What is the best day trading strategy for beginners? If you are expecting a silver bullet, you might be disappointed. But if you’re willing to read on, you might just learn how to find and evaluate the best trading strategy for you as someone new to trading.
So what is the best trading strategy for a new day trader?
This is my take:
A day trading strategy that beginners can use to make easy money.
A day trading strategy that beginners can use as a starting point to learn and improve, while minimizing losses.
Novice traders should not fixate on profits.
Instead, their day trading strategy should focus on two crucial aspects:
- Controlling the risk
- Developing the trader
In a nutshell, we want to maximize a trader’s skill development while minimizing risk.
Day traders who are just starting should not be led into the glamor of raking daily profits without first understanding the risks of day trading.
For a long career in the market, day traders must learn from their trades and develop the right trading attitude.
So instead of accepting any recommended strategy, look for day trading strategies:
- With lower trade frequency
- That go along with the market trend
- With a simple approach to trade management
These characteristics will help to start your trading journey on the right path.
1. Infrequent Day Trades For Beginners
Beginners should trade infrequently. For traders who are still grappling with their trading edge, trading less is better than trading more. It is a form of risk control.
Trading infrequently also gives you time between your trades to learn from them.
Taking dozens of trades in a flurry will only cloud your analysis and fuel your feelings of fear and greed. With a strategy that produces fewer trades, you find it easier to develop an awareness of your emotions and keep them in check.
Furthermore, it helps you practice sitting still in the constant market flux. Beginners often neglect to develop this ability to pursue ever more market action. (I learned it the hard way, over a long time too.)
Money is made by sitting, not trading. – Jesse Livermore
Follow these guidelines to trade with a lower frequency.
- Avoid scalping strategies.
- Trade slower time frames. (E.g., Use 5-minute charts instead of 5-seconds charts)
- Be highly selective and take only the best trades.
2. Trade With The Trend
Day traders love to boast about successfully picking the top of the day or low of the session.
Of course, when you do catch the top or bottom of the trend, you feel like a hero. When you do not, you feel like a loser trying to fight a trend that seems to go on forever.
But trading is not about heroes and losers. It is about patience and persistence.
- A trend trader must be patient and wait for a trend to develop.
- A trend trader must also be persistent in taking trades with the trend and not be tempted to pick the top or bottom.
Trading with the trend helps a beginner focus on the right state of mind necessary for consistent performance.
Of course, trend trading is not the only route to profitable trading. But it offers a conducive start as it encourages the patience to wait for the proper context and opportunity.
3. Passive Position Management For Day Trading
Position management refers to any market actions you take after entering your position. This includes shifting stop-loss and target orders and increasing or reducing your position size.
A novice day trader should set the stop loss and target for each trade and leave them alone.
Initially, do not adjust your stops and targets.
A beginner is prone to adjusting their stops and targets emotionally.
More often than not, they adjust their orders because they are affected by the profit and loss figures blinking on their screens.
Of course, active trade management can add value. But only confident and seasoned traders who can manage their trades based on systematic analysis should do so.
Don’t meddle with the position when you have neither confidence in your skill nor control of your emotions. Leave your stop-loss and target alone.
Instead, take out a piece of paper and write down what you would have done if you were managing your position actively. Recording what-ifs is a great way to evaluate your judgment. Again, your focus is to learn.
Once you have a sizeable sample (>30 trades), compare the results of passive management versus if you had managed it actively. You can then decide if you want to start managing your trades actively.
Adhering to passive management can also deter a beginner from canceling the stop-loss order, our primary risk control tool.
Example: Adapting the 9/30 Day Trading Strategy For Beginners
We can adapt most day trading strategies for beginners.
Let’s look at how we can adapt the 9/30 trading setup for beginners according to the characteristics discussed above.
- In theory, the best trades of the 9/30 strategy are the first pullbacks after a new crossover. So let’s restrict our approach to taking only these best trades. This limitation will ensure that we do not overtrade.
- The 9/30 trading strategy capitalizes on retracements within a trending market. So following its rules will naturally keep you with the trend.
- Place your target at the previous trend high/low and place your stop-loss a tick below/above the signal bar. Do not adjust.
There you go, a reasonable day trading strategy for a beginner.
Perhaps you observe that the example above does not offer a great reward-to-risk ratio.
If you feel uncomfortable with such trades, simply skip them. Alternatively, modify the trading rules to tighten your stop-loss or project a more aggressive target.
At this stage, what matters most is not how much money the strategy makes. Instead, focus on keeping things simple so that you can improve on your trading plan through small and manageable changes.
Remember that the best day trading strategy for beginners is not the perfect trading setup, and it certainly does not guarantee profits.
It is simply a conducive starting point towards success.
Since we aim to maximize learning while minimizing risk for beginners, you might think that paper trading is a suitable option. And you are right. It is an excellent way to refine your trading skills if you follow the simulation trading guidelines here.
Finally, please look at our trend pullback trading strategies for more ideas that you can adapt for beginners.
The article was first published on 25 September 2013 and updated on 4 March 2022.