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Taking Advantage of Brief Price Surges

In order to day trade profitably, you must also learn to take advantage of brief flurries in prices. In the previous section I discussed large intraday price moves that can occur in relation to international, domestic, political, and economic news. At times, markets will drop or rally quickly seemingly in response to no news. What may be happening in such cases is that is a rumor on the trading floor, a large buyer or buy order, or large seller or sell order of which you are not aware. Such brief price surges or drops are opportunities for you to exit positions consistent with the price move.

Regardless of the source, consider all price rallies or declines that occur quickly within the day's trading session to be an opportunity for you to either exit your current position at a profit, or to establish a new position using support and resistance methods that have been outlined previously. Developing this quality as a day trader is important, since it is entirely consistent with the day trading objective. Too many day traders assume that bulges or sharp declines in price within the day are basically meaningless. Believe me, they're not. They're tailor-made for the day trader. The day trader who is committed to taking a profit out of the market every day must take advantage of these price moves. If you decide not to do so, then by all means you must either raise or lower your stop loss (depending on your position), or you must use an appropriate mental stop loss, which is adjusted to the change in price. What this means simply is use a trailing stop loss in the event that the price move is negated shortly after it begins. In this way you will have given yourself an opportunity to lock in a larger profit that you might not otherwise have had.

Sticking to Your Daily Goal

Above all, remember that as a day trader you have one major goal and that is to make money trading each day. The important consideration here is that in order to make money day trading every day, you will need to be particularly aware of your net profits during the day (after costs) and as the day progresses if you are riding profits. You will be more inclined to take those profits in order to make each day profitable.

My advice, which is based on many years of short-term and day trading, is to set yourself specific standards regarding when you will begin to liquidate positions toward the end of the day in order to guarantee yourself a profitable day. My advice is to do so approximately 1 hour before the close of trading. You may either begin to close out your positions at that time or you may use a follow-up stop loss procedure in order to "lock in" existing profits.

Many traders would disagree with my advice. As I indicated earlier, however, it is based on many years of trading experience, and it is designed to achieve a very important goal for the day trader. As a day trader you need to end each day with a profit, no matter how small that profit may be. If you can do so, you will be reinforced positively for your day-trading skills. This will give you confidence and a positive attitude toward your trading profession, which, of course, is very important, particularly when you have experienced a string of losses. In other words, if you can be even slightly successful each day, your attitude toward day trading will become more positive, your self-confidence will increase, and you will be more able to withstand the temporary reversal to which all traders, short-term, long-term, and day traders alike frequently fall victim.

But in order to achieve this goal you will need to internalize it, keeping it foremost in your mind at all times. What is right and proper for the position trader or for the short-term trader is not necessarily good for the day trader. If you find yourself wanting to ride profits or losses overnight, then you are not being true to your goal as a day trader. Should you wish to day trade and position trade as well, then I urge you to do so in different accounts in order to avoid the confusion that will assuredly come from doing both in the same account. Keep your goal in mind, and you will be less likely to stray from it.