Day trading the Dow Jones is not a simple endeavor, and failure – especially in the beginning – is not uncommon. It entails much more than just guessing which direction a stock or an index might move and hoping for the best. Setting a solid strategy and preparing appropriate risk management approaches are crucial to one’s failure or success in trading stocks or indices.
Below are some of the most successful strategies for day trading the Dow Jones.
A pullback means a price movement that is against the general prevailing trend for a certain stock. With that said, this method depends firstly on identifying stocks with established trends. The next step – with the help of technical charts to understand a stock’s trend – is to carefully observe the trend until there’s a price decline. If the general established trend is upward, then the downward price movement, the “pullback”, is your entry point to buy. This way, when you’re buying pullbacks in an uptrend, you’re buying low, and when you’re selling pullbacks in a downtrend, you’re selling high.
This one is a relatively simple strategy. Everyone is familiar with the fact that news events almost immediately impact stock values. When an airline plane crashes, we all hear about a drop in their stocks. On the other hand, when a new medication gets its FDA approval, the pharmaceutical company’s stocks skyrocket. Before deciding to invest, it is important to know the answer to the common question, what is the Dow and look for updates from the news about the stocks you’re eyeing. Generally speaking, if the news is good, you can go long or buy the stock outright and sell the shares after the price rises.
This approach means that you would basically jump on a stock whose price is moving up. It is important here to time your buys and sells based on how quickly the stock is moving. Unlike many other types of traders who pay close attention to a company’s track record or technical analysis, a momentum trader will be mostly interested in what is going on in the market during the day. You will have to keep an eye out for stocks that move by a high percentage or volume. This strategy is primarily a short term approach for quick gains.
Unlike momentum trading, scalping is a completely different ball game; it’s a trading style that focuses on profiting from many trades with small price changes. However, and since one large loss could jeopardize the accumulated small gains you worked to acquire – and for you to really master scalping – you will have to plan for a solid exit strategy. It would also be wise to utilize some support tools like a live feed and a direct-access broker, as well as develop the stamina to perform many trades in a short period of time. This strategy was proven more successful for the slightly more experienced, confident day traders.
No Risk, No Gain
Always remember that even though “no risk, no gain”, day trading is quite a gamble and can lead to considerable and sudden financial losses. If you decide on venturing day trading, it would be wise to only invest money that you can afford to lose.