Day Trading Strategy
Definition
A written set of rules for opening and closing positions within the same trading session: which market conditions you trade, what triggers an entry, where the stop goes, where you take profit and how much you risk.
Example
“Her day trading strategy only takes first pullbacks to VWAP between 9:45 and 11:00 a.m., with the stop under the pullback low.”
Detailed Explanation
Most day trading strategies belong to one of six families: trend following, breakouts, mean reversion, reversals, news and event trading, and scalping. Each family makes money from a different kind of price behavior, so each suits different days and different temperaments. A strategy is judged by its shape, meaning how often it wins and how large the average winner is compared with the average loser after costs, not by its name. With 0.05R of costs per trade, a strategy whose winners average 1R needs a 52.5% win rate just to break even, while one whose winners average 2R needs 35%. If any rule is missing, such as the stop or the size, what you have is an idea rather than a strategy.
Related Terms