Technical Trading Strategies for Day Traders

Technical trading strategies for day traders include technical analysis tools to identify short-term trading opportunities in the market. Understanding these strategies in-depth can help pinpoint which strategies are most appropriate for your individual trading styles and risk tolerance. In our article, we will discuss some technical trading strategies for day traders and how to apply them.

 

What is day trading?

Day trading in forex refers to buying and selling currency pairs on the same trading day. Traders rely on technical analysis to identify short-term trading opportunities and hold positions only for a brief period of time, like a few minutes or hours.

 

Notable technical trading strategies for day trading

 

Fading The Double Zero

Fading The Double Zero involves trading currency pairs in the opposite position of the high-momentum trend. The basic idea is to fade these levels by taking trades in the opposite direction of the prevailing trend. For example, if the EUR/USD is in an uptrend and reaches the 1.2000 level (also acting as the resistance), a trader using this strategy might look to short the pair in anticipation of a downtrend retracement. You can enter or exit the market at price levels ending in double zeroes like 1.2000 or 1.1000 since these levels act as the support or resistance levels. This causes price breakouts and breakthroughs, enabling you to place long orders at the support level and short orders at the resistance level. Here are the steps to trade with the Fading The Double Zero strategy:

• Identify a currency pair trading below (or above) its intraday simple moving average on a short-term chart.
• Identify the double zero level along with the support/resistance level trading along with this level.
• Enter a long position below (or above) the simple moving average.
• Place a stop loss order a little below (or above) the entry price and take profit order at the double zero level.
• When the currency pair prices start increasing (or decreasing) by at least double the initial amount, place a long (or short) order.

This graph has been recreated from the original source: https://www.dothefinancial.info/risk-reversals/fading-the-double-zeros.html. Please note this image is a representation only and is not provided as general or personal advice.

 

Inside Day Breakout Play

An inside day is a trading day when the current trading day’s price range is inside the previous trading day’s price range. This means the current trading day’s high and low are lower than the previous trading day’s high and low. Using the Inside Day breakout Play strategy allows you to identify price breakouts and breakthroughs. To use the Inside Day Breakout Play strategy, you first identify inside bars on their short-term timeframe charts. To do this, look for candlesticks on the current day that are contained inside candlesticks for the previous day. Then, you place buy or sell orders outside of the range of the inside bar, with the expectation that the market will break out in the direction of your trade. How you can place orders with the Inside Day Breakout Play strategy:

• When the breakout occurs, you can place a long order if the currency pair price breaks above the high of the inside bar.
• Enter a short trade if the price breaks below the low of the inside bar.
• Place stop-loss orders just inside the range of the inside bar to manage risk.
• Place take-profit orders at predetermined levels as per the current trade direction.
• Monto the trades and adjust the stop loss orders as per the market direction after the price breakout.

This graph has been recreated from the original source: https://forextraininggroup.com/master-the-simple-inside-bar-breakout-trading-strategy/. Please note this image is a representation only and is not provided as general or personal advice.

 

The Channel

The Channel strategy refers to day trading with the help of tight trading ranges developing into stronger trends. A channel is created by drawing a trendline, acting as the first boundary of the channel and drawing a line parallel to this trendline, acting as the second boundary of the channel. Prices between these channel lines help you to place potential entry and exit orders. Let us assume you want to trade AUD/USD with this strategy, as an example. First, you identify the high and low prices of the currency pair over the last few days or hours to establish a price channel. The upper line/boundary will represent the resistance level, whereas the lower line will represent the support level. Then, you will wait for the currency pair price to reach either of these boundaries to make a trade.

• You will short the position if the currency pair reaches the resistance level due to a downtrend reversal expectation.
• You will place a long order if the currency pair reaches the support level due to an uptrend reversal expectation.

How you can place orders with the Channel strategy:

• Identify a channel on a daily/hourly chart where the currency pair price is contained within a narrow range.
• Place a long order when the currency pair price breaks above the upper channel boundary.
• Place a short order when the currency pair price breaks below the lower channel boundary.
• Place a stop loss order right below the upper channel line and take-profit orders a little above the lower channel line.
• Monitor the market, and if the currency pair price moves upwards in your favour, place a stop loss order at a higher level and vice versa.

This graph has been recreated from the original source: https://www.babypips.com/learn/forex/trend-channels. Please note this image is a representation only and is not provided as general or personal advice.

 

Perfect Order

The Perfect Order forex day trading strategy is a technical analysis-based strategy that uses a set of moving averages (MA) in a sequence to identify potential trade opportunities. The basic idea behind the strategy is to wait for a order of two or more moving averages before entering or exiting a trade. You can take a sequence of 10-period MA, 50-period MA, and 100-period MA as the short, medium and long-term moving averages. Having multiple MAs provides a clear visual representation of the currency trend direction. When all the moving averages line up in the same direction, it creates a perfect order signal, indicating a strong uptrend or downtrend. This helps traders to identify potential long or short price levels.

• When a short-term moving average crosses above the long-term moving average, it indicates a bearish reversal signal and tells you to place a short order.
• When a short-term moving average crosses the long-term moving average from below, it indicates a bullish reversal signal and tells you to place a long order.

This strategy confirms market signals when combined with the Average Directional Index (ADX) indicator. The ADX measures the strength of the trend and helps in optimising this strategy. A reading above 25 indicates a strong trend, and a reading below 25 indicates a weak trend. How you can place orders with the Perfect Order strategy:

• Identify moving averages in different timeframes trending in a perfect order sequence
• Look for the ADX pointing upwards (or downwards), with reading a more (or less) than 20*
• After the initial perfect order forms, buy (or sell) five candlesticks later
• Initial stop loss order can be placed at the low (or high) of the MA crossover
• Exit the order when the perfect order stops forming

*These are typical parameters for the strategy and are not fixed.

This graph has been recreated from the original source: https://www.forexstrategiesresources.com/trend-following-forex-strategies/40-the-perfect-order. Please note this image is a representation only and is not provided as general or personal advice.

 

High-Probability Turn Strategy

The High-Probability Turn Strategy is a forex day trading strategy that aims to identify potential trend reversals. It involves using a combination of technical indicators to identify areas of support and resistance, as well as momentum and trend strength, to determine potential entry and exit points. The basic idea behind the strategy is to identify a market that has reached an extreme point, either oversold or overbought. You can use a combination of technical indicators, such as moving averages, RSI, MACD, and Stochastic Oscillators, to confirm the potential turning points in the market. Let us consider that you use the RSI indicator with the High-Probability Turn Strategy. The RSI is a momentum indicator that measures the strength of a trend by comparing the average gains and losses over a specified time period.

• When the RSI reaches 70 or above, the market is considered overbought, signalling you to place a short order due to the expected downtrend reversal.
• When the RSI reaches 30 or below, the market is considered oversold, signalling you to place a long order due to the expected uptrend reversal.

How you can place orders with the High-Probability Turn strategy:

• Look for a continued market uptrend (or downtrend) in the last few days when the closing price of the current day is more (or less) than the closing price of the previous day.
• When the market trend is confirmed (with the help of RSI), sell (or buy) when the next trading candlestick on the current market chart forms.
• Place a short (or long) order when the market is overbought (or oversold).
• You can place a stop loss order above (or below) the entry price while placing a short (or long) trade.

This graph has been recreated from the original source: https://www.tradingwithrayner.com/high-probability-trading-strategy/. Please note this image is a representation only and is not provided as general or personal advice.

 

The Fader

The Fader day trading forex strategy involves trading against the short-term market momentum. This is done because some breakout scenarios do not continue and end up as false breakouts. Hence, placing a contra-trend trading order is helpful. In this strategy, you identify the overbought and oversold market conditions (or the resistance and support lines), wait for price reversals and place an order expecting the prices to return near their average level. You can also look for market divergences by comparing the currency pair price with the signals provided by the Relative Strength Index. To enter a long trade with the Fader day trading forex strategy, you look for a price chart with RSI values below a certain threshold indicating, that the market is oversold and due for a bullish reversal, implying a false bearish breakthrough. On the other hand, to enter a short trade, you will look for a price chart with RSI values above certain thresholds, indicating that the market is overbought and due for a bearish reversal, implying a false bullish breakout. How you can place orders with the Fader strategy:

• Identify if the current market is overbought or oversold with the help of RSI values.
• Wait for the currency pair prices to break below (or above) the last trading day’s low (or high) price.
• Place a long (short) order above the last trading day’s high (low) price level.
• Place the initial stop order above (below) the previous high (low).
• Place the take-profit order at double the height of the stop loss.

This graph has been recreated from the original source: https://www.babypips.com/learn/forex/day-trading. Please note this image is a representation only and is not provided as general or personal advice.

 

Explore the effectiveness of technical day trading strategies today

Technical day trading strategies in forex use price charts and technical indicators to provide you with ideal entry and exit points. Start trading with our forex trading platform to get a hold of several technical indicators and boost your forex trades. Please keep in mind that margin trading is high risk and while using tools and well known strategies to assist with your trading, you do need to consider that you could lose your entire investment. Therefore ensure you consider your personal circumstances and have a risk management approach. Sign up for a live trading account or try a demo account.