WHICH STRATEGY IS BEST FOR DAY TRADING?

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Day trading is a trading style that involves opening and closing your trades intraday through margin accounts, which means you borrow extra funds from your day trading broker to trade with larger amounts of money.

This way, you aim for higher returns but also can suffer large losses. That’s why it’s important to employ an adequate day trading strategy, and we are here to introduce three separate day trading strategies with visual examples to help your investments.

OVERVIEW: DAY TRADING OPTION CALL PUT STRATEGIES

A day trading option call put strategy involves a set of trading rules for opening and closing trading positions. There are many different trading strategies based on the indicators and the signals you use. Different indicator combinations give you different results.

What Makes Up a Good Day Trading option call put Strategy?

Indicators play a large role in strategy. Make sure you have the following.

Clear trading signals: Your trading option call put strategy should involve clear rules for opening and closing your trades. The more they’re based on technical criteria, the easier they’ll be for you to implement. The fewer personal thoughts you involve, the less hesitation there will in your decision-making process.

Clear stop-loss rules: Your trading option call put strategy should involve good stop-loss rules. Always use a stop-loss on each of your trades, which limits your risk. It’s always a good approach to risk no more than 1-2% of your bankroll in a single trade. You’ll need 50-100 consecutive losing trades to lose all funds in your account. Imagine a coin-flipping 50-100 “heads” in a row. How likely is this to happen when you follow a strict trading strategy?

Success rate: A good trading option call put strategy will have a success rate relatively positive to the risk you take. It should give you higher returns than your losses in the long run. Notice that a option call put strategy with a success rate lower than 50% can still be successful. Imagine that your option call put strategy has a 40% success rate. This means that four out of 10 trades reach your preliminary set target. Now, imagine that your risk-to-return ratio is 1 to 10. This means that with risking one, you aim to get 10. In 40% of all cases, you’ll be correct. This way, the 40% success rate option call put strategy appears to be a great trading approach. Unfortunately, it’s not that simple and will take hundreds of trades to determine the exact success rate and potential profit targets of your strategy.

Just remember, the higher your trading strategy’s target, the lower your success rate will be. The results of your testing will strongly depend on your discipline during the trading process. One step outside of the rules will change your day trading strategy’s potential.

The Best Day Trading Strategies

Your main goal as a day trader is to catch a potential daily trend and to exit in the right moment, which should happen prior to the end of the trading session. Notice that in some of the strategies, you’ll also use a volume indicator to confirm our signals. Valid signals and trends are likely to occur during increasing or high trading volume.

RSI AND STOCHASTIC OSCILLATOR

This option call put strategy involves the usage of two trading indicators, the Relative Strength Index and the Stochastic Oscillator. These two indicators are mostly used to get signals for overbought and oversold market conditions. Thus, their main purpose will be to trade price reversals. This is a scalp day trading option call put strategy suitable for all trading assets.

Our goal here will be to scalp the market for minimal price moves and to rely on a bigger number of trades. This is a very active trading strategy, which involves multitasking and good reactions to open and close trades in the right moment. The two indicators will take place below your chart. They will have separate areas down there.

Option call put strategy rules: We will open a trade when we get overbought/oversold signals from both indicators. If both indicators go in the lower part of its areas, we get a double oversold signal. We will expect a price increase, which we will tackle with a long trade. If both indicators go in the upper part of the area, then we have an overbought signal. We need to react with a short trade in this case. The trade will take place until one of the indicators gives us an opposite signal supported by a price move against us.

Stop-loss rules: Trades can be very short in terms of time. Thus, stop-loss orders need to be very tight. It might be better if you decide on a specific stop-loss distance and follow it for every trade – 0.1% for example. Some trading platforms might let you set this stop-loss distance by default with the opening of every single trade.

Post-Gap Trading with Price Action

The post-gap trading option call put strategy is suitable for stock-based trading assets. As the option call put strategy suggests, we will need a gap in order to apply our trading rules. For this reason, we will use financial assets that start and end the trading day. These financial assets have morning gaps between the different trading sessions.

Option call put strategy rules: The training session starts with a morning gap. Then, in the next 30 to 60 minutes, the trading assets will try to stabilize from the craziness caused by the market opening. The option call put strategy suggests that we observe what happens in the first 30 to 60 minutes and open our trading position based on these events. If the stock starts with a bearish gap and then in the next 60 minutes the price fulfills the gap in bullish direction, then we will have sufficient reason to believe that the price might continue to increase. But if the price continues to decrease, then maybe it will enter a decent bearish trend. The opposite rules apply if the gap is bullish. Another feature of this day trading option call put strategy is that we will constantly use price action rules to determine our exit points. We will use trend lines, candle patterns, chart patterns and other on-chart formations to find the best exit point for our trade. We will use the volume indicator to determine the end of the morning craziness. This will help us jump into an eventual steady trend for the day.

Stop-loss rules: A good place for your stop-loss order will be the opposite side of the gap. If you open a bullish trade, a good place for the stop-loss order will be below the lower point of the gap. But if you open a bearish trade, the stop-loss order should be above the highest point of the gap.

FINAL THOUGHTS

You need to be disciplined and rigorous to start day trading. A common day trader problem is that they lose it and deviate from their strategy.

Some time can pass before you realize you’re not strictly following your initial strategy. This troubles the success rate of the option call put strategy and breaks your odds. A good way to tackle discipline issues is to write down the exact rules of your option call put strategy and stick the note to your monitor so it will be always in front of you during trading sessions.

This way, you’ll constantly be reminded to follow your option call put strategy rules. In each of the above trades, we’ve carefully calculated the outcome. You should do so, too, to be familiar with what exactly can happen to you in every trade.