DAY TRADING STRATEGIES

Example One: A day trader of the E-mini® S&P 500® futures sits in front of a 5-minute bar chart (at right) and watches the 4,9 and 18-period moving averages - the blue, red and green lines, respectively. Trade signals of the day trading system are generated by a simple cross-over as follows: When the blue line crosses up through the green line, then buy and when the blue line crosses down through the green line, then sell.

At 8:30 a.m., the trader saw the blue line cross down through the green line and then sold a futures at 905.50 as per the day trading system. This short position was maintained until 10:05 a.m. when the blue line rose up through the green line and the trader subsequently closed the position by buying back at 893.00. The result: a realized net gain of 12.5 points = $625 per contract (not including commission and fees) for a trade that lasted about 90 minutes.

Example Two: In the early morning hours on Jan 13, an E-mini S&P 500 futures day trader identifies an area of support just above 869 (green line in chart at right) for the Mar 2009 contract. The trader is using a break-out day trading system and enters a stop order to sell a contract should prices decline to 869.

At 2:00 a.m., the market declines to this price and the trader's short position gets filled. As per the rules of the day trading system, the risk is limited to $100 and so the trader enters a stop loss order to buy back at 871 (8 tick rally) should the market move adversely.

Also, the trader sets a trailing stop order as per this rule of the day trading system: If the market declines by 8 ticks from the entry price of 869, then the protective stop order will start to trail the market lower by 8 ticks. At 2:20 a.m., the market declined to 867 and the trailing stop was activated to buy back should prices at any time rally by 8 ticks. The worse case scenario now was a scratch trade (not including commission and trading fees).

Over the next 50 minutes, prices continued to decline and all along the protective stop order followed the market lower by 8 ticks. At 3:10 a.m., the market reached 861 and then subsequently recovered, rallying 8 ticks to 863 which hit the stop order and automatically closed the short position.

The result: a realized net gain of 6 points = $300 per contract (not including commission and fees) for a trade that lasted a little over an hour and that at the start was set to risk only $100.

Example Three: An E-mini S&P 500 futures day trader using a 15-minute bar chart identifies an area of resistance around 812-813 (green line in chart at right) for the Mar 2009 contract. The level held for about an hour starting at 5:30 a.m. and was tested four times before prices fell away. Like the prior example, this trader is using a break-out day trading system and enters a stop order to buy a contract at 814 should prices rally and break through the established resistance.

At 9:00 a.m., the market rallies to this price and the trader's long position gets filled at 814. Because this trader's time horizon is slightly longer than the trader in Example Two who uses a 5-minute chart, the protective stop order is set to accommodate greater price volatility. As per the rules of the day trading system, the trader limits risk to $300 and enters a stop loss order to sell at 808 (24 ticks).

While prices do initially show strength, they subsequently retrace and 45-minutes after having entered the order, the market touches the stop price and the trade is closed at 808 for a loss of $300 (not including commission and fees).

The trader records this trade in the log and notes that, after having been stopped out, the market rallies fairly strongly such that if the initial trade had not been stopped out, then it would have been profitable. If this becomes a pattern, then the trader may decide to amend the rules of the day trading system to tolerate greater risk on a trade.