Day trading online can be made as simple or as complicated as you wish. After all there is a grand array of technical indicators to choose from and many new traders start by almost obliterating their charts with every indicator they can manage.
Often though the most successful strategies are the simple ones when day trading online.
Here is a basic concept to drill into the brain which can make day trading online more understandable and less taxing mentally and emotionally.
The Buy Sell Zone
Just what is the Buy Sell Zone?
To identify it you need to calculate the Central Pivot Point.
This is easily done by simply getting 3 figures from your charts regarding the previous day's price action. You need the High, Low, and Close figures which can easily be obtained by looking at your daily chart and hovering your mouse over the previous day's candle.
The High, Low, Open, and Close values will be shown either in a pop up window or in some other area of your chart.
Now just add the High, Low, and Close figures together and divide by 3. You now have the Central Pivot Point. (See the resource box below for a free pivot point calculator which gives not only the Central Pivot Point but S1, S2, R1, and R2 values as well with mid points automatically calculated.)
The area above the Central Pivot Point is regarded as the Sell Zone and the area below the Central Pivot Point is regarded as the Buy Zone.
Applying The Concept To Day Trading Online
Generally the safer trades are made following this guideline:
Only go short when price is above the Central Pivot Point. Only go long when price is below the Central Pivot Point.
Why is this such a safe rule? Because it follows the other standard rule which applies to day trading online:
- Buy the dips in an uptrend
- Sell the rallies in a downtrend
Some traders will enter as price moves in a certain direction in line with the momentum. That's one way to trade.
A different way, and a way which ensures a much better entry point, is to wait for price to pull back before it resumes the momentum. That way your stop can be smaller and your profit target is closer.
Are There Exceptions?
Day trading online does not involve the application of rigid rules that cannot be broken. There are exceptions in every case and day trading requires a great amount of judgment and individual interpretation of what is going on in the market place.
So yes, there will be times when profitable trades can be had by buying in the Buy Zone and selling in the Sell Zone.
However, if you decide to do that, then double check your analysis. Make sure you have a very good reason for entering such a trade.
You would need a combination of technical indicators telling you price is likely to continue going up after you enter in the Buy Zone, or conversely that price is likely to continue to fall after you enter in the Sell Zone.
Fixing this basic Buy Sell Zone concept in mind will steer you away from making impetuous trades that could damage your account.
Generally, adhere to these two principles:
- Sell In The Buy Zone
- Buy In The Sell Zone
If you decide to make an exception during your day trading online, make sure you have double checked your reasons!