Trade Simple and Smart for Optimal Results

Feb 5, 2018 by

When it comes to stocks, discovering highly tradable securities doesn’t have to be taxing. You can reduce the time it takes to achieve profitable outcomes by running screens and stock scans, but this often makes strategies far more complicated than they need to be.

Complex strategies are usually developed from a basic foundation, which takes the form of a simple strategy that initially works well for the trader. This concept is later retweaked to make it even more profitable, and though the outcome can be positive, profits can cease due to things becoming too complicated. For this reason, more sophisticated strategies are often counterproductive, so we recommend keeping things simple.

Price is all that matters, and to get back to simplicity it’s important to focus on price. This article will assess a day trading strategy that looks at price and current movements, which ultimately equates to profit. This approach can be executed in conjunction with an RSI trading strategy, which uses an RSI indicator and price action analysis to land great trade entries.

Capture the Daily Range

The simple strategy outlined here involves looking at price tendencies and trading within this context. Though you can’t guarantee a tendency in a given stock will continue, by trading with it you’ll position the probability of profit on your side.

A great starting point is to assess the average daily range when a price opens. Learn the average intraday range, paying no attention to gaps. Use an average of the last 20 trading days, and exclude volatile moves that can be a result of economic news. Daily range is calculated as High-Low, and you can later be converted into a percentage. Once you’ve collected data for 20 days, you can simply add up the percentage moves each day, before dividing by the number of days to calculate an average.

Though this sounds like hard work, it is a very simple process once you begin tracking highs and lows in a spreadsheet. There are many trading platforms which have an average range indicator which suggests an average intraday range over a set period of time. Adopting this simple method is much easier than various other complex strategies, which often become difficult to keep track of.

Other Considerations

Stops depend on how volatile stocks are, but can be kept reasonably small as they move back through the open. The process is generally quick, and you won’t be offside for too long. The stop amount is likely to be smaller than the expected profit, and there are multiple stocks you can watch over time. Not all stocks provide trades simultaneously, so it’s advisable to make multiple trades in multiple stocks.

Though losses will occur with this strategy, you stand a good chance of making money. It’s important to gain an insight into the average intraday range, while capturing a share of the daily range. Remember to keep losses small by buying or selling as prices move back through the open, taking note of when prices are transitioning in the opposite direction.

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