Template for a Simple Day Trading Strategy

Why do traders love simple trading strategies? The simplest day trading strategy is also the most flexible. Hence, a simple day trading strategy is a useful starting point for any day trader.

There are many simple day trading strategies including the simple trend bar failure strategy and the simple strategy using Bollinger Bands. These strategies are simple and easy to follow.

However, these might not be the best day trading strategy for you given your trading style. Why not create your own simple day trading strategy?

Create your own simple day trading strategy with the following template.

This simple day trading strategy template:

  1. Covers the necessary parts of a robust trading strategy;
  2. Uses no more than two trading indicators; and
  3. Allows you to include your favorite tools.

Simply Trade the Trend Template

This is a basic template for trading intraday trends.

1. Find the trend

First, find the trend. Keep it simple and choose only one trend-following tool to help you.

Suggested trend tools:

  1. Moving average sloping up or price crossing above moving average
  2. MACD moving above zero line
  3. ADX moving up above 25
  4. Trend lines (HH, HL, or LH, LL)
  5. Oscillator indicators with a long look-back period (including stochastics, CCI, RSI)

2. Define a retracement

Now, wait for the trend to slow down and retrace before trading it.

Jumping on a car while it is speeding can get you to your destination. It’s just a little challenging to find ways to do it without getting hurt. It’s the same for trading trends. We can hop on the trend while it is blazing away. The problem is with setting stop-loss orders to protect us.

This is not a problem if you are trading a long-term trend. However, day traders’ have limited profit potential within the day. Hence, we need precise stop-loss points to support our positive expectancy.

Define what is a retracement within the trend. For instance, in the Holy Grail trading strategy, a retracement is when prices fall back to the moving average in a bull trend.

Remember our aim. Choose only one tool to help you with defining the retracement. If you can use the same tool you chose in first step, then you are a champion minimalist trader.

Suggested tools to define a retracement:

  1. Moving average
  2. Oscillator indicators
  3. Trend line break
  4. Break of an earlier swing low (for long trades) or swing high (for short trades)
  5. Price pattern like three-bar pullback

3. Entry and exit rules

A day trading strategy is never complete without specific entry and exit rules. You must know exactly when to enter a position and when to exit so that you can act without hesitation. These specific rules also help to define our reward-to-risk ratio for each trade.

To keep things simple, do not add another indicator. Use the indicators you have chosen from the earlier steps.

Suggested entry methods:

  1. Bar patterns and candlestick patterns
  2. Any bull trend bar
  3. Oscillator turning direction
  4. Close above moving average

Suggested exit methods:

  1. Bar patterns and candlestick patterns
  2. Previous extreme of trend
  3. Oscillator turning direction
  4. Measured move

An Example of A Simple Day Trading Strategy

  1. We use trend lines to connect swing points to define a trend.
  2. We need a trend line break before we start looking for continuation trades.
  3. We enter with a pin bar.
  4. We exit at the earlier extreme of the trend.

We used only one trading tool which is the trend line. No trading indicators. A simple price pattern for entry and a previous resistance for exit.

That’s it. Trade simply.

Knowledge to Action Foundation and Virgin Unite open the Kasani Crèche in South Africa

The Flying L Trader – December the 4th