Day/Swing Trading Strategy

Day Trading Strategy:
If you are a day trader, your position size is likely larger due to the fact you are looking for a smaller move with your short timeframe.  Keeping a tight stop is extremely important when trading larger size, as a day trading strategy gives stocks multiple opportunities to work.  For day trading, the strategy is rather simple:

Always keep your profit objective at least 3 times greater than what you are willing to risk.

Allow no more than a 1% move against you from your entry point.  Ideally, you are in the trade beyond the trendline and out of the trade below it.  You can always get back into the trade if the stock returns to the buy point.

If the futures (Nasdaq and S&P e-minis) make an intermediate lower high intraday (or higher low when trading the short side), exit half of your position.  This implies a weakening market and can make it tougher for open positions to continue working.

If your stock hits a new low for the day (long trades) or new high for the day if you are short, exit the position.  A day trade is intended for initial moves, so there is no purpose in widening stops to accommodate a stock moving in the wrong direction.  Get out if the stock breaks a low (or high if short) as you can reenter the trade if it triggers again.

Once momentum fades and buyers are thinning out, take your profit.  This can be done by carefully monitoring the intraday chart and the time & sales window for fading momentum.




Swing Trading Strategy
If your trade timeframe supports swing trading, here is a strategy outlined for you.  This may not be the exact way you wish to swing trade, but it is intended as a guide to help you determine a trading strategy that suits not only your timeframe, but also your personality as a trader.  If your timeframe is shorter, please see the day trading strategy page for more information.

Swing Trading Strategy:
When swing trading, your position size will usually be smaller than when day trading due to the fact that you are looking for a larger move.  Your stop loss orders should be placed wider than when day trading for this reason.  Naturally, your profit targets are farther away, so patience is a necessity.

Stocks often gap, so here are some guidelines for swing trading:

If a stock gaps 1-2%, enter 1/2 of the intended position size and monitor the stock for its behavior before adding.  If the gap holds, then add to the position.

If a stock gaps 2-3%, only enter 1/4 of the intended position size.

If a stock gaps over 3%, it may be best to pass on the trade entirely, as the risk/reward profile of the trade is no longer the same.

Here are a few rules of thumb to help determine exits when swing trading:

If the prior day's low is taken out on the breakout day (or high for shorts), exit the trade.

If a stock is unable to close in profitable territory on breakout day, exit at the close.

If a stock is able to close in profitable territory on its trigger day, take the stock home overnight.  Then place a stop-loss order below the recent consolidation OR 5% below the entry price on a closing basis, whichever is nearer.

If the market violates support or makes a 2% move in the opposite direction of the position, exit half of the position and leave a stop-loss in place for the remaining shares.

Once a trade is profitable by at least 10%, never give back more than half of the open profit.  This helps to avoid the frustration of letting winning trades turn into losing trades.

Once a trade is profitable by at least 5%, move the stop-loss order to breakeven on a closing basis.

Partial buys and sells can be very helpful.  If a stock breaks out in a sluggish fashion, consider entering a partial position.  If little follow-through is seen in a trade, lighten up on the position size.

Always monitor the health of the overall market, and the health of your positions.  When things aren't acting right, either lighten up or go to cash entirely to preserve capital.

These are some general guidelines for any trader with a swing trading strategy to determine exits that fit their timeframe, and are intended for educational purposes.  Each individual trader is responsible for their own exits and trading results.