8/5/2023 0 Comments Day trading for beginnersFor day trading purposes, a trader may identify a stock or ETF that has shown a good deal of upside strength in past several trading days. Pullback tradingĪ pullback entry is based on the concept of finding a stock or ETF that has a clearly established trend, and then waiting for the first retracement (pullback) down to support of either its primary uptrend line or its moving average to get into the market. The idea is that price will retreat, confirm the new support level, and then move higher again. Thus, in the case where a breakout is not supported strongly by the factors described above, a time-honored strategy is to place a buy order just above the breakout point and place a stop-loss just below the broken resistance line. One of the chief tenets of technical analysis is that a prior area of resistance becomes the new level of support after the resistance is broken. To the degree these factors support the breakout, it’s more likely that prices will surge significantly higher and the trader may then be justified in aggressively chasing the breakout. A number of factors can come into play in making that decision, including: the underlying fundamental catalyst for the breakout the medium- and long-term trend direction of the instrument the behavior of other related markets and the trading volume attendant to the breakout. The question that day traders constantly face is whether to aggressively “chase” a breakout and get into the market quickly or wait for the price of the stock or ETF to retreat a bit and confirm the breakout. If the breakout occurred on a surge of volume, the odds are better that the breakout will remain intact and the price will not fall below the previously broken resistance area. When an upside breakout occurs, breaking resistance, it’s important to look at the level of trading volume. In that case, the instrument falls below a significant area of support, which can be either a consolidation point or below an uptrend line. A breakout can also occur on the downside. The breakout could occur above a consolidation point or above a downtrend line. In the parlance of day trading, a breakout occurs when a stock or ETF has surged above a significant area of price resistance. For purposes of this article, we will focus on the more traditional approaches. In recent years, trading technology has evolved to the point where some individual day traders may place dozens or even hundreds of trades per day in an attempt to capture a large number of small profits, through techniques such as scalping or rebate trading. Most common strategies are simply time-compressed versions of traditional technical trading strategies, such as trend following, range trading, and reversals.
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