Guide to Day Trading Strategies

H O W T O D A Y T R A D E
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For all my trading strategies, I use Limit Orders to enter and exit my positions. I buy at the Ask 
price and usually try to sell at the Ask price as well. I am actively trading using the Level2 (market 
depth) window in my brokerage account. Understanding Level2 is very important for day traders, 
and especially when using a fast paced strategy like the Gap and Go Strategy. As we review the 
strategies below, you will notice me discussing the technique of selling half (scaling out) and 
adjusting my stops to breakeven. One of the reasons I have a high percentage of success is 
because as soon as I hit my 
À
rst pro
À
t target, I take a little off the table and adjust my stop loss 
to breakeven. If I end up getting stopped out of the trade, I will still walk away from the trade 
with a small pro
À
t. If the stock continues to run, I can let it ride knowing that I have already 
locked up a winner and anything else is going to be icing on the cake. It is important to keep at 
least a small position in the trade until I get stopped out by an exit indicator. This con
À
rms that 
I traded the stock from start to 
À
nish without exiting too soon, and it allows me to have some 
really big winners. With respect to losses, it is even more important to cap all of your losses at 
the predetermined max loss. As soon as I enter a trade, I know the price where I will stop out for 
a loss. Remember, a gambler thinks about pro
À
ts, but a trader things about risk (loss). We have 
to always return to our foundation as risk managers when we are trading.
Momentum Trading Strategy
Remember one of the 
À
rst things I said, was that as day traders, we are hunters of volume. 
Momentum stocks are driven by volume. The Momentum Strategy setups include Bull Flags, Bear 
Flags, Flat Top Breakouts, Flat Bottom Breakdowns, Moving Average Pullbacks, and Parabolic 
Movers. Momentum can be traded both to the long side and the short side. The most volatile 
momentum stocks will almost always have low 
Á
oats. I consider a low 
Á
oat stock as one that has 
under 50 million shares. The best low 
Á
oat runners usually have a 
Á
oat of under 10 million shares. 
These stocks have an extremely limited supply of shares to trade. Under the right circumstances, 
a high level of demand can create a powerful squeeze where a stock will surge 100% in a matter 
of minutes. This type of move could never happen on a stock with a 100 million share 
Á
oat. By 
recognizing the 
Á
oat, you can make a determination of the potential for a trade. Understanding 
potential is important because it helps us justify the risk to take the trade in the 
À
rst place. When 
we look for pro
À
t targets on momentum trades, they will often be based on the daily chart levels 
of resistance, but they are also going to be in
Á
uenced by the 
Á
oat, the catalyst and the level of 
volume. Low 
Á
oat stocks that are former runners will always have more potential than a heavy 
Á
oat stock.
I begin each day by running my stock scanners to 
À
nd stocks that are surging up pre-market. 
These stocks are already trading on heavy pre-market volume, due to a catalyst of some type. 
I build a watch list of four to six of these stocks. I continue to run momentum stock scanners 
during the day to look for new ideas. The scanners I run during the day look for stocks hitting 
a new high of day on above average relative volume. All of the stocks hitting the scanner have 
potential, but it is the job of the trader to 
À
nd the best opportunities.

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