk.

Sounds simple enough right? Wrong!

This is nothing more than saying to yourself that you are going to gamble your money within a defined framework. While using simple strategies increases your likelihood of consistent execution, this approach is too unpredictable.

9:30am – 9:50am

The 9:30 – 9:50 am time segment will look odd to you because it is. Some traders will wait out the first half an hour and for a clearly defined range to setup. If a stock is going to head fake you, it will often do it at the 10 am hour.

Another reason we like 9:50 as the completion of the high low range is that it allows you to enter the market before the 15-minute traders second candlestick prints and before the 30-minute traders have their first candlestick print.

After the completion of the 9:30 – 9:50am range, you will want to identify the high and low values for the morning.

The importance of identifying the high and low range of the morning provides you clear price points that if a stock exceeds these boundaries you can use this as an opportunity to go in the direction of the primary trend which would be trading the breakout.

Or you can go against the primary trend when these boundaries are reached with an expectation of a sharp reversal.

9:50am Chart Example

Below is another example of the stock NIHD after it sets the high and low range for the first 20-minutes.

At this point, you have one of two options. Your first option is to buy the break of the 9:50 candlestick and go in the direction of the primary trend. However, we believe when you see stocks b-line like this for the first 20 or 30 minutes, the odds of the stocks continuing in that fashion are slim to none. For this reason, we like a stock to bounce around a bit and build cause before going after the high or low range.

Your second option is to short the stock with the expectation NIHD will reverse around the 10 am time block. If you decide to do this, we recommend trying this as a subset of trades in the sim first, to determine your success for the strategy.

So, looking at NIHD what would you do at this point? The correct answer is you should stay in cash.

Range Holds during first hour of trading — Range Holds

As you can see in the above chart, NIHD floated sideways for the remainder of the first hour of trading. Do you see how sizing up the trade properly would have allowed you to miss all this nonsense?

9:50 to 10:10am First Hour of Trading

The 9:50 to 10:10 time slot is where you will want to enter your trade based on a break or test of the highs and lows from the first 20 minutes. Now that we have already had our head fake example earlier in the article, let’s focus on one that follows the happy path.

Break Down during first hour of trading — Break Down

This is a clean example from Newmont Mining.

Notice how the stock was able to shoot down and build steam as the stock moved lower. In theory, waiting for a breakout after an inside bar or a tight range will often lead to consistent profits. The key thing to remember is 9:50 to 10:10 is the only window for opening new trades.

If you place a trade at let’s say 10:15 and you are trading the first hour, it only provides you 15 minutes to close your position. Unless you are trading ticks, which I think is a sure way to make your broker rich, you simply don’t have enough time for the market to move in your desired direction.

10:10 – 10:30

The last twenty minutes is where you let the stock move in your favor. This doesn’t sound like a lot of time, but if you step back for a second, this represents a potential of 40 minutes from the time you first entered the trade at 9:50.

Now there is no law against you holding a stock beyond 10:30. The key point is you get out of the mindset of letting your profits run.

In today’s world, there are way too many automated systems and retail investors all clamoring over pennies, stocks no longer move in a linear fashion where you can sit back and place your trades on cruise control. The amount of head fakes and erratic behavior is just over the top.

Setting Targets in the First Hour of Trading

A clear profit target is the best way to ensure taking money out of the market consistently. If you want to read more on this topic you can check out any of the following articles: Day Trading Targets and Trading Plan – Key to a Successful Trading Business. Each of these articles will clearly break down the importance of getting in a rhythm of taking profits.

The last 20 minutes of the first hour of trading is not the time to hang out and see how things go. This is the time where you need to be on the lookout for closing your position and you must have some idea of where you want to close the position.

You could have a set percentage target that you’re shooting for, while others may adjust this value based on the volatility of the stock. It really doesn’t matter over the long run because you will adapt your trading strategy to your performance. The key thing is making sure you are coming from a place of wanting to pull profits from the market.

Why 11:00 am is usually a bad time

Most of you reading this article will say to yourselves, this makes sense. I should trade during the first hour when I have the greatest opportunity to make a profit since there is the greatest number of participants trading.

Some of you reading this will be thinking, “I can make money all day”. This is a true statement. You can make money all day. The only problem is the majority of people do not.

You will see that around 11:00 am the volume just dries up in the market. This is because the institutional investors and hedge funds realize that there is far more work and risk to be had during the middle of the day than potential profits.

The resulting price action when the true stock operators are away from their desk is basically a lot of sideways action.

Stocks will breakout only to quickly rollover. Stocks will begin to move in one direction with nominal volume for no apparent reason. Lastly, while there may be price movements, they are so small that after commissions and time spent fighting the market it’s just not worth the headache.

Check out this great video from SMB trading where Mike Bellafiore describes how some of his traders fight the desire to trade during the slow midday period. ^[2]

Hopefully it will save you from pulling your hair out!

Chapter 2: The Quality of the Trades

Quality over Quantitiy — Quality over Quantity

Think about it, in any line of work, you want to follow the most successful people. Don’t try to fight the market so you can tell your family members and friends you were trading all day.

You are in the business of making money, not working long hours. If you think my experience isn’t enough reason to caution you, Thomson Reuters did a study and have concluded that 58% of all volume on the NYSE occurs during the first and last hour of trading.

So, we at Tradingsim wanted to see if that study would still hold up years later. We pulled trade/volume data for the NYSE for one week to analyze the numbers.

NYSE First Hour of Trading Volume — nyse hourly trading volume

What did our mini-case study show us?

Results of First Hour of Trading Study

The first thirty minutes is on average twice the size of the 10 am to 10:30 am time slot. We did not perform a volatility test on these times, but you can assume where there is that much smoke, there is a fire.

The trading volume by time slot visual was inspired by our solar system and it’s clear the first 30 minutes and last 30 minutes are Queen of the Jungle! The one thing that was quite alarming is that the last half an hour is just monstrous.

To reinforce the point of not trading after 11, we compared volume from 9:30 to 11 and 11 to 3.

The simple calculation is 240 minutes/90 minutes, which tells us the midday time slot is 2.6 times greater than the morning trading session.

However, when we reviewed the volume numbers for the week, the midday session was only 31% greater in terms of volume. This is evidence that if you are trading during the middle of the day, you will likely give yourself a major headache.

It becomes harder to find a needle in a haystack in terms of locating the trades that are going to move in such a dull market environment.

Take a Midday Break!

If you get anything from this graphic, think of all the fun you can have from 11 am to 3 pm.

Walk your dog, hit the gym, get some beauty rest.

Just do your best to stay away from your computer.

If you cannot resist the urge for whatever reason, at least hold off until 3:00. If you are day trading this presents another dilemma as you should be exiting your trades at 4 pm. This means you have less than one hour to enter and exit your trade.

You must discipline yourself if you are really going to stay true to this rule.

If there is any chance you could start holding trades overnight as a day trader, then focus on the first 1:30 hours of trading. There is more than enough action.

Chapter 3: How Much Volatility is Enough?

While the market open presents the greatest number of trade opportunities, you also need to determine the level of volatility you are willing to trade on the open.

While volatility is required to make money, profitable traders have a limit of what they are willing to trade. It’s not to say you can’t make money trading penny stocks, it just requires enormous discipline and money management to avoid blowup trades.

Me personally, I try to avoid stocks that are printing a lot of 2% and 3% candlesticks. Reason being, the stock will likely trip my stop loss order before I am able to realize my profit target. Also, there is a greater chance I will end up in a blowup trade if things go against me swiftly.

Let’s review a few examples where volatility is just too much.

High Volatility during first hour of trading — High Volatility 1

High Volatility 2 during first hour of trading — High Volatility 2

You can trade volatile stocks, but you need to reduce the amount you invest per trade to limit your risk. If a stock is three times as volatile of your average trades, only use a third of your normal size.

The reason we are touching upon these ridiculously volatile stocks is that they are available for you to trade but are risky. You need the discipline to avoid chasing the big win because at some point it will result in the blow-up trade.

Chapter 4: Pre-Market Trading

We don’t recommend you trade in the pre-market due to the low volatility and wide spreads. However, pre-market data can provide insights into the trading range of a security. Post-covid, we admit that many stocks are trading with high volume in the pre-market as well. Just be selective.

Why is this important?

Well if you are buying a morning breakout, the pre-market high can be your first target for the price move.

Conversely, if a key pre-market support level is breached, you can anticipate the pending move lower. Most platforms provide the ability to include pre-market data on the chart if you look at your chart property settings. We also allow pre-market and post-market trading in TradingSim.

Buy the Pre-Market Breakout

This strategy has been talked about on the TradingSim blog quite a bit, but essentially you are looking for low float stocks that have the potential to make big moves.

You can also trade big-name stocks, but you just need to be prepared to accept smaller gains.

Pre-market breakout during first hour of trading

Wait for the Morning Pullback during First Hour of Trading

The other method you can use for trading the morning pre-market data is to wait for the first pullback. This obvious advantage to this approach is that you can lower your risk by purchasing the stock at a lower price.

Secondly, you have a clear exit target with the most recent high.

Now what you will miss by excluding the pre-market data are the trend lines and moving averages that provide support for the pullback.

Pre market breakdown — Pre-market breakdown

You can see in the above chart the clear run-up in the pre-market. Then you can see how the stock broke down below the morning lows only to plummet lower.

Now let’s take a look at that same chart without pre-market data.

Now you could say you would just short sell the break of the low on the 1-minute chart, but it’s now where near as convincing without the pre-market data.

You are unable to see the clear range and hence would be operating on a hunch rather than clear patterns in the chart.

Chapter 5: Where Things Go Wrong in the First Hour of Trading

Let’s talk about where things can go wrong trading in the morning. While there is consistent money to be made, the reality is that morning trading is not for everyone.

#1 – Things Can Get Out of Hand Quickly

One thing that morning trading does not afford you is the ability to ignore stops. Think about the chart of the breakdown above. GBR dropped from $12 dollars down to a low of $6.15 by 9:43 am.

This represents a total percentage drop of ~49% in 13 minutes! Take that in for a second.

Of course, if you had placed your stop right below the low of the pre-market range, you would have exited with a 10% loss. Now that’s still huge, but is nothing in comparison to 50%.

A Wall Street Journal article touched on the fact the morning has the greatest spread between what buyers and sellers are willing to make a transaction.

The author Dan Strumpf states, “Rising stock-market volatility is proving especially costly for retail investors who typically buy and sell stocks soon after the market opens—often the most perilous time of the trading day.” ^[3]

#2 – Even When You Are Right, You Have to be Fast

If you are trading the morning movers you will need to use 1-minute, 2-minute or 3-minute charts.

The action is so fast 5-minute or 15-minute charts will have you missing the action. Therefore, as the stock is moving in your desired direction, take some money off the table.

#3 – Do Not Worry About Guessing Tops and Bottoms

You will inevitably come to a point in your trading career where you will want to nail tops and bottoms. The reality is you will be chasing a ghost.

The morning more than any other time of day is really difficult to call these turning points in the market.

Reason being, again the action is so fast. So, the best thing you can do is focus on making sure your profit versus what you are risking is always greater and you give the market time to settle.

This way, over a large enough sample set, you will beat the market.

But we strongly caution you against reviewing old trades and only focusing on the biggest winners. This will create a sense of greed inside of you. A better approach is to track the profits and losses on each trade, so you can begin to develop a sense of the averages you can hope to make based on the volatility of the security you are trading.

#4 Stops Can Still Trigger Big Losses

If you are trading low float stocks, you need to be prepared for the possibility of 6% to 10% losses. A classic approach you can use is to place your stops below the breakout candle and even this at times can present mid to high single-digit percentage losses.

I’m not saying this to scare you away from low float, but you should be realistic in terms of how much money you use on each low float stock trade.

The other option is to use sub-one-minute charts (30 and 15-second intervals) in order to place tighter stops. If you really want to go granular you can use tick charts in order to further manage the price swings ^[4].

As mentioned earlier, a 5-minute or even 1-minute bar could have you risking a sizeable amount of money.

In Summary

Hopefully, you have found this article useful and it has provided some additional insight into first-hour trading and some basic approaches you can take in your day trading strategies to capitalize on the increased volume in the morning session.

For all you history buffs, check out this article which touches upon the history of the market hours. Can you believe back in the 1800s, there was no set closing time!

Now take a minute and visit our site, Tradingsim and check out how you can use our day trading simulator to trade the first hour. You can toggle between regular session hours and pre-market to see all of the hidden levels to learn which patterns work best for your trading style.

External References

Wigglesworth, Robin. (2018). The 30 Minutes That Have An Outsized Role in US Stock Trading. Financial Times
Bellafore, Mike. Midday Trading: How to Prevent Overtrading and Maximize This Trading Period [Video]. SMB Training
Strumpf, Dan. (2015). Why Morning Is the Worst Time to Trade Stocks. The Wall Street Journal
Burns, Barry. (2017). Tick Charts Give You A Winning Edge In Day Trading [Video]. TopDogTrading

Volume analysis is the technique of assessing the health of a trend based on volume activity. In fact, volume is one of the oldest day trading indicators in the market. The volume indicator is the most popular indicator used by market technicians as well. Trading platforms may lack certain other indicators; however, you would be hard-pressed to find a platform that does not include volume.

Why is Volume Analysis Important?

In addition to technicians, fundamental investors also analyze volume — taking notice of the number of shares traded for a given security. This gives them a sense of the supply and demand present.

Regardless of your style of trading or investing, volume analysis ^[1] is one of the simplest methods for observing buying and selling activity of a stock at key levels.

However, not all volume readings are straightforward. Many times volume can provide conflicting messages. To that end, your ability to assess what volume is telling you in conjunction with price action can be a key factor in your ability to turn a profit in the market.

In this article, we will cover how to assess the volume indicator to help us determine the market’s intentions across four common day trading setups:

Breakouts
Trending Stocks
Volume Spikes
False Breakouts

In addition, we will discuss advanced volume analysis techniques and apply these methods to assess the strength of the equities and bitcoin markets. But before we do, take a few minutes to prime yourself for the content below by watching this video on volume analysis:

What is Volume?

Very simply, volume represents all the recorded trades for a security during a specified period. This specified period can range from monthly charts to 1-minute charts and everything in between.

Most trading platforms, Tradingsim included, print each volume bar as either green or red. Green bars are printed if the stock closes up in price for a period and red bars indicate a stock closed lower for a given period.

Chart Volume Indicator — Volume Indicator

This color-coding need not mean there was more “down or up” volume for the period; it just represents how the stock closed.

One benefit of volume analysis is that it cuts through much of the noise in the Level 2 montage. It does so by giving you a visual representation of where traders are actually placing their money.

Strategy 1: Breakouts and Volume

Breakout trades are arguably the most recognizable strategy in all of trading. Every retail and professional trader knows from day one how to anticipate them. The strategy is simple.

There are two key components to confirm a breakout: price and volume ^[2]. Along those lines, when stocks break critical levels without volume, you should consider the breakout suspect and prime for a reversal off the highs/lows.

Breakout Example 1:

The below chart is of Facebook on a 5-minute time interval. You will notice that Facebook was up ~15% throughout the day after a significant gap up. Can you tell me what happened to Netflix after the breakout of the early 2015 swing high?

FB breakout of swing high — Breakout of Swing High

It just so happens that FB was making a new high on the daily chart, an all-time high to be exact. When you look for stocks that are breaking highs, just look for heavy volume. Volume that exceeds 100% or more of the average volume over the prior 30-90 days would be ideal.

However, a stock making a new a high with 50% or 70% less volume might still work. If we are within the margins, please do not beat yourself up over a few thousand shares.

Breakout Example 2:

In a perfect world, the volume will expand on the breakout and allow you to bag most of the gains on the impulsive move higher. Below is an example of this scenario on an AMD breakout using the 1m chart.

Volume Expansion on breakout — Valid Breakout

Hopefully this helps visualize what is happening intraday on these breakouts.

Test Example

On that token, let’s test to see if you are picking up the concepts of breakouts/breakdowns with volume. Take a look at the below chart without scrolling too far. Can you predict if the stock will continue in the direction of the trend or reverse?

Breakdown or not volume analysis test — Breakdown or not?

Come on, don’t cheat!

Ok, now you can look:

The correct answer to the question is this: you really have no idea if the stock will have a valid breakout.

However, from the chart you could see that the stock had nice downward pressure on high volume and only one green candle before the breakdown started taking place. This is where experience and money management comes into play, because you have to take a chance on the trade.

You would have known you were in a winner once you saw the volume pick up on the breakdown as illustrated in the chart and the price action began to break down with ease.

Quick Summary

This concept of increasing volume on a breakout was also stated in the book Mastering Technical Analysis. In one excerpt, author Alan Northcott discusses how “[Charles] Dow recognized the importance of volume in confirming the strength of a trend. While a secondary indication, if the volume did not increase in the direction of the trend, this was a warning sign that the trend may not be valid.” ^[3]

As always, if you take a breakout trade, be sure to place your stops slightly below the high to ensure you are not caught in a trap. This strategy works for both long and short positions. The key is looking for the expansion in volume prior to entering the trade.

Keep these in mind:

The stock has volatile price action with most of the candle color mirroring the direction of the primary trend (i.e. red candles for a breakdown and green candles for a breakout).
On the breakout, volume should pick up.
The price action after the breakout should move swiftly in your favor.

Strategy 2: Trending Stocks and Volume

When a stock is moving higher in a stair-step approach, you will want to see volume increase on each successive high and decrease on each pullback. The underlying message is that there is more positive volume as the stock is moving higher, thus confirming the health of the trend.

This sort of confirmation in the volume activity is usually a result of a stock in an impulsive phase of a trend.

Trending Example 1:

JKS volume analysis - supply increasing — JKS volume analysis – supply increasing

The volume increase in the direction of the primary trend is something you will generally see as stocks progress throughout the day. You will see the strong move into the 10 am time frame, a consolidation period and then acceleration from noon until the close.

For this strategy, you will want to wait for the trade to develop in the morning and look to take a position after 11 am. The idea is to wait for the trend to form, and then follow it with a low risk entry point.

As the stock moves in your favor, you should continuously monitor the volume activity to see if the move is in jeopardy of reversing. The speed of this setup is much slower versus the other strategies discussed in this article; however, the difficulty reveals itself in the increased number of false moves, which can be commonplace in the afternoon.

Failed Examples

To help train your chart eye, here are a few examples of “joining the trend” that didn’t work very well. Along these lines, it’s always best to have stops in play. It never pays to force a trade.

Here, JKS failed to continue breaking down and simply went sideways into the close:

And here is another example of a breakout that simply goes sideways as well.

These charts are just a sample of what happens far too often when it comes to afternoon trading. Not all stocks will continue trending all day. It’s just a risk you must accept when trading late day setups. There are some exceptions to this with low float stocks, which we touch on in our vwap boulevard article.

In Summary

Look for volume to push the stock in the direction of the primary trend
You need to be prepared to hold a stock for multiple hours to reap the real rewards
Instead of using volume to predict which stocks will trend all day, simply use volume as an indicator that keeps you in a winning position

Strategy 3: Volume Spikes

Volume spikes are often the result of news-driven events. But regardless of the cause, the spike is worthy of studying in relation to price action

For all intents and purposes, we define a spike as an increase of 500% or more in volume over the recent volume average. This volume spike will often lead to sharp reversals since the moves are unsustainable due to the imbalance of supply and demand. Trading counter to volume spikes can be profitable, but it requires enormous skill and mastery of volume analysis.

These volume spikes can also be an opportunity for you as a trader to take a counter move position. You need to know what you are doing if you are going to trade volume spikes. The action is swift and you have to keep your stops tight, but if you time it right, you can capture some nice gains.

Let’s walk through a few volume spike examples, which resulted in a reversal off the spike high or low.

In the below example we will cover the stock Amazon. The stock had a significant gap $20.

AMZN volume spike reversal — Volume Spike Reversal

Notice how the stock never made a new high even though the volume and price action was present. This is a key sign that the bears are in control.

In Summary

The high or low of the first candle is not breached
The first candle has significant volume
The subsequent heavy volume events further establish the reversal in trend from the initial spike after the opening range
Place your stops directly above the high or low of the first candle

Volume Spikes with Long Wicks

Another setup based upon volume spikes candlesticks with extremely long wicks.

In this scenario, stocks will often retest the low or high of the spike. You can take a position in the direction of the primary trend after the stock has had a nice retreat from the initial volume and price spike.

Below is an another example from a 3-minute chart of the stock Amazon, ticker AMZN. You will notice how the stock had a significant gap down and then recovered nicely. Once the recovery began to flatline and the volume dried up, you will want to establish a short position.

Let’s take another look at a long wick setup. The below chart is of Tesla, ticker TSLA with a long wick down. The stock then recovered and flattened out, which was an excellent time to enter a short position.

TSLA long wick volume analysis — Another Long Wick

In Summary

Identify a high volume gap with a long candlestick on the first bar
Wait for the stock to eat into the morning gap and volume to drop off
Take a position in the direction of the primary trend with a price target of the low or high of the wick

Strategy 4: Trading the Failed Breakout

We’d be remiss if we didn’t touch on the topic of failed breakouts. As a day trader, you’re going to have your fair share of trades that just don’t work out. It’s just part of the game.

So, how do you know when a trade is failing? Simple answer – you can see the warning signs in the volume.

Let’s dig into the charts a bit.

CMG volume diminishing — False Breakout 1

Above is the chart of Chipotle Mexican Grill. You can see the stock attempted to break out in the first hour of trading.

Notice how the volume on the breakout attempt started with good effort, but then faded off. With this signature, you shouldn’t be surprised when the stock begins to float sideways with no real purpose. While this would have been a break even trade, more or less, your money is idle. At least you wouldn’t have taken a loss on this one.

The next example was worse.

The above example of DKNG failed to follow through to the downside, despite gapping down on considerable volume.

Notice how the volume dries up as the stock attempts to make a lower low on the day and break the first bar. The key is to get out if the price action begins to chop sideways for many candles.

When you sit in a stock hoping things will go your way, you are better off making a donation to charity. At least the money will go to a worthy cause.

In Summary

Breakouts often fail
If the volume dries up on the breakout, look to get out within a few candles if things don’t turn around
If you want to play the reversal, wait for a few candles to see if the peak holds and enter a trade counter to the morning gap
You can use the peak of the first candlestick as a logical point to exit the trade

4 Strategies Conclusion

The strategies discussed in this article can be used with any stock and on any time frame. The most important point to remember is you want to see volume expand in the direction of your trade. Keep this in the back of your mind and you will do just fine.

Bonus Content – Bitcoin Volume Analysis

So far in this article, we have covered how to apply volume analysis to identify trading opportunities for day trading.

However, volume can be and is so much more.

To demonstrate the ability to analyze long-term trends, we will use volume to unpack the roaring cryptocurrency market.

Take a look at the infographic below where we have done some extensive research on volume trends across a four-year period of Bitcoin.

Bitcoin volume analysis infographic — bitcoin volume analysis – Source DataBitcoinity.org ^[5]

The answer to the question in the infographic has obviously been answered. In 2021 Bitcoin hit a record price of $64900. However, the real story in the infographic, which may not have jumped out is Japan makes up 57% of all the trading volume for Bitcoin, while only accounting for 1.7% of the global population.

Granted, wealth is largely concentrated in the G8 countries, but this sort of multiple is a bit ridiculous.

Early indications show that Japanese retail investors, mostly in their 30s and 40s are using leveraged accounts to trade cryptocurrencies.

This surge of cash inflows into the cryptocurrency market has resulted in the bitcoin blowing out record after record. While there is significant speculative trading going on to drive up the price, we cannot ignore the enormous value bitcoin may have in a global economy.

Volume Analysis for Two Blockchain ETFs

Shifting our focus back on the charts. Let’s take a look at the trading performance of two Blockchain ETFs.

The tickers for these ETFs are BLOK and BLCN. Do not be confused in thinking you are buying into the actual cryptocurrency market if you buy these ETFs.

In case you missed the video in the above infographic, the SEC has not approved ETFs that invest directly in the cryptocurrency market. Sounds a bit confusing right seeing how one of the ETF’s name is BLOK.

The two ETFs have stocks that are directly connected to the crypto industry. In both ETFs, you will find familiar names like Overstock, IBM, Square, and Nvidia.

Enough rambling about the makeup, let’s take it to the charts.

BLOK and BLCN chart analysis — BLOK and BLCN daily charts

From the looks of things, there is little value in buying both ETFs for diversification as they are mirror images of one another. These similarities are still relevant in the realm of volume.

Notice how both BLOK and BLCN have enormous volume into the climactic push to new highs back in March. This coincides with Bitcoins highs as well.

ETFs can be a good way for someone to get involved in the world of crypto, without buying an actual cryptocurrency.

Now, with that said, if you are looking to take a long shot over the next 5 to 10 years, these ETFs are not going to give you the desired home run affect you are looking for.

Overlay of Volume on Price

Shifting gears back into volume analysis with stocks, the next bonus technique we would like to cover is using a volume overlay with the price.

The overlay is slightly different from printing volume on the x-axis by allowing you to see where the concentration of orders took place.

This can provide you with a clear view into where there are many traders and you can then use this to validate a particular support or resistance level.

BTC with volume at price — BTC futures with Volume Overlay on Price

The simple way of determining where to focus your attention is on the longest volume bar. Do you see how this view lets you know where all the trades were made for a given security? This layer of information is invisible with volume underneath the chart.

One slight twist to this indicator that you might want to try out is to combine these key volume levels with Fibonacci.

Notice in the above chart of Bitcoin futures that there was significant support around $30,000 recently.

This coincided with a 100% retracement off the highs. You can also see that significant support and resistance are occurring around the 38.2%, 50%, and 61.8% levels.

The point is you do not only want to use volume and price action. It is also great to add another validation technique like Fibonacci to the chart to gain clues of where the price is likely to break.

3-Year Dow Jones Analysis

Dow futures volume analysis — 3-Year Dow Analysis

These, folks, are not natural price movements for the index in historical terms.

On the slow run-up, there are many price swings, some of which might have thrown you for a loop in the last 3 years. Meaning, it would have taken serious self-control to stay in the trade.

However, once you overlay the volume you will see there are three key levels: 25,500, 27,000, and 30,000.

The 25,000 level has the most volume over the last 3 years. The index formed a nice triple bottom over a 24-month period leading up to the break of 27,000. For all the Wyckoff traders, the back and forth at the 25,000 level created a ton of cause, which ultimately fueled the rally.

The next level is 27000. Notice how the volume at the 27,000 level is high, but in relative terms over the last 3 years, the volume is light.

This is because the run-up to the high over 26,000 was done on light volume.

Once 27,000 was broken, the Dow then ran up to over 30,000. The Dow is now bouncing around the 35,000 level. In relative terms, the 35,000 level is now the high-level volume zone which may act as resistance.

Are you now able to see how volume on top of price allows you to cut through all the head fakes to see the same levels the smart money cares about?

In Summary

Volume alone cannot provide you buy and sell signals. Volume can, however, provide you with further insights into the internal health of a trend.

Remember, you can look at the volume on the x-axis (time) and on the y-axis (price) to identify potential changes in trend and support/resistance levels.

In addition, check out this post on volume from the Liberated Stock Trader. He does a great job highlighting the concepts of PUVU, PUVD, PDVU, and PDVD. If interested in what these terms mean, you should visit his site.

Let’s Improve Your Trading Performance

Tradingsim accelerates the steep learning curve of becoming a consistently profitable trader by allowing you to replay the market as if you were trading live on any day from the last 3 years. It’s really a trading time machine!

To see how Tradingsim can help improve your bottom-line, please visit our homepage.

External References

Volume Indicator. Wikipedia.com
Always Check Price and Volume. Investors Business Daily.
Northcott, Alan. (2015). ‘Mastering Technical Analysis‘. Alan Northcott. p. 51
Connected Wealth. (2017). How Traders Can Profit on Volume Spikes. See It Market
data.bitcoinity.org.

Many beginner traders want to know what they stand to make as a day trader. On the web, information about how much money you can make as a day trader is hit or miss. After all, how many videos or posts have you seen of traders making enormous amounts of money in short periods of time? Very rarely do you see these traders posting their biggest losses. For that reason, it’s difficult to define a day trading salary range.

Nevertheless, while trading income has many variables, by applying some basic research methods you can actually come to a solid estimate of what a day trader can make based on their locale, starting capital, and employment status.

In this post, we’ll share a number of sources that can provide you clear estimates that you can then use to determine your potential profit potential. Understand that results will vary from person to person.

Day Trading Salary Video

Before we go any further, please take the time to watch this video in its entirety. We’ll break down how much you can “potentially” make based on trading for (1) a company, (2) a prop firm and (3) yourself. After watching the video, read through the detailed write-up to see which method best matches your needs and lifestyle.

Day Trading Salary Caveats

Let’s be honest, many of you reading this are considering going out on your own and are not looking to get a job.

To that point, anyone that tells you a definitive range for a day trading salary is likely pulling your leg.

Many services promise the moon by showing their P/L, and are willing to sell you ocean-front property in Arizona along with those promises.

Now, for all you corporate people that can go to sites like vault.com or talk to your insider friends to gauge how much you can make in a trading job; please do not expect hard numbers from any of these sources.

The reason for this is that there is a host of external factors that play into how much money you can make. Notwithstanding, the time, effort, and experience it will take to become profitable.

In this article, we will rip through all the fluff on the web and get down to cold hard facts. Take your time as we examine the ins and outs of day trading salary expectations.

Day Trading for a Company – What’s Required and How Much Can You Earn?

You should not take this decision lightly, and you will have to weigh the pros and cons, of course. For starters, trading for someone else will allow you the opportunity to utilize their tools and strategies, which are hopefully profitable.

Trading for someone else can potentially remove the pressures of having to identify both a winning system and a mentor that can help you along the way.

However, if you are not profitable “enough,” be prepared to have more rules thrown at you than when you were in 6th grade.

This level of governance over your trading activity is due to the fact you are using someone else’s money, so make money or get used to someone telling you how to breathe.

The one big upside to day trading for someone else is potential for a base salary. This salary is likely not enough to live on, but you might get a check.

When you go out on your own, there is no salary. You are an investor hoping to make income. We will go into this topic much deeper later on.

Licenses

If you decide to work for a firm and are trading client’s money or potentially interfacing with customers, you will need your Series 7 and possibly your Series 63 license.

Series 7

The Series 7 ^[1] will give you the license to trade. As of the time writing, the exam costs around $305. and depending on the outfit will be covered by the firm.

Series 63

The Series 63 ^[2] is the next exam you will need to take after the Series 7. This exam permits you to solicit orders for a stock within a perspective state.

A simple way of thinking about this is the 7 gives you the right to trade on a federal level, and the 63 allows you to work within the boundaries of state laws.

Day Trading Salary Infographic – Employee Expectations

Generally speaking, you will be required to complete some in-house training program for the firm you represent. For investment houses, you will receive a decent base salary; enough to keep you at the lower middle-class range for New York.

Want to know the best part?

Your base stock trader salary could range from 50,000 – 70,000 dollars US, which is just enough for you to pay your cable bill, feed yourself and maybe take a taxi or two. But this won’t likely cover your dinners, cars, vacations, private schools, etc.

You Must Perform Well

Hopefully you are beginning to see that to be successful, you’re going to need to make your bonus. There is just one catch; you have to make money day trading. Otherwise, you’ll end up on the chopping block.

On the surface, this sounds reasonable because you lower your risk profile by having another income stream of a base salary; however, you have to perform to stay employed, and may only get about 10-30% of the profits you bring in from your trading activity.

If you *need* to be profitable, that creates undue performance pressure and emotional distraction.
BRETT STEENBARGER, PH.D.

Based on these numbers, you would need to make about 300k in trading profits just to break 100k in salary.

If consistently profitable, over time your buying power will likely increase, and you have none of the downside risks since it’s the company’s money. The key is making sure you have a significant amount of money under management.

As you can see in the infographic above, the key to making serious money is to start managing multiple funds. Pull that off, and you might make it into the upper echelon of 576k a year.

Yes you read that right.

Hard Work

This may sound appealing. But remember, it is nothing short of blood, sweat, and tears to get to the top of the mountain.

Many traders, surprisingly, are not competitive at all: they’re drawn to trading because of a perceived easy lifestyle. These are among the least resilient traders. As soon as it becomes clear that trading out of a hole means real work, they lose motivation and interest.
BRETT STEENBARGER, PH.D.

The other point to call out from the infographic is that the average bonus is starting to trend higher. If things go as forecasted, the average bonus will exceed the pre-recession peak in the not too distant future.

Therefore, if one of your goals is to make money, you are looking in the right industry.

Average Trading Salary for a Company

The middle of the road trader can expect to make between 100k and 175k, if successful. Lastly, if you are below average, expect to get a pink slip.

But wait – there’s more.

If we extend our research beyond New York, you will see the average salary for a “Trader” is around $84,000.

Don’t believe me?

Public Trading Firms

Well, check out this screenshot from Glassdoor.com of over 213 trading salaries ^[4]. The average salary is coming in at around 84k.

Now, $84k is nothing to sneeze at regarding salaries.

But you can probably think of quite a few jobs where you can make close to $84k, and it doesn’t require the level of commitment and risk-taking required for trading. Maybe you’re good at IT, coding, a lawyer, etc.

You may be thinking; “this guy just told me a day trading salary could go as high as $250k to $500k if I’m above average, so where does $84k come into play.”

Well, remember the $84k is the national average.

Let’s brighten things up a bit and look at some of the big boys in the capital markets space, Glassdoor.com data.

Deutsche Bank’s top traders can get up to $293k.

Citi’s top traders can make a cool $335k.

Morgan Stanley tops out at $156k.

Remember, these are individual trading salaries. One of the additional points of consideration is that you can rise through the ranks and become a fund manager or even a hedge fund manager.

At that point, your earning potential is through the roof if you can prove yourself as a great individual trader first.

Private Trading Firms

So far, we’ve discussed the salaries for publicly traded companies.

Good luck trying to get accurate data for the elite world of private equity traders. What you will find is often the top traders from the big banks like Chase and Bank of America venture out to hedge funds. They eventually leave for the freedom to make their own trading decisions and the higher pay potential.

Here’s the most important part, with the public firms, corporate goals will often drive a portion of your bonus targets.

In the private hedge fund world, while there are still company goals, you have the opportunity to eat more of what you kill.

It’s nothing for a top trader to out-earn their boss if they bring enough value to the firm.

Plus, you’d get other benefits as well.

Despite these benefits, there are some disadvantages of working with companies.

Downside of day trading for a company

Must engage with clients
Office politics
On average you only get 20% of profits (Public Firm)
Less autonomy to choose your trades

Day Trading for a Prop Firm

Day trading for prop firms can feel a little like living on the edge.

Similar to trading for a larger bank, you will receive some training before the prop firm allows you to trade with their money and have access to their systems. After that, all similarities between trading for a prop firm and a company differ.

Don’t expect any health care of paid time off. You will not have a base salary or annual reviews. The prop firms will more than likely require you to deposit money to start using their platform.

The benefits are that the prop firm will split profits with you anywhere from a third and up to 80%. With that potential for gain share, you have to be willing to give up a salary, and you bear some of the pain when it comes to losses.

But here’s the rub, the reason prop firm traders can make less than those for the investment houses, is their limited access to capital. Since you are likely trading the proprietary firm owner’s money, the pool of funds you have access to is limited. In other words, you’re sharing the pool with other traders in the firm.

An above average trader for a prop firm can make about 150k to 250k a year. Some elite traders at firms like SMB Capital may hit 7 figures. The average trader will do between 60k and 100k, and underperformers will have so many position limits placed on their account, they are basically practicing and not making any money.

These underperformers will likely remove themselves from the game because practicing does not pay the bills.

Prop Firm Benefits

Prop Firm Negatives

Use your capital to start
Limited training
No health benefits or paid time off
No career progression
Only make money off what you bring in

Day Trading Salaries State by State

In addition to the data displayed in the infographic from the Office of the New York State Comptroller, let’s take it a step further to identify the starting salary for an entry-level trading job across the nation.

Remember that $84k is an average of junior trading jobs all the way to the most senior.

This way if you are literally starting out and are offered $50k, you don’t get discouraged. We all have to start somewhere!

As expected, the average base pay is much lower, but still respectable! If you want to search for your state, simply give glassdoor.com a try.

Day Trading for Yourself – How Much Capital Do You Need?

Like every budding trader, you’re probably imagining what it would be like to set your own schedule and to reach financial freedom.

As traders, we have this innate part of us that only sees the limitless possibilities. If you’ve had beginners luck in the market, you’re probably even thinking about quitting your job to go full time.

Psychologists call this the Dunning-Kruger effect. Here’s a great way to visualize this:

This image should bring you down to earth a little. First off, trading can be worse than a sales job or entrepreneurship when it comes to earning a steady income. The level of uncertainty can be unbearable if you have never gone without a steady paycheck.

In sales, you can have a rough month and just commit yourself to knock on more doors or calling more people until you land the much-needed deal. In day trading more effort does not equal greater results.

Your earning potential is in direct proportion to your starting capital and experience. We discuss how much money you will need in another article. We also discuss what it takes to be successful in another post.

So, let’s break down the numbers in layman terms.

Instead of predicting how much money you can make, we’re going to give you a range of how much you could earn based on your starting trading capital.

Starting Capital of Less Than 50k

If you are attempting to day trade with less than 50k dollars and you have any monthly expenses, you will likely be out of money within 6 – 24 months.

You are probably thinking, ouch that is harsh. But it’s the truth.

Our friendly SEC requires that you have a minimum of 25k to day trade. There are some ways of getting around this, but it’s still a limiting factor. This leaves you with only 25k dollars that you can risk before you run into a roadblock for your trading career.

So just to be clear, you might earn a salary from day trading if you have less than 50k dollars, and some have done this. But by and large the market will simply eat you alive.

It all depends on your education, experience, and strategies.

Starting Capital of 100k – 250k

If you fall within this bucket, you’re likely trading the bulk of your life savings, and you are somewhere between 30 to 55 years of age. Nevertheless, if you have monthly expenses, this may not be enough money to start trading for a living.

With that in mind, and since you’re looking for day trading salary information, let’s throw out some numbers.

Average Day Trader Salary = 20% annual return. This breaks down to 20k to 50k for an annual salary.
Above Average Day Trader Salary = 50% annual return. This breaks down to 50k to 125k.
Elite Day Trader Salary = 100%+. This breaks down to 100k to 250k and beyond

Now consider this: assuming you can even turn a profit like $50k, how do you think making 50k for an entire year sounds when you likely have a mortgage, young children or maybe kids heading off to college?

On top of that, how will you grow your account by adding equity?

Doesn’t sound too promising does it?

Starting Capital of 500k

If you don’t have any supplemental income but want to have a decent standard of living, you’re going to need a substantial amount of trading capital. Yes, we know. It sounds depressing. And honestly, we aren’t trying to crush your dream of becoming a day trader.

Here are some benchmarks to consider to try starting with less than this amount of capital:

If you have another form of income, you can start with less than 500k
No bills and you can start out with less than 500k
If your spouse is going to carry the load while you tackle your new profession, you can start out with less than 500k

For scenarios 1 – 3 above, you can use the golden ratio of 50 to 1; 50 times your monthly expenses in trading capital.

For example, if your monthly bills are 2k US dollars, you will need 100k trading capital.

If you fall outside of the three scenarios listed above, you will need half a million dollars to make it. Let’s break down why you need 500k to make it in day trading.

You Will Occupy a Higher Tax Bracket

You have sweated blood and tears to make money trading and now it’s time to pay your fair share of taxes.

Your income will be taxed as if you worked a regular job. You will not enjoy the same low tax rates of long-term investors. If you live in the US, are married with a few kids, and make 20% on your 100k, you’ll be lucky if you bring home 70k after taxes.

Consider the following capital gains rates for a single person as a rule of thumb:

Capital gains schedule — Single person short-term capital gains schedule

Think about this for a moment.

Take the 70k and divide that across 12 months, that leaves you with about $5,800 per month. Now, if you live south of North Carolina or out west in Idaho, this may be enough to take care of a family of 4; however, if you live in DC or any other high-cost area, you’re right on the edge of barely scraping by.

If you are an above-average or an exceptional day trader, then you may do just fine. The odds are that it is going to take you a few years to get to this point. Just remember that until a Republican makes good on the no capital gain taxes, you will be paying the same taxes you did as an employee.

To learn more about the tax implications of day trading for yourself, head over to Impact of Trump Tax Plan on Day Traders.

You Pay Less Commissions

You’re probably thinking, “but I pay zero commissions with my broker.”

Yes, that may be true on paper. But you’re actually paying more than if you had a direct access broker that wasn’t taking a cut from your order fills by selling them to a middleman.

In order to control your own order flow, most brokerage firms offer a two-tier commission structure.

The trader can either elect to pay a per-share transaction or a flat fee. Assuming you are trading with $500k, this will give you margin of up to $2M.

In other words, you will be trading a lot of shares depending on your strategy. Therefore, you might want to use the flat fee commission approach to reduce your trading costs.

However, some brokers offer heavy discounts for per share commission pricing depending on the amount of shares you trade each month. You can even recoup your money by “adding liquidity to the market.

Here is an example of a per share commission schedule from Cobra Trading.

Example of per share commission structure.

As your account value increases, the commissions paid as a percentage of your profits will decrease. Lastly, most brokerage firms will offer lower commissions to clients depending on their account value. This sort of unique offering begins at 250k, so you would easily qualify.

Less Stress on You and Your Family

Why do we mention this?

This one comes from experience. Trust us. It will feel much better having a losing month, drawing a few thousand to cover the bills, but still seeing an account balance of $687,585.90.

It is stressful enough to go through a trading slump; to have to worry about making mortgage payments or supporting a family is too much pressure. The resilient traders prevent the pressures from becoming too great by maintaining healthy cash reserves for those dry periods and by having secondary sources of income wherever possible.
BRETT STEENBARGER, PH.D.

Imagine having a losing month and needing to withdraw $3,000 only to see an account balance of $45,675.87, or $18,000. Imagine how that will make you feel as you approach each trading day. Think about the raw emotions that will pierce through your body as you drop your kids off at school.

Save yourself the headache. Figure out a way to supplement your income or continue to find ways to accumulate the necessary funds to get started.

Time is Not on Your Side

We are strong proponents of the 10k hours of mastery described in the book Outliers to Master Day Trading. Remember, you are trading to be an above-average to elite trader. At the very least you need consistency.

For argument’s sake, let’s assume you are spending 50 hours a week trading and researching your strategy and only take off two weeks per year. This means you will work 50 hours per week for 50 weeks for a total of 2,500 hours.

Now let’s say you are super smart (clearly because you want to take on day trading as a profession) and only need 5,000 hours to master trading. At a minimum, we are still talking about two full years of practice to hone your skills.

Speculation is a hard and trying business, and a speculator must be on the job all the time or he’ll soon have no job to be on.
Jesse Livermore

What do you think your odds of success are if you only have 80k in an account for you to survive this two to three-year learning period?

Is it becoming clear why 90% of day traders fail within the first few years?

Most of it has very little to do with the type of profession we have chosen or how good we are at this game. It just comes down preserving enough capital to survive until you find consistency.

To further illustrate the difficulty of trading, you may consider reading The Day Trading Illusion^[5], which is literally devoted to describing the difficulties of day trading. It’s an interesting book because it’s one of the few not glamorizing the business, and gives a different perspective.

This isn’t to discourage you, but it’s always good to hear from other voices.

Balancing Life and Trading the Markets: How Much Do You Need?

Day Trading Salary - How Much is Enough?

Let’s assume you have decided to trade full-time. What will this mean for you and your family?

For you, deciding to trade may mean a pay cut. You reconcile this with the affirmation that you will be doing what you love. As a happier person doing what he loves, you’ll be a much happier person to be around. Your family and friends will be thankful, too. No one can put a price tag on happiness, after all.

So let’s examine this pay cut.

Assuming you profit anywhere between 20% and 50% a year, you can expect the following as a range for your day trading salary:

Pause – Wait a Minute

At this point, you are likely thinking all you need is a large sum of money, and all of your day trading salary problems are solved.

If this last sentence describes how you are feeling, you are still going through the “Dreamer” phase of trading. This is where we all sit back and calculate compounded interest coming our way.

We’ve all played this game – be honest.

We say things like, “If I only make 1 percent a day I will have over 10 million dollars in my account in 3 years!”

If you are reading this article and saying that all I need is $250k to 500k and life will be grand, you may be in for a rude awakening.

Can You Make Money with Little Money?

Before you liquidate your 401k and life savings to trade, first ask yourself the question “can I make money with little money?”

This seems so simple on the surface, but there is a lot we need to unpack in that statement.

As a trader, especially a new trader, your level of optimism for how much money you can make will borderline on insanity in the beginning. Think back to our “Dreamer” example, or the Dunning-Kruger effect graphic below:

What’s the problem with optimism?

Nothing. But, one of the first things new traders should understand is how important it is to turn a profit before sizing up your account.

If you cannot make money trading 5k dollars, you will not make money trading 500k dollars. With a small account, the last thing you will worry about is your day trading salary. Your mind will be less concerned with issues like not wasting an entire life’s savings in the stock market.

If anyone says to you, “Well you need to spend money to make money,” this is generally true. But, tell them to keep their opinions to themselves.

The stock market is the one place where being careless with your money will leave you broke faster than any other investment vehicle known to man.

You may be thining, “Well, how do I day trade with less than 25k?”

There are a ton of options out there, and if you want to learn more about how to do this, please read the blog post –
“How to Day Trade with Little Money and Keep Your Day Job“

The Conversation You Need to Have with Yourself

Now that we have listed all the stats and have talked through all the possible ways to make great money day trading let’s ask ourselves a really important question.

Why are you even searching for how much money you can make day trading?

Honestly, ask yourself that question.

Intestinal Fortitude

Imagine you are responsible for someone or something. Really think about that, do not just skim over this point.

This could mean someone’s college education, helping with medical bills, or just buying them food.

Now imagine that you are relying on what is completely unpredictable – the stock market, to provide support for the people that matter to you the most.

How does this make you feel? Now, we aren’t trying to scare you by any means. We genuinely want you to walk through this thought exercise with us.

How Long Are You Willing to Wait?

Now imagine that you cannot meet these demands for a month. Then a month becomes six months. Six months becomes five years.

Is this something you are willing to endure?

Are you willing to endure the constant questioning from the people that have every God-given right to question you?

Will you be able to withstand the mental laps you will put yourself through as you go on this journey?

These are the questions that traders ask themselves constantly, even profitable traders. For more help on what it takes to succeed, be sure to read our post on this subject.

Impact of Trump Tax Plan on Day Traders

For the first time in over 30 years, the United States has finally decided to do something about our tax plan.

Before we go any further, while there are a number of winners and losers with the new deal, as a day trader you are likely to come out slightly ahead.

Short-term capital gains are still taxed as ordinary income rate. This will result in a slightly better year-end for us all as the income range has increased across all of the taxable brackets, thus providing tax relief of ~ 2% depending on where you fall.

In case you are unaware of your potential tax obligation, you can reference the below data. Click on the tabs of the graph to visually cycle through the differences in the tax bracket ^[6].

Unfortunately, these tax breaks only last until 2025, after which point everything resets back to the existing tax rates.

Until then, we can enjoy a 2% average tax cut.

Why You Should Trust the Process Of Becoming a Winning Trader

Treat trading as any other career that requires hard work, smarts, passion and a bit of luck.

No One Makes “Partner” Overnight

For some reason, day trading is looked at as the lottery of life. Many think it should be easy, when, in fact, learning to day trade is arguably one of the most challenging endeavors you can pursue.

It is baffling that everyone wants to know about all the money to be made but are unwilling to put in the thousands of hours of trade review and practice to get better.

If someone joined a law firm, would you expect them to make a senior partner’s salary in a year?

Of course not!

Why would your immediate earning potential for trading be any different?

Take Things Slowly

As stated in our other articles, just learn to make enough money to cover small bills first. This could be your cable bill or gas bill. Don’t worry about the person making $250k a year from their boat off the Florida Keys.

Instead of focusing on the $250k you plan on making per year, create a path to profitability.
Do not include time in this path to profitability. Just make it about you progressing in the right direction on a quarterly basis.
Al Hill

Sounds silly, but it’s not.

If you focus on the process of making money the right way, you will be able to scale up to the targets discussed earlier in this article.

When we say the “right way,” we mean no major blow-ups with your account, reasonable risk-taking, and an equity line that keeps trending up and to the right.

How Much are You Willing to Lose?

Make no mistake about it, every single day you will be in a never-ending battle with the best and brightest to make a living.

Instead of focusing on how much you can make per year trading, you need to think of how much you are willing to lose.

Sure, that may sound a bit ironic since this entire article is based on making money. But the important thing is remembering that learning to trade takes time, and tuition is not free.

There are few studies that speak to the profitability of retail traders. A recent study from the Autorite des Marches Financiers (AMF) ^[7] took a look at profitability across active retail currency traders in France from 2009 – 2012.

Do you have any idea how many traders were profitable?

Sadly, approximately 1 out of 10 were able to turn a profit.

The study looked at a total of 14,799 customers. Out of this pool of traders, only 1,575 or 11% were profitable. This small group of investors made 17.51 million or $11,117 per account on average.

Let’s unpack that further.

Can anyone reading this article live on $2,779 per year?

Now I realize this is a study from France and is Forex, not equities. But trading is trading.

Therefore, before you claim your $84k payday, figure out how much you are willing to lose before you learn how to trade. We suggest less than $10k and you never, and we mean never, fund this account until you make money on a consistent basis.

There is Hope

Nothing is given. Everything is earned. You work for what you have. -Lebron James-

We try to give the full picture of trading, the good and the bad, to paint the reality of what it will take. Trading gurus who promise you the moon are a dime-a-dozen.

It’s borderline criminal the way people make it seem so easy.

Just to go back to the study cited earlier from France. The study did not track performance relative to a person’s trading experience.

To say this a little simpler, let’s imagine we grab 100 random people to see if they can hit a 95 mile per hour fastball.

How many do you think would make contact?

Since I played baseball for many years, I would dare to say less than .5%.

So, the same rule applies to trading. If 89 out of 100 have never traded and then fund a forex account, what do you think will happen?

The real question is how long and how many trades does it take before a trader begins to make money?

Therefore, do not get caught up in these percentages, other than to know you will need to work hard for what you want.

The Trading Lifestyle from the Perspective of a Real-life Trader

The Guardian ^[8] posted an interesting article on a successful trader. We found it to be on-topic for this article and have developed an infographic that calls out clear themes that can be applied to your existing or future journey in trading.

There were a few standouts from the interview, which are worth highlighting for our purposes here.

For starters, the trader segmented what it means to be a trader. He spoke of “pure play” traders who react to the market based on what it is showing them. He then classifies himself as a quant that needs time to run quantitative analysis to identify his edge.

Another interesting fact is that the trader does not simply go long or short. The trader hedges every trade he places in order to limit his risk exposure on the account.

It was also interesting that he made a point to clarify that traders are not evil. From the sounds of it, he is trading volume and can potentially have an impact on the price of a contract on the exchange.

Salary Information

This is where things really get interesting. He makes 150,000 British Pounds per year, but his bonus can be many multiples of this value.

If you are ambitious enough to read this article, you are likely more interested in the multiples.

The last standout from the article is that the trader did not like the idea of trading at a hedge fund for the risk of investors pulling their money out at any time.

Be sure to head over to the Guardian to check it out. If you are looking at changing careers or just getting started, it’s always great to hear from a person that worked their way up from the bottom.

Every Story Needs A Nice Ending – The Trader with a 16,600% Return

Everyone loves a great ending.

This story was posted on marketwatch.com and is the story of a trader that turned $600 dollars into $100,000 ^[9]; just take that in for a second.

That comes out to a whopping 16,600% return.

Don’t even try to deny it, deep down you want this level of success.

Now a couple of key points from the article you should be aware of before you spend your millions:

The trader has been at this for over three years.
From the look of his profit/loss chart (shown below) March 2014 through November 2015 was unprofitable. That my friends is 21 months of basically grinding before he was able to stabilize himself.
He spends a tremendous amount of time reviewing his trades.

Notice how similar this looks to the Dunning-Kruger effect curve?

One of the main quotes J Park gave in his interview with Marketwatch is that “Traders focus too much on the P&L and not enough on the process.”

What a profound statement. A priceless bit of information.

Don’t worry about the salary or the money. Just focus on being the best trader you can be and do whatever you can to avoid losing your shirt.

Follow these rules and at some point, your equity curve will take off and your dream will become a reality.

But like J Park, are you willing to put in the hard work for two years before seeing any results, or will you take the easy way out like those poor souls trading the Forex in France?

The choice is yours, but sometimes you need to feel a little pain to truly value the pleasure.

The Journey of Figuring Out What You Can Make

It all comes down to this at the end of the day: this is your personal journey to the career or life experience you hope to achieve.

When you really think about it, if you are working for a company, you will likely have a salary, but that salary is minimal compared to the bonuses you could receive from successful trading.

As an independent trader, you aren’t even sales or commission based. Your entire well-being in terms of money coming in is unpredictable.

You also do not have a day trading salary in traditional terms. You are an investor which means you make a return on your money or receive income from your investment decisions.

This is all to say that what you make is solely up to you. There are traders that are content making $500k a year and have no desire to log another trade.

We here at TradingSim know traders that are never happy no matter how much they make on an annual basis.

You have to decide what type of salary (if employed) or income (self-employed) you want to make that will (1) keep you in the game the longest and (2) allow you to live a full life unconcerned with every tick in the market.

In Summary

How much money you can make in the market comes down to two simple things: (1) your ability to profit on a consistent basis and (2) your starting capital.

Please remember you need to first put your focus on turning a consistent profit and not on your earning potential.

Once you learn to turn consistent profits, remember you will need to manage your personal finances, which you can do with a number of free and paid apps.

You may need to stretch your dollar a little further until things stabilize.

We hope you have found this article helpful as you continue along your path of becoming a professional day trader.

Beyond the wealth of content we have on Tradingsim, our flagship product is a market replay platform, which you can use to reach your 10,000 hours of practice in order to become one of the top 10% of traders. You can use our platform to simulate your performance over the last 3 years.

To learn more about how we can help your trading performance, please look at our latest offerings on our homepage or reach out to us at [email protected]

External References

Series 7 – General Securities Representative Exam. FINRA.org
Series 63 – Uniform Securities Agent State Law Exam. FINRA.org
The Securities Industry in New York City [Study]. (2016). Office of the New York State Comptroller.
Trading Salaries. Glassdoor.com
Bednar, Ken. (2013). ‘The Day Trading Illusion: A Dreamer’s Nightmare‘.
Josephson, Amelia. (2019). Here’s How the Trump Tax Plan Could Affect You [Blog Post]. smartasset.com
Nine Private Clients Out of Ten Lose Money. (2014). Autorite Des Marches Financiers.
Luyendijk, Joris. (2012). Quantitative Prop Trader: ‘I wouldn’t try to raise the price of rice and starve China’ [Article]. The Guardian
Langlois, Shawn. (2017). 5 insights from a retail trader who claims he parlayed $600 into $100,000 [Article]. Marketwatch.com

Price action trading strategies are dependent solely upon the interpretation of candles, candlestick patterns, support, and resistance, pivot point analysis, Elliott Wave Theory, and chart patterns^[1]. It is often confused with Volume and Price Analysis (VPA), where volume is interpreted with the price action to paint a clearer picture of the stock’s story.

In this post, we’ll examine a handful of the best price action strategies and patterns to help you develop your “chart eye”. We’ve also put together a short video to help with some of the advanced concepts we discuss. Please have a watch as a primer for the content below.

Overview of Price Action Charts

When looking at some traders’ charts, it can be difficult to determine if you are looking at a stock chart or hieroglyphics. When you see a chart with too many indicators and trend lines, it is likely a trader trying to overcompensate for lack of certainty. In other words, they may not understand price action.

Here’s an example of some traders’ charts that look something like the picture below.

There are some traders that will have four or more monitors with charts this busy on each monitor. When you see this sort of setup, you hope at some point the trader will release themselves from this burden of proof.

Every trader has their own style, for sure. But at the end of the day, price is the final arbiter. And it would behoove all traders to learn how to read the tape.

Clean Charts

What if we lived in a world where we just traded price action strategies? A world where traders picked simplicity over the complex world of technical indicators and automated trading strategies.

When you remove all the clutter from the trades, all that remains is the price.

To see a chart minus all the indicators, take a look at the following image and compare it to the previous one:

At first glance, it can almost be as intimidating as a chart full of indicators. Like anything in life, we build dependencies and handicaps from the pain of real-life experiences. If you have been trading with your favorite indicator for years, going down to a bare chart can be somewhat traumatic.

While price action trading is simplistic in nature, there are various disciplines. As mentioned above, the disciplines can range from Japanese candlestick patterns, support & resistance, pivot point analysis, Elliott Wave Theory, and chart patterns^[1].

From here on, we will explore the six best price action trading strategies and what it means to be a price action trader.

Price Action Trading Strategy Basics

Before we dive into the price action trading strategies, you need to understand the four pillars of the price action indicator.

Candlesticks
Bullish Trend
Bearish Trend
Flat Market

If you can recognize and understand these four concepts and how they are related to one another, you’re well on your way.

Pillar 1 – Candlesticks

Candlesticks are the most popular form of charting in today’s trading world. Historically, point and figure charts, line graphs and bar graphs were more important.

Not to make things too open-ended at the start, but you can use the charting method of your choice. There is no hard line here.

However, for the sake of not turning this into a thesis paper, we will focus on candlesticks. The below image gives you the structure of a candlestick. To learn more about candlesticks, please visit this article that goes into detail about specific formations and techniques.

Feel free to download our candlestick reference guide:

Candlestick Pattern Quick Reference Guide

The key point to remember with candlesticks is that each candle is relaying information, and each cluster or grouping of candles is also conveying a message. You have to begin to think of the market in layers.

Pillar 2 – Bullish Trend

This is a simple item to identify on the chart, and as a retail investor, you are likely most familiar with this formation.

A bullish trend develops when there is a grouping of candlesticks that extend up and to the right.

Think of a squiggly line on a 45-degree angle.

The key thing to look for is that as the stock goes on to make a new high, the subsequent retracement should never overlap with the prior high. This ensures the stock is trending and moving in the right direction. In other words, higher highs and higher lows.

Make sense?

Pillar 3 – Bearish Trend

Bearish trends are not fun for most retail traders. Shorting (selling a stock you do not own) is something many new traders are not familiar with or have any interest in doing. However, if you are trading, this is something you will need to learn to be comfortable with doing.

This formation is the opposite of the bullish trend. The trend is right the opposite: lower highs and lower lows.

Pillar 4 – Flat Market

Get ready for this statement, because it is big. In general terms, the market is in a flat trading range approximately 70% ^[2] of the time according to author Heikin Ashi Trader, which is the pen name of a trader with over 15 years of futures and forex experience.

Rarely will securities trend all day in one direction. You will set your morning range within the first hour, then the rest of the day is just a series of head fakes.

If you can re-imagine the charts in these more abstract terms, it is easy to size up a security’s next move quickly.

Flat markets are the ones where you can lose the most money as well. Your expectations and what the market can produce will not be in alignment. When the market is in a tight range, big gains are unlikely. The main thing you need to focus on in tight ranges is to buy low and sell high.

6 Price Action Trading Strategies

#1 – Outside Bar at Support or Resistance

For those unfamiliar with an outside bar, an example of a bullish outside bar is when the low of the current day exceeds the previous day’s low, but the stock rallies and closes above the previous day’s high.

The bearish example of this would be the same setup, just the opposite price action.

Therefore, it’s not just about finding an outside candlestick and placing a trade. As you can see in the above chart of NIO, it’s best to find an outside day after a major break of a trend. In the NIO example, there was an uptrend for almost 3 hours on a 5-minute chart prior to the start of the breakdown.

After the break, NIO finished with an outside down day, which then led to a nice sell-off into the early afternoon.

#2 – Spring at Support

A spring occurs when a stock tests the low of a trading range, only to quickly come back into the range and kick off a new trend. According to Jim Forte, “springs, shakeouts, and tests usually occur late within the trading range and allow the market and its dominant players to make a definitive test of available supply before a markup campaign will unfold.”[efn_note]https://www.wyckoffanalytics.com/wp-content/uploads/2019/08/AnatomyofaTradingRange.pdf[/efn_note].

Volume can help when confirming a spring; however, the focus of this article is to explore price action trading strategies, so we will zone in on the candlesticks alone.

The one common misinterpretation of springs among traders is the need to wait for the last swing low to be breached. Just to be clear, a spring can occur if the stock comes within 1% to 2% of the swing low.

Trading setups rarely fit your exact requirement, so there is no point in obsessing over a few cents. To illustrate this point, please have a look at the below example of a spring setup.

Spring reversal price action trading strategy — Spring reversal

Notice how the previous low was never completely breached, but you could tell from the price action that the stock reversed nicely off the low. Thus, a long trade was in play.

#3 – Inside Bars after a Breakout

Inside bars occur when you have many candlesticks clumped together as the price action starts to coil into resistance or support. The candlesticks will fit inside of the high and low of a recent swing point as the dominant traders suppress the stock to accumulate more shares.

In theory, it looks something like this:

Inside bars price action trading strategy

To illustrate a series of inside bars after a breakout, please take a look at the following intraday chart of NIO.

This chart of NIO is truly unique because the stock had a breakout after the fourth or fifth attempt at busting the high. Then there were inside bars that refused to give back any of the breakout gains. NIO then went on to rally the rest of the day.

Please note inside bars can also occur prior to a breakout, which may strengthen the odds the stock will eventually breakthrough resistance.

The other benefit of inside bars is that gives you a clean area of support to place your stops under. This way you are not basing your stop on one indicator or the low of one candlestick.

This is popular strategy, and for good reason. These quick pullbacks often forecast higher price movements.

#4 – Long Wick Candles

The long wick candlestick is another favorite day trading setup. These are often called hammer candles, or shooting stars.

The setup consists of a major gap up or down in the morning, followed by a significant push, which then retreats. This price action produces a long wick. Often times, this price action is likely to be re-tested.

The reason for this is that many traders will enter these positions late, which leaves them all holding the bag upon reversal. Once they are shaken out, the counter pressure will be weak comparatively, and the stock typically goes up again. This usually leads to a push back to the high.

Let’s look at a few examples:

Long wick price action trading example 1

Long wick price action trading example 2

Are you able to see the consistent price action in these charts?

Notice after the long wicks NIO printed a handful of insider bars in either direction before breaking out or breaking down. After this break, the stock proceeded in the direction of the new trend.

#5 – Measuring Length of Intraday Swings

Have you ever heard the phrase, “history has a habit of repeating itself”? Well, trading is no different.

As a trader, it’s easy to let your emotions, and more specifically – hope, take over your sense of logic. We tend to look at a price chart and see riches right before our eyes.

Well, that my friend is not always the reality. Let’s build on this thought.

In the world of trading there are often dominant players that consistently trade very specific securities?

These traders live and breathe their favorite stock. Given the right level of capitalization, these select traders can also control the price movement of these securities.

Knowing this, what can you do to better understand the price action of securities you are not intimately acquainted with on a daily basis?

A good place to start is by measuring the price swings of prior days.

As you perform your analysis, you will notice common percentage moves will appear right on the chart. For example, you may notice that the last 5 moves of a stock were all 5% to 6%.

If you are swing trading, you may see a range of 18% to 20%. Bottom line, you shouldn’t expect stocks to all of a sudden double or triple the size of their previous swings.

Sure, the market is limitless and can produce outlier days. However, it’s better to play the odds with the greatest chance versus swinging for the fences. Over the long haul, slow and steady always wins the race.

Example

To further illustrate this point, let’s go to the charts.

Notice how NIO over a 2-week period experienced many swings. However, each swing was on average $1-$2. While this is a 5-minute view of NIO, you’ll see the same relationship of price on any time frame.

As a trader, do you think it would make sense to expect $5, $10, or $15 dollars of profit on a day trade? At some point, the stock will make that sort of run, but there will likely be more $1-2 moves before that occurs.

To that point, if you can trade each of these swings successfully, you get the same effect of landing that home run trade without all the risk and headache.

#6 – Little to No Price Retracement

Without going to deep on Fibonacci (we’ve saved that for another post), it can be a useful tool with price action trading. At its simplest form, less retracement is proof positive that the primary trend is strong and likely to continue.

The key takeaway is you want the retracement to be less than 38.2%. If so, when the stock attempts to test the previous swing high or low, there is a greater chance the breakout will hold and continue in the direction of the primary trend.

This is especially true once you go beyond the 11 am time frame. This is because breakouts after the morning tend to fail. So, in order to filter out these results, you will want to focus on the stocks that have consistently trended in the right direction with smaller pullbacks.

Using Time to Your Advantage

Trading comes down to who can realize profits from their edge in the market. While it is easy to scroll through charts and see all the winners in hindsight, it is much more difficult in real time. The market is one big game of cat and mouse.

Between the quants and smart money, false setups show up everywhere.

As a price action trader, you cannot rely on other off-chart indicators to provide you clues that a formation is false. However, since you live in the “now” and are reacting to directly what is in front of you, you must have strict rules to know when to get out.

With this in mind, in lieu of a technical indicator, one helpful tool you can use is time.

Just to be clear, the chart formation is always your first signal, but if the charts are unclear, time is always the deciding factor.

On a personal note, in a recent study of all my winning trades, over 85% of them paid in full within 5 minutes.

If you have been trading for a while, go back and take a look at how long it takes for your average winner to play out.

How to Protect Against the Head Fakes (False Setups)

Let’s review a few head fake examples to get a feel for what we are up against in terms of false setups.

In each example, the break of support likely felt like a sure move, only to have your trade validation ripped out from under you in a matter of minutes.

Protection

There are many ways you can protect yourself against these head fakes.

For starters, don’t go hog wild with your capital in one position. Make sure you leave yourself enough cushion. This way you don’t get antsy with every bar that prints.

Also, let time play to your favor. There is an urge in this business to act quickly. However, there is some merit in seeing how a stock will trade after hitting a key support or resistance level for a few minutes.

If you think back to the examples we just reviewed, the security bounced back the other way within minutes of raiding stop losses and trapping traders.

Where to Place Your Stops

One thing to consider is placing your stop above or below key levels. Since you are using price as your means to measure the market, these levels are easy to identify.

Another easy way to do this as mentioned previously in this article is to use swing points. A more advanced method is to use daily pivot points.

You are probably thinking, “but this is an indicator.” Well yes and no. Unlike other indicators, pivot points do not move regardless of what happens with the price action. They are essentially support and resistance lines.

So, let’s see how you can use pivot points to avoid getting caught in false signals.

Using pivot points to help with price action trading strategies — Using Pivot Points to avoid false breakdowns

Notice how the price barely peaked below the key pivot point and then rallied back above the resistance level. In order to protect yourself, you can place your stop below the break down level to avoid a blow-up trade.

Another option is to place your stop below the low of the breakout candle. Some traders such as Peters Andrew even recommends placing your stop two pivot points below. ^[4] This may not work for the risk averse trader, but it can work for some.

This is honestly the most important thing for you to take away from this article – protect your money by using stops. Do not let ego or arrogance get in your way.

Benefits of Price Action Trading

Price action traders are the Zen traders in the active trading world.

These people believe the human brain is more powerful than any machine.

Please do not mistake their Zen state for not having a system. The price action trader can interpret the charts and price action to make their next move.

Processing Data

For starters, there isn’t as much information to process, so you can focus on the chart action.

Secondly, you have no one else to blame for getting caught in a trap. Don’t bother emailing the guru with the proprietary trade signal that had you on the wrong side of the market.

The biggest benefit is that price action traders are processing data as it happens. There is no lag in their process for interpreting trade data.

Chart Patterns

By relying solely on price, you will learn to recognize winning chart patterns. The key is to identify which setups work and to commit yourself to memorizing these setups.

The next key thing for you to do is to track how much the stock moves for and against you. This will allow you to set realistic price objectives for each trade. You will ultimately get to a point where you will be able to not only see the setup but also when to exit the trade.

Some Challenges

Price action traders will need to resist the urge to add additional indicators to your system. You will have to stay away from the latest holy grail indicator that will solve all your problems when you are going through a downturn.

The real challenge is that it’s extremely difficult to trade purely on price. It’s not something you can just pick up and start doing right away.

You need to think about the patterns listed in this article and additional setups you will uncover on your own as stages in your trading career.

First, learn to master one or two setups at a time. Learn how they move and when the setup is likely to fail.

This, my friend, takes time; however, get past this hurdle and you have achieved trading mastery.

To further your research on price action trading, you may want to look into some courses like the ones offered at Wyckoff Analytics.

In Summary

Price action trading strategies can be as simple or as complicated as you make them. While we have covered 6 common patterns in the market, take a look at your previous trades to see if you can identify tradeable patterns. The key thing for you is getting to a point where you can pinpoint one or two strategies.

To start, focus on the morning setups. The morning is where you are likely to have the most success. Avoid the lunchtime and end of day setups until you are able to turn a profit trading before 11 or 11:30 am.

To test drive trading with price action, please take a look at the Tradingsim platform to see how we can help.

Much Success,

External References

Seo, Yong. (2017). ‘Scientific Guide to Price Action Trading‘. Algotrading-investment.com. p. 13
Heikin Ashi Trader (2018). ‘How to Trade a Range: The Most Interesting Market in the World‘. DAO Press. p. 7
(2009). ‘Nifty Ready for Mark Up’ [Report]. Prabhudas Lilladher. p. 2
Peters, Andrew. (2010). ‘Trading Pivot Points‘. Fabrefactum. p. 2

How to Find the Most Active Stocks to Day Trade + Free Video Tutorials!

Finding the Most Active Stocks to Day Trade [Video]

Start Your Day Early Searching Pre-Market Gainers

#1 Find the Best Stocks to Day Trade with Biggest Pre-market Movers

Setting Up Your Scans for Today’s Biggest Premarket Movers

Choosing the Best Penny Stocks to Trade?

Find a Clean Pattern with the Highest Volume Stocks Pre-Market

Scanning for the Biggest High Float Market Movers Each Day

#2 Finding the Highest Volume Stocks Today

#3 Develop your Own Watchlist for Daily Market Movers

Using Gold as an Example

#4 Keep Up with Historical Market Movers

#5 Social Media Stock Movers and Pumpers

Play StockTwits

Swaggystocks.com Popular Active Stocks List

TradingSim Historical Market Movers Scanner

#6 Monitor the Earnings Calendar for Potential Active Stocks

#7 Focus on One or Two Stocks from Your Most Active Stocks List

Selecting a Stock to Trade from Your Most Active Stocks List

In Summary

External References

What are Breakouts?

Day Trading Breakouts Misconceptions

Avoid Trading Breakouts During Lunch

When Momentum Stops

Example of a Midday Day Trading Breakout that Works

When to Make Money Day Trading Breakouts

What Times Work for Day Trading Breakouts

Identifying Winning Breakouts

4 Explosive Strategies for Day Trading Breakouts

#1 – Day Trading Breakout + Volume Indicator

#2 – Day Trading Breakout + Volume Weighted Moving Average (VWMA)

#3 – Scalping for Breakouts with a Short Period Exponential Moving Average

#4 – Day Trading Breakouts + Price Action Trading

How to Manage the Trade When Things Go Wrong

#1 – Take Profits

#2 – Money Management

#3 – Watch the Time

#4 Profit/Loss Ratio

Conclusion

External References

Chapter 1: Why the First Hour of Trading

Let’s Get more Granular on Time Frames

The First 5 Minutes

Chart Examples of First Hour of Trading

9:30am – 9:50am

9:50am Chart Example

9:50 to 10:10am First Hour of Trading

10:10 – 10:30

Setting Targets in the First Hour of Trading

Why 11:00 am is usually a bad time

Chapter 2: The Quality of the Trades

Results of First Hour of Trading Study

Take a Midday Break!

Chapter 3: How Much Volatility is Enough?

Chapter 4: Pre-Market Trading

Buy the Pre-Market Breakout

Wait for the Morning Pullback during First Hour of Trading

Chapter 5: Where Things Go Wrong in the First Hour of Trading

#1 – Things Can Get Out of Hand Quickly

#2 – Even When You Are Right, You Have to be Fast

#3 – Do Not Worry About Guessing Tops and Bottoms

#4 Stops Can Still Trigger Big Losses

In Summary

External References

Why is Volume Analysis Important?

What is Volume?

Strategy 1: Breakouts and Volume

Breakout Example 1:

Breakout Example 2:

Test Example

Quick Summary

Strategy 2: Trending Stocks and Volume

Trending Example 1:

Failed Examples

In Summary

Strategy 3: Volume Spikes

In Summary

Volume Spikes with Long Wicks

In Summary