Discovery the best trading ideas for you is a combination of understanding how trading works as well as which trades work best for you. Each trader has a different emotional make up as well as access to different kinds of information. As a result, no one successful trade idea will be successful for all traders but different trades will work for different traders. We will focus exclusively on day trading and the various means of generating ideas.
Trade ideas can be predictions, market analyses or trade set-ups based on concrete market conditions. There are many areas of technical analysis, some are basic, others more sophisticated and all are supported with intelligent drawing tools, many bar styles, lots of data and a host of indicators. Ideas can relate to any asset class like currencies, stocks or futures or any trading method like harmonic patterns, wave analysis or chart patterns. Often traders use a combination of several methods and look for confluence and increase their odds. There are also ideas on risk management, trading psychology and trading plans. Regardless of the method you use, it’s indisputable that the cycle of creating, sharing, collaborating and learning based on well thought out ideas will help you improve your trading skills.
Day Trading is the simple act of buying stocks with the intention of selling them for a higher price. As markets have developed so have some day trading strategies which generates ideas and opportunities to trade off. Working out what day trading strategy is best for you, will help you generate profitable trading ideas.
Momentum trading is about identifying a security that is showing a distinct trend and profiting from trading with the momentum of this security. One of the oldest trading strategies around, it can a relatively easy to enact as it involves picking a security that is showing a trend in a particular direction. You should be aware that this trend could reverse at any time.
Price action is a broad term meant to indicate any movement in the price of a stock that is the product of some technical or fundamental factor. The concept is to identify the drivers behind past, current and future price movement and being able to read the price action so as to make a successful trade and generate trading ideas.
Traders can benefit from a volatile market as it helps to create opportunity. Traders often overreact to unexpected bad news which leads to value of an investment falling too far versus its intrinsic value. This provides the opportunity to buy an asset which is temporarily undervalued and benefiting from the price of that asset snapping back to a more reasonable value.
Trading ideas can also come from some less sexy but equally important areas such risk management, trading psychology and trading plans. A risk-based trading idea is where you seek to mitigate the downside risk rather than focusing on the perceived opportunity. Trading psychology has gained increasing coverage in recent years – rightly so – and is concerned with a trader knowing their emotional make up and avoiding placing emotionally driven trades. Finally trading plans are where a trader will create a strategy and wait for the right conditions before launching that plan.
There are many ways of generating trading ideas and as a trader you will need to learn to focus on the ones which are the most profitable for you. Understanding which ideas do not suit your trading psychology or style is important, as not losing your capital in the first place is key. Volatility will always be a source of trade ideas and through experience and practice, you will learn how to see it as a friend. Remember that no matter how attractive a trade idea is, the market can be the devil itself and go against you at any time! Applying some sensible risk management techniques such as limiting your position sizes to 1% of your portfolio will ensure than any trading idea which do not prove sound will not impede your trading ideas which prove to be winners!