Why choosing the right day trading strategies for the market conditions is crucial to your trading success.

One of the most common day trading mistakes is applying the wrong day trading strategies for the current market conditions.

That’s pretty much guaranteed to give you a series of losing trades, high stress levels, and negative P&L.

The goal of this article is to provide a basic understanding of how markets really work and how to determine which day trading strategies may provide the best trading opportunities & results on any given day.

So let’s jump right in and get started…

According to dual auction market theory, markets can do only one of two things;

They can either move sideways, ‘rotating’ up and down between two price levels – otherwise known as a ‘consolidation’ or a ‘trading range’.

Alternatively, the markets can move directionally – otherwise known as ‘trending’. This occurs when the market breaks out from its trading range and moves directionally until the market begins to consolidate sideways again.

Understanding this dynamic is crucial for consistent day trading success. Why? Simply because being able to identify the current  market conditions means we can apply the most appropriate day trading strategies for those conditions!

Each of these two basic market conditions (consolidating vs trending) require very different day trading strategies. There is no one-size-fits-all solution. We must be able to adapt our strategy accordingly to fit the market conditions.

Why does this matter?…

As an example, ‘directional’ day trading strategies are typically most effective when the market is trending strongly. However, trying to employ a directional strategy while the market is consolidating in a tight trading range will more often than not get you chopped around and stopped out of trades.

The intraday emini Euro chart below illustrates these principles of consolidation vs trend discussed in this article so far.

Hopefully you now understand why we need different strategies for different market conditions. So let’s take a look at two basic day trading strategies.

Almost every other technical day trading strategy in existence is a variation on the basic themes outlined below. It’s important to understand them.

Reversion to Mean

In a trading range the market typically ‘rotates’ slowly up and down without much directional bias, usually on low volume from one edge of the range to the other. The market will continue to behave like this until a break out occurs.

When these market conditions exist there is only one strategy to consider; To buy the prices near the bottom of the range, and sell prices near the top of the range. The idea is to exit these directional positions as the market returns to ‘value’ by rotating back towards the middle of the trading range.

This is what’s known as a ‘reversion to mean’ trade, or playing ‘ping pong’.

The success of this day trading strategy relies on the market continuing to rotate sideways within its defined trading range. In other words we are betting that the market will continue to rotate up and down inside the established range.

Break Out & Directional

Sooner or later a consolidating market will transition to a directional / trending market. This occurs when the market ‘breaks out’ of its trading range, typically on higher volume and continues to move directionally in one generally sustained direction. When the market does break out, we have a couple of options…

Option #1 is to take a directional position during the break out itself, although this can often be a risky entry as ‘false break outs’ are common.

Option #2 is to wait until the market makes its first pull back after the break out and then take a directional position for any directional continuation. This is the safer entry.

Bottom Line

During an established trading range the smart choice is to either sit on your hands, or play ‘ping pong’ with the edges of the range taking profits when you can.

During a trending market however you want to use a break out or directional strategy and get on board the momentum to maximise your profits.

Whether you trade emini futures, forex, stocks, etf’s or options, being able to identify when the market is consolidating or trending is one of the most important skills a discretionary trader can develop when it comes to consistently applying the right day trading strategies for the market conditions.

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Looking for a high probability trading methodology?

In this quick 6 minute video you get to see exactly how the 3X trend method may enhance your trading performance.

Whether you trade futures, forex, or stocks, no matter what timeframe, the 3X trend method is a solid approach to taking advantage of a trend moves and trend continuations.

Watch as Rick introduces you to the basic components and ideas of the 3x trend method and how they may bring in good profits as illustrated in a theoretical 3 minute ES (mini S&P500) setup.

This video is just a little taster of what full members can expect inside the Traders Club.

Welcome to the video update for Thursday, March the 25th. Today’s video update will focus entirely on the emini ES futures contract. This is a good practice to follow at the beginning of the trading day, to see how the smaller timeframes fit in to the larger timeframes, hopefullly allowing you to better define risk and identify higher probablility setups. As Trader Rick has stated before, successful consistent profitable trading depends greatly on trade selection.

Watch Trader Rick start with the weekly ES chart and go thru smaller timeframes, down to the 5 minute chart. Knowing where price is on the larger timeframes will help you make decisions on the smaller timeframes. Ideally, a larger timeframe will provide support in taking a smaller timeframe setup.

One primary purpose of doing these exercise is to identify if a trend is in force or not, what the momentum is, where support resistance is, then take advantage of what we know. There will be times when the best trade is no trade.

Good trading!

Welcome to the video update for Monday, February the 1st.  With a new month Trader Rick will review most of the monthly charts where appropriate.  First chart up is the daily Eurostoxx 50 where price is testing a support level going back to the end of December.  Trend and momentum is currently down.  If price rallies look for a shorting opportunity in the sell zone.  The 60 minute chart is putting in lower lows and lower highs.  See which swing high if taken out will reverse the price action.

Next up is the gold monthly chart where the front month moves from February to April.  The month of January put in a shooting star.  Note where underlying support may come in and what the monthly pivot is.  Pivots are tested on a high percentage of the time.  Do you know how to calculate a pivot?  (H+L+C) /3. The daily gold chart has a possible abc pattern in play.

Trader Rick discusses the monthly EUR/USD forex pair chart where price is in the buy zone.  If support does not hold then an ab=cd pattern may develop.  The daily chart shows how to dial down to a smaller timeframe to locate a high probability setup based on the position of price on the daily.

The euro currency monthly chart shows price in the buy zone.  Will price find support here?  What might happen if price does not hold support?  The weekly and 60 minute charts are also covered.

The monthly Canada chart is next price has found resistance in the fib zone.  The dragon pattern is still intact on the weekly chart.  Price is in the support zone.  The daily Canada chart has a possible ab=cd pattern.

Trader Rick discusses the monthly crude oil chart where price is in the sell zone but moving sideways.  Slingshot may have influence on the price action.  Weekly chart shows price trading in a channel.

Next up are the stock index charts beginning with the S&P cash monthly chart.  Last month was a bearish engulfing candle.  Does this signal the end of this 10 month upmove?  Trader Rick also covers the YM, NQ and the ES charts.  Look at the 240 minute ES chart for important overhead resistance levels.

Good trading!

Welcome to the video update for Friday, January 29th.  With the end of the month Trader Rick offers two trading tips based on the position of the price in relation to the keltner channel.  In preparation for the trading day consider looking at your higher timeframe charts to see where price is trading.  As trading closes for the week and the month, look at the weekly and monthly charts too.  This information can help you trade in the direction of the prevailing trend, if there is one.

First chart is the crude monthly where we may have the lowest close since last September.  See what pattern may also be forming.  On the daily crude chart, price is trading outside the lower keltner channel, telling us very important information.  Trader Rick walks thru 60 minute and 15 minute charts pointing out high probability setups.

The ES daily chart is similar to the crude daily chart in that price was trading outside the lower keltner channel, providing high probability short setups on the 15 minute and 60 minute charts.

Knowing where price is trading can keep you out of low probability countertrend setups and spot high probability, with trend, short setups.

Good trading!