You have now read a summary of my trading strategies. You may be wondering what other traders do. As I mentioned before, there is an unlimited number of trading strategies that individuals have developed for themselves. Traders often choose and modify their strategies based on personal factors such as account size, amount of time that can be dedicated to trading, trading experience, personality and risk tolerance.
You should develop your own strategy. A trading strategy is very personalized to each individual. My risk tolerance and psychology are most likely different from yours and from those of other traders. I might not be comfortable with a $500 loss, but someone who has a large account can easily hold onto the loss and eventually make a profit out of a losing trade. You cannot mirror trade anyone else; you must develop your own risk management method and strategy.
Some traders focus heavily on technical indicators like the RSI (Relative Strength Index), the moving average convergence divergence (also known as the MACD), or the moving average crossover. There are hundreds, if not thousands, of sophisticated technical indicators out there. Some traders believe they have found the Holy Grail of technical indicators, and it might be a combination of RSI or the moving average crossover. I don't believe having a large number of technical indicators will automatically make you a successful day trader. Day trading is not mechanical and automated. It is discretionary. Traders need to make real time decisions. The success of each strategy is based on judgment and the proper execution of it by the trader.
Of course, I use the RSI in my scanner for some of my trading strategies, and in particular for reversal trading. I have scanners that rely on a high or low RSI, but those are more conditioned to find stocks at extremes. They are by no means a buy or sell indicator.
I am skeptical of the strategies that have many indicators. I don’t think that having more indicators on your chart helps you in day trading, especially since you need to be able to process information very quickly, at times in just a matter of seconds. I have found that often indicators’ signals will also contradict each other and that will lead to confusion.
That is why my day trading indicators are limited to VWAP and a few other moving averages. For my swing trading, I use more complicated indicators such as MACD because I do not have to make quick decisions. I usually review my swing trading after the market closes, with proper due diligence and evaluation. You can easily find more information about the indicators I’ve mentioned in this section, along with many others, by doing a simple online search.
Some of my day trader colleagues may disagree with me, but as I mentioned above, my personal experience is that you cannot enter a trade with a mechanical and systematic approach and then let the indicators dictate your entry and exit. That in fact is one of my rules for day trading: Indicators only indicate; they should not be allowed to dictate.
Computers are trading all of the time. When you set up a system for trading that has no input or requires no decisions by the trader, then you are entering the world of algorithmic trading, and you will lose trades to investment banks that have million dollar algorithms and billions of dollars in cash for trading.