In order to succeed at day trading you have to stay well informed and ahead of the game. You need to constantly be learning about new strategies and techniques to increase your earnings. Today we are going to talk about five popular trading strategies that you should know about.
Cup and Handle
This trading pattern strategy has a distinct “U” shape, aka the cup, followed by a slightly downward slide, aka the handle. The “cup” pattern usually ranges between 7 and 65 weeks and manifest at lower trading volumes. Once the “handle’s” trend downward runs its course, the price will usually breakout and above the previous resistance level.
Stop Limit Order
This is a combination of a stop order and a limit order. In order to successfully utilize this trading technique you must first determine two price points, the price to begin an action, the “stop” price”, and the target price, the “limit” price. This trading strategy provides the day trader more control over when an order is filled which helps diminish the drawbacks common with a stop order. You can get some great information about setting stop and limit prices from Warrior Trading’s on their StockTwits page.
A short squeeze is when a heavily shorted stock gets a lot of new buyers at one time. This usually happens because the company gets good news or some other triggering event. When this happens, the shorts have to cover their positions because they are getting squeezed out which results in even more buying. This can cause a stock’s price to rise very quickly. Since you do not want to get caught on the wrong side of a short squeeze, you can
place hard stops on your short positions.
Relative Volume indicates how volumes compare to past trading volume. It will give an idea of how active a stock is compared to its history. The higher the relative volume the more traders are watching and trading the stock. Relative Volume is displayed as a ratio, so a 1.5 relative volume means that the stock is trading at 1.5 times its normal volume. The Relative Volume is a great metric to keep an eye on for stock topping or bottoming.
Flag & Pennant
This trading strategy is great for short and long traders. You will usually see the flag pattern when the market opens after a big push down or up. After the shares make a big push up or down you will see them drift up or down with lighter volume forming a rectangular, or “flag”, shape. This is a great pattern to trade and offers a lot of upside for the amount of risk.
If you have not tried these trading techniques and strategies before, look for them the next time you are trading and see if you can spot them. Learn more about these great techniques and others at Warrior Trading.