Guide to Day Trading Strategies

Pro
À
 t Targets
Reversal trades have obvious pro
À
t targets. Unlike a momentum trade which can run and run, 
reversal trades usually run back to logical points on the chart. I look for reversals to come back 
to the 9 EMA, on the 
À
ve minute chart. A strong reversal could get back to the VWAP, and 
potentially cross over the VWAP. Since the 9 EMA is the 
À
rst pro
À
t target, I will not take a trade 
if I cannot get at least a 2:1 pro
À
t loss ratio, based on an exit at the 9 EMA.
Exit Indicators
1. When I 
À
rst enter a reversal trade, I set my stop either at the high of day or low of day. If 
my stop gets touched, I am immediately out of the trade.
2. I will sell half when the price touches the 9 EMA on the 
À
ve minute chart, or when I hit 
my 2:1 pro
À
t loss ratio. I then adjust my stop to breakeven on the balance.
3. Once the price breaks the 9 EMA, I will adjust my stop to the other side of the 9 EMA, 
and keep adjusting it every 5-10 minutes.
4. At the VWAP, I will do another partial sell and keep a smaller position for a move back 
over the VWAP and for a possible swing trade.

---

H O W T O D A Y T R A D E
103
I am very quick to exit reversal trades when they are not looking strong. If anything, I may 
jump out of them too quickly sometimes. One of the things I have noticed is, that with reversal 
trades, since we are expecting that rubber band snap back effect, it needs to happen almost 
immediately. The stock may not be moving against me, but the fact that it is not moving up is a 
big warning sign. Just like my momentum trades, typically my best reversal trades work almost 
immediately. Sometimes reversal trades will pause near the high or low, before making a big 
surge and continuing in the direction of the trend. This means instead of holding out hope that 
maybe the reversal will work, it is much better to get out breakeven, or for a small loss instead 
of experiencing the pain of it ripping against you.
I will warn you against the bad habit of covering a reversal position and 
Á
ipping directions 
by jumping in for a momentum trade. Reversal setups are rarely momentum setups. They are 
reversal setups because they are extremely extended. This means even if they run another 50 
cents, they are in an extremely extended position and the reversal will come sooner or later. 
Trading the trend when the ‘rubber band’ is stretched, is asking for trouble. If you bail out of 
the reversal position, jump into the momentum, and then the snap back happens and you lose 
on both sides, you will feel extremely frustrated. Anytime I get stopped on my 
À
rst try on a 
reversal, I simply wait for a better reversal opportunity. If the stock keeps running, that means 
the extension will be bigger and the snapback potential will be stronger as well.

---

104
CHAPTER 10