The stock market can seem random and chaotic. In order to consistently profit from day trading stocks, you MUST use day trading strategies that have an edge. Many traders fail because they trade strategies that don’t have positive expectancy.
This means that in the long run, they always lose money because their day trading setups have no edge. They are the suckers playing the slot machine. Successful traders have setups that make them the casino. They know in the long run, they will always make money.
Today I will talk about 3 of my favorite day trading setups. These are the go-to setups that I can rely on for consistent income. Every trader needs these, and for every trader they will be different. Before I give you these setups, it is important you understand exactly what a day trading setup is.
What are Day Trading Setups?
Day trading setups are another word for day trading strategies. A day trading setup is simply an entry strategy for getting into a stock. A setup defines a set of criteria that need to be met in order to enter a trade. Without a setup, you are just gambling at the casino when you enter the market.
Now that you understand exactly what a setup, let’s get into some of my favorite strategies. Here are 3-day trading setups that I use on a daily basis:
Stocks that report negative news will often have large moves to the downside during pre-market and after hours. This momentum will often continue into the market open, and provide great short selling opportunities. I will look for these downtrending stocks during pre-market, and look at their charts to find a good entry point for an entry for a short sell.
The best breakdown plays gap down under nearby support on their daily chart and increases the probability that sellers will enter the market, causing the stock to depreciate in value. Here is an example of earnings breakdown play I took on $X:
Day Trading 2nd Day Continuations
A lot of traders get FOMO after missing a big move in a stock. What they don’t understand is that stock trends will typically last multiple days. The following day after a stock has made a strong move is often actually easier to capitalize on than day 1.
When trading a continuation play, I am looking for an entry to join the trend that is continuing from the prior day to the long or short side. Here is an example of how I day trade 2nd day plays:
The VWAP (Volume Weighted Price Average) is a great indicator to gauge a stock’s trend. It is a great tool for managing your risk for day trades. It often acts as support and resistance for stocks intraday. One of the favorite strategies using the VWAP is the VWAP pullback.
This is a setup you use between 10:30-4 (not during the open) to buy shares on an uptrending stock after it has pulled back and retraced to its VWAP. Entries by VWAP can give you low risk, high probability trades.
It can also be used to short stocks downtrending stocks and is one of my favorite mid-day setups to day trade stocks. Here is a video lesson going over a trade I took using this strategy: