Day Trading Strategy: Exit Points
Beyond deciding when to exit in order
to make a profit, it is absolutely essential to establish a stop-loss
point. This is the point at which you decide to get out of the trade
if it goes against you. Your stop-loss should represent the most
amount of money you are willing to lose before you decide to exit the
Set a stop-loss, and obey the stop-loss.
If you buy the stock, and then it immediately hits the stop-loss after you
buy it, then sell the stock. Do not hold onto it, because it may be
that you were wrong about the reversal and the stock is going to
continue going down.
It is also a good idea to create a
mental trailing stop-loss. For example, if your stop-loss is -1% but
then the price goes up by 1%, your new stop-loss should be the
original purchase price. If the stock goes up to 1.5%, then you can
make the new stop-loss 0.5% and so on.
As the stock price increases,
you raise the stop-loss by the appropriate amount. If you are trying
to achieve a 2% gain and it goes up to 1% but then drops down to the
original price (which should be your new stop-loss based on the 1%
gain) then sell the stock. Yes, you make no profit but at least you
do not lose anything (except trading commission fees). If you are
going to aim for 2%, then that's the risk you take: ending up with
Day Trading Strategy: Profit Goals
The lower your profit percentage goal,
the more often your trades will be successful. If your goal is to try
to achieve a 5% gain every time you trade, then your failure rate
will be very high even if you trade stocks with an average daily
volatility above 5%. However, if you are satisfied with a 1% or even
a half percentage profit, your chances of making a successful trade
will be significantly higher.
Day traders who making a living from
trading will often gain only 1% on the stocks they trade. Even day
traders who claim to make $1,000 in one day are trading thousands of
stocks with roughly $100,000 in order to make that $1,000 profit.