What Is The Best Day Trading Strategy?

Estimated Reading Time: 4 minutes

"What's the best day trading strategy?" - I often receive this question, so let me answer it in this blog post.

Yesterday morning I participated in a Live Day Trading Challenge. It wasn't my first rodeo. I have done it in the past and usually do quite well. If you are interested, you can watch the recording of this Trading Challenge here.

You could say that EVERY day in the markets is a Live Trading Challenge, but often there are certain rules and restrictions that make these day trading challenges even trickier than "normal" trading.

One of the restrictions of this morning's challenge was that I was only allowed to trade TWO markets. If you have attended any of my webinars, then you know that I like to follow 4-5 different markets every day. But, yesterday morning I was limited to only two markets, and I chose the e-mini S&P (ES) and Crude Oil (CL).

Another restriction was the trading times. I was only allowed to trade from 7:30am CST until 9:30am CST, i.e. one hour BEFORE the US stock markets open until an hour AFTER the open. These are unusual trading times for me, since I usually trade the first two hours AFTER the opening of the US stock markets, i.e. from 8:30am until 10:30am.

To make things more interesting, we were forced to take at least one trade.

So what's the best day trading strategy for such a challenge?

Fortunately, in my own trading I use four different day trading strategies:

  • The Simple Strategy, which is a trend-following strategy,
  • The Boomerang Strategy, which is another trend-following strategy that allows me to enter late into a trend in case I missed or skipped the original entry,
  • The Ping Pong Strategy, which is a trend-fading strategy and works great in a sideways market and
  • The Seahawk Strategy, which is a scalping strategy that's perfect for a slow market, e.g. before the opening.

So which of these strategies would be the best day trading strategy for this trading challenge?

The best day trading strategy is always the strategy that fits the current market conditions!

Let me explain.

In a trending market, you want to use a trend-following strategy. These types of trading strategies are very rewarding, since you often see a winning percentage of 50% or more and the average profit per trade is larger than the average loss per trade. Since you make more money on your winning trades than you lose on your losing trades, you only need to be right 1 out of 2 trades and would still make money. If you could get your winning percentage above 50%, you are in good shape!

The problem with these trading strategies is that they don't perform well in sideways markets. If you trade a trend-following strategy in a sideways market, you will get whipsawed - and frustrated. Therefore you must make sure that the market is really trending before using a trend-following strategy.

Some people say that the markets are only trending 20% of the time. I don't know if that's true, but it sounds about right. And sometimes there are days when the markets are not trending at all.

Yesterday morning's trading was the perfect example: in the 2 hours we had to trade for the trading challenge, there were no trends! Therefore using a trend-following strategy would not have been the best day trading strategy - at least not this morning!

What Is The Best Day Trading Strategy For This Market?

e-mini S&P during the Live Day Trading Challenge

The best day trading strategy to use in a sideways market like this is a trend-fading or a scalping strategy. I decided to use my scalping strategy "The Seahawk Strategy".

I openly admit it: The Seahawk Strategy is not sexy. As a scalping strategy, it uses a larger profit target than stop loss. At first this seems to be couter-intuitive, but you need to know that there's a strong relationship between the reward-to-risk ratio and the winning percentage. The higher the reward-to-risk ratio, the lower the winning percentage and vice versa.

Using the Seahawk Strategy I knew that I could only extract small profits from the market, but since there was no trend, that's all I could do. You have to take what the market is willing to give you. Don't be greedy. Watch the recording of the Live Trading Challenge to see if it worked out for me.

Long story short: The best day trading strategy is always the strategy that fits the current market conditions!

Therefore you MUST have multiple trading strategies. At a minimum you should have two (2) day trading strategies: One for a sideways market and one for a trending market.

And of course you MUST be able to determine the direction of the market. In the same way a doctor first diagnoses a patient before prescribing a treatment, YOU have to determine whether the market is trending or going sideways. And based on your assessment you then apply the appropriate trading strategy.

Hope this helps.

And as always: Leave a comment!

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Leave A Reply (32 comments so far)


  1. Rene
    3 years ago

    Meisterlich!

    Ich konnte nicht alles folgen wegen die Arbeit aber jetzt kann ich es mir mahl gut ansehen.

    Und vor allem, auch der bessere “comunicator”, mit abstand.

    Danke Markus

    [Reply]


  2. Alvin Lowery
    3 years ago

    Markus,

    Thank you for sharing such valuable information and providing options to the different scenarios that exist in the markets.

    Alvin Lowery

    [Reply]


  3. Paul Kreiling
    3 years ago

    What’s with the 14 tic range bars in the ES ? I thought you always used 8 tic bars for the ES———————-8 tic bars are currently shown/used on the Infinity chart.

    [Reply]

    Markus Heitkoetter Reply:

    Hi Paul,

    Yes, I am still using 8 tick range bars in my regular trading. I just used the 14 ticks for the pre-market trading. As you know, I usually don’t trade before 8:30am CST, but for this trading challenge I had to. And in my testing I found that a range setting of 14 ticks works quite well in pre-market conditions.

    – Markus

    [Reply]


  4. william busteed
    3 years ago

    Markus price action reversals allow you to trade any market. There were 4 price reversals in the alloted time period. 3 lasted more than 1bar and were +,the 4th was a break even trade and was + initally.

    [Reply]

    Markus Heitkoetter Reply:

    William,

    There are many ways to trade the markets! I’m sure there are dozens of ways how you could have traded the e-mini S&P in these two hours. The important thing is to find something that works for you – in the long run – and then follow your plan! I followed my plan and it worked for me ;-)

    All the best in your trading,

    – Markus

    [Reply]


  5. Clark Bean
    3 years ago

    Describe your four different strategies

    [Reply]


  6. Amit sondhi
    3 years ago

    hi markus i only trade forex .please tell me forex version of your startegies .

    Thank you
    amit

    [Reply]


  7. Oshilim Augustine
    3 years ago

    This is a very useful information. Identify the market and apply a suitable stratgy.

    [Reply]


  8. Rahul Mukerjee
    3 years ago

    Markus, Great points. But how do you determine if the market is trending or not? Your insight on that would be very welcome.

    [Reply]

    Markus Heitkoetter Reply:

    Rahul,
    Please take a look at this video: http://www.rockwelltrading.com/day-trading/members/free-content/video-1-the-three-best-indicators/.
    In this video I explain how I use some standard indicators to determine the beginning and the end of the trend.
    Hope this helps,
    – Markus

    [Reply]


  9. Rod Allerton
    3 years ago

    Markus

    No offence implied to Gavin but I saw the first Infinity trade between you two and thought you deserved to win the next round. Congratulations.

    Rod

    [Reply]

    Markus Heitkoetter Reply:

    Thanks Rod.
    Gavin is a good friend and a good trader. As I mentioned in the blog post: every trading challenge has certain rules and restrictions that make it more difficult than “regular” trading. During the first challenge Gavin made a fantastic comeback. He was trailing by $500, but followed his plan and placed some excellent trades. Yes, the last trade might have looked like a “Hail Mary”, but he took a good setup before and could have stayed in THAT trade for another tick to win the challenge.
    Long story short: We hope you enjoy these trading challenges and learn something that you can use in your own trading. :-)
    – Markus

    [Reply]


  10. bern
    3 years ago

    I’m new to FX lots of action..great video!

    ManyThanks

    [Reply]


  11. jan
    3 years ago

    Markus, this is first time we watch live trading. disappointed b/c we want to learn how to know how to trade, ex. set up chart, when to enter & exitt, not watch people trade and didn’t know how to do that.

    your training video is very great. we know this is not your show so you can’t control and do what you want to do.

    [Reply]

    Markus Heitkoetter Reply:

    Hi Jan,

    If you would like to know how I set up my charts and when to enter and exit a trade, then join me in this free webinar: http://www.rockwelltrading.com/webinar/webinar-powerful-day-trading-strategy/
    During the Live Trading Challenge I had to focus on trading, but in this webinar I explain my settings and one of the day trading strategies that I use.

    – Markus

    [Reply]


  12. Laszlo K.
    3 years ago

    Hi Markus!

    Congratulation! Your charts were one of the most clean and readable ones in the whole challenge!

    Your strategies are really powerfull and easy to implement! I’m already testing them :)

    Thanks!

    [Reply]


  13. Eva Stjarnborg
    3 years ago

    Marcus,
    I tested the Bollinger Bands strategy, but I find the 2 standard deviation to be no more than window dressing, it shows the trend but it’s no help with exit/entry. So I added the 1 standard deviation Bollingers, and not only got buy and sell zones between the two lines, but also clear entry/exit signals when the price crosses the 1 deviation BB. I’d like to hear your opinion of this strategy.

    [Reply]

    Markus Heitkoetter Reply:

    Eva,
    There are hundreds or even thousands of ways to trade the markets. I believe that every trader needs to find a way that fits HER trading personality and style. YOU need to be comfortable with the strategy you chose, because if you are not, then you won’t follow your plan!
    I personally use a combination of MACD and Bollinger Bands to determine my entry, and then I use a fixed profit target and stop loss for my exits. I haven’t tested the idea of using the 1 deviation BB yet, but it sounds interesting. I’ll take a look at it and let you know.
    – Markus

    [Reply]


  14. Steve
    3 years ago

    Hi Markus,
    I noticed that you use the dome to place your trades, does it make a difference using the dome vs. trading off the chart? I’m thinking of purchasing your special, if I wait will there be another special? I would like to attend your webinar on Monday before making a decision.
    Steve

    [Reply]


  15. Mike Kerfer
    3 years ago

    Markus,

    Good information! I like the idea of having more then one strategy to trade – different market conditions should result in the use of a different strategy. One suggestion for new traders: concentrate on learning one strategy really well, and look for market conditions to use that strategy. Once you know one strategy really well then learn a second strategy. And so on.

    [Reply]


  16. Mriazkamran@gmail.com
    3 years ago

    Markus:

    Read your book Day trading strategy and also watched videos. Simple and straightforward.

    1. As you mentioned in video, you only use Volatility based charts for day trading, which is 20 tick bar chart. Searched hard trading platform has option to use Volatility based charts with ticks bars. Do you have an idea which system supports this option and approximate cost?

    2. If can not find tick bar charting software, and want to use time based bar charts then what time frame would you think close to tick based bar chart?

    3. Placing an order, one tick above high of bar (in uptrend) and one tick below low of bar (in downtrend), how many cents you consider equal to one tick? And if using time base charts then how many cents will equal to one tick bar (rouoghly).

    Thanks, Kam

    [Reply]


  17. Mac
    2 years ago

    Marcus, go and correct the mistake:
    “…As a scalping strategy, it uses a larger profit target than stop loss…”

    [Reply]


  18. akm
    2 years ago

    Sir
    Your writting is very usefull for a beginer day trader like me.Pl.suggest the name of a best book
    on day trading.I am trading in index future since one year and lost half of my capital.Need your
    help.
    Thanking you

    A.K.Mohanty
    Bhubaneswar, India

    [Reply]

    Markus Heitkoetter Reply:

    A.K, I might be biased, but I think my book “The Complete Guide To Day Trading” is pretty good. You can download it for free here on my website.

     

    In addition, here are a few books that I can recommend:

     

    – The Disciplined Trader by Mark Douglas
    – Trading In The Zone by Mark Douglas
    – Reminiscences Of A Stock Operator by Edwin Lefèvre
    – Market Wizards by Jack Schwager
     

    All of these books deal with Trading Psychology which is an extremely important aspect of trading. If you are looking for specific trading strategies, check out “The Ultimate Day Trading System” or join our Live Trading Room for a week to see how we trade the markets.
     

    Does this help?

    [Reply]


  19. Jim Cooper
    2 years ago

    “I openly admit it: The Seahawk Strategy is not sexy. As a scalping strategy, it uses a larger profit target than stop loss. At first this seems to be couter-intuitive,…”

    Isn’t this backwards? A larger _stop loss_ than the profit target would be counter-intuitive…

    [Reply]


  20. Aminu UZ
    2 years ago

    Good Morning, Please I am using MT4 plat form and FXCM as my brokers and Trading Forex as at now and a beginner with no much and reliable materials to work with, can this purchase/Registration of your Ultimate Trading Strategy relevance to me and my status please. Let me urgently know as I want to effect the payment before the special bonus elapse.

    [Reply]


  21. Sunny
    2 years ago

    This another excellent read, I need to master the best indicators to use in determining trending ( bull and bear) and sideways markets. Any suggestion,

    [Reply]


  22. akshaya
    2 years ago

    Markus, all your suggested strategies are very simple and profitable but one should read the nature of the trend first before entering.Please take a little pain and describe as to how to predict the trend.

    [Reply]


  23. Conseil Bourse
    2 years ago

    Salut votre news est incroyable mais vrai! c’est tres clair; toutes mes felicitations.

    [Reply]


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