How to Day Trade for a Living: Tools, Tactics, Money Management, Discipline and Trading Psychology

I categorize day trading sessions based upon the time of day: the Open, Late-Morning, Mid-day, and the Close. Each time period should be treated differently, and you have to be careful because not all strategies are effective in every time period. Good traders make note of what time of day their most profitable trades occur and adjust their trading and strategies to fit such times.

The Open tends to last about thirty to sixty minutes (from 9:30 a.m. up to 10:30 a.m. New York time). I trade with the most size, and most frequency, during the Open, which statistically is my most profitable time period. As such, I increase my size during this time and make more trades.

During the Late-Morning (10:30 a.m. to 12 p.m.), the market is slower but there is still good volatility in the Stocks in Play. This is one of the easiest times of the day for new traders. There is less volume compared to the Open but also less unexpected volatility. A review of our new traders’ trades indicates that they do the worst during the Open and best during the Late-Morning session. Especially excellent risk/reward trades can be expected during this period. I explain VWAP Reversal and VWAP False Breakout (the two strategies that tend to be the best strategies for the Late-Morning) in my second book, Advanced Techniques in Day Trading . I rarely trade Bull Flag in the Late-Morning, Mid-day or at the Close.

During the Mid-day (12 p.m. to 3 p.m.) the market is slower. This is the most dangerous time of the day. There is less volume and liquidity. A small order can cause a stock to move much more than you would anticipate. Strange and unexpected moves will stop you out more frequently during the Mid-day. A review of my trades indicates that I do the worst during the Mid-day. Accordingly, should I decide to trade during the Mid-day, I lower my share size and keep my stops tight. I will only make trades that offer the best risk/ reward during this period. New traders tend to overtrade at Mid-day. At times, good trading, and smart trading, is to not be trading at all. It is best to gather information during the Mid-day in preparation for the Close. Watch the stocks, prepare for the Close, and be very, very careful with any trading you do.

Into the Close (3 p.m. to 4 p.m.), stocks are more directional, so I stick with those that are trending up or down in the last hour of the trading day. I raise my tier size from the Mid-day, but not as high as it is at the Open. The daily closing prices tend to reflect the opinion of Wall Street traders on the value of stocks. They watch the markets throughout the day and tend to dominate the last hour of trading. Many of the market professionals take profits at that time to avoid carrying trades overnight. If the stock is moving higher in the last hour, it means the professionals are probably bullish on that stock. If the stock is moving lower in the last hour, the market professionals are probably bearish. It is thus a good idea to trade with the professionals and not against them.