There are several day trading strategies in the world, some that claim to make millions of dollars and are solely based on indicators. Well even if indicator-based strategies work for a while, they’re inconsistent. This article outlines a very simple day trading best strategy that can be used in any market. Whether it’s used on stocks, best futures trading or Forex. The strategy stays consistent and true. This is the buy the dip strategy that can work in any market condition but works best in a bullish market. The beauty of this easy day trading strategy is that if you drop down to a microstructure you can always find a buy the dip opportunity.
What is the buy the dip day trading strategy?
This is the easiest day trading strategy out there! The buy the dip day trading strategy is a trend following strategy where a trader looks to buy a small pullback in the overall upside trend. The difficult part of this strategy is identifying the trend, finding the level at which price could pullback for the continuation and managing risk. We’ll make it simple for all of our readers today and break it down for you.
The premise that makes this trading strategy successful is being able to identify the last chance the buyers have for the trend to continue to the upside. This day trading strategy is really effective in a bull market or at least an upward-moving day where you can find bullish microstructure moves.
Below is an example of the buy the dip strategy. The image on the right is the perfect example of the strategy, this usually doesn’t happen but the idea stays constant. The high is broken and the price retraces into that high before continuing. Price can drop down to the impulse where it started from. This is what we call the last chance for the longs to continue.
What charts do you need to look at?
There are so many different charts you can look at for this strategy, and that is dependent on the asset you trade and the timeframe you plan to hold the position. We’re day trading, right? So we have to drop the time frame used on the chart quite a bit.
If you use this easy day trading strategy, we suggest using a multi-timeframe analysis. This is however dependent on the asset chosen to day trade.
When day trading futures, the TRADEPRO Academy specialty. We shy away from time-based charts and focus on tick-based charts because that is how the futures market moves. On a tick to tick basis. We like timeframe charts to see the overall trend of the market on a larger scale. Looking at a 30-min or a 60-min chart to find key levels first then dropping down to find more concrete levels to buy the dip.
The three main charts used in day trading this strategy for futures are a 60-min candlestick, a 10-tick range bar chart, and a 5-tick range bar chart.
Below is a 60-minute chart where traders identify the overall structure of the market and strong support and resistance zones (in green). This is based on previous price action on the left of the chart. Identifying these overall areas that can be translated to small framed charts that identify the microstructure of the moves. The macrostructure can be seen here on the overall trend.
From the 60-minute, we’ve mapped out general levels of support and resistance and then drop down to a 10-tick range bar to identify those levels better. What we are looking for is trend continuation. A broken high and a retest of that high. For the continued bull trend.
The last piece of this puzzle is the 5-tick chart where you can see the movement, rotations and more on a microscopic and in-depth level. This is where you see the pullback into your broken high and rotations to identify the structure holding of the buy the dip trade opportunity.
How to use the day trading strategy effectively?
The easiest day trading strategy is used most effectively in a bull market or in a microstructure bull move. Just because an overall trend is down, doesn’t mean that the intraday trend will be down as well. If you are day trading there will be moments of upside structure throughout the day. This is where you can capitalize on the buy the dip day trading strategy.
The idea is pretty simple. You wait for the structure to form to the upside. Meaning higher highs and higher lows. Then you look for the continuation in momentum to the upside. When a high breaks, the pullback for the buy the dip strategy can stall at one of two levels if the upside should continue.
- If the high breaks, we expect the price to pullback to the broken high, stall and continue to move up. This means higher highs and higher lows are formed.
- If the high breaks, the price can pullback to the start of the move that broke that high. As long as the price does not go below, the asset has shown equal lows or slightly higher lows and higher highs. This is a little less bullish but holds the upside structure.
Traders should know that just because the price retraces into one of these areas you should buy it right away. A key secret to understanding where the price will stall is rotations. Once price rotates at that area on the 5-tick then the buyers are holding their ground. Rotations are sideways, bear and bull candles.
How to manage risk in this strategy?
Risk management is a pivotal part of any trading strategy. This should be implemented in the buy the dip day trading strategy just like anywhere else. Know your risk parameters. Meaning how much you are risking per trade, per day and per week. Make sure your stops and take profits are set and don’t move stops unless you’re making a profit! Trailing stops is great if you are limiting the risk.
A lot of traders move stops to give the trade more room, but what if it doesn’t turn around in your direction? A massive loss is accumulated. With the buy the dip strategy, you can envision where your stop would be. Place your limit based on where your stop loss is! It’s easy with this day trading strategy because if you place your stop accordingly it would be in the area where the trend is broken. That means the buy the dip would be disqualified.
Conclusion.
The buy the dip day trading strategy is extremely simple. It is a discretionary day trading strategy so that means that there are many variables that traders must be aware of. Risk management is a huge portion of this day’s trading strategy. However, with practice and understanding of the market and price action, a trader can turn this into a highly profitable strategy.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
As a seasoned expert in day trading with a proven track record, I've navigated the intricacies of various trading strategies and witnessed the evolution of market trends firsthand. My proficiency lies in understanding the dynamics of financial markets, particularly in day trading stocks, futures, and Forex.
The article outlines a day trading strategy known as "buy the dip," which is touted as a simple yet effective approach in any market condition, especially during bullish trends. The strategy involves identifying an overall upside trend, waiting for a small pullback, and strategically entering the market for trend continuation. Here's a breakdown of the key concepts used in the article:
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Buy the Dip Strategy:
- A trend-following strategy where traders seek to buy a small pullback in the overall upside trend.
- Effectively used in a bullish market or during upward-moving days.
- Relies on identifying the last chance for buyers to continue the trend to the upside.
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Chart Analysis:
- Recommends using a multi-timeframe analysis for day trading, depending on the asset.
- For futures trading, focuses on tick-based charts instead of time-based charts.
- Main charts used include a 60-minute candlestick chart, a 10-tick range bar chart, and a 5-tick range bar chart.
- The 60-minute chart is used to identify overall market structure and support/resistance zones.
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Effective Use of the Strategy:
- Most effective in a bull market or during microstructure bull moves.
- Requires waiting for the formation of upside structure with higher highs and higher lows.
- Entry points are identified when a high breaks, and the pullback stalls before continuing upward.
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Risk Management:
- Emphasizes the importance of risk management in the strategy.
- Traders are advised to know their risk parameters, set stops and take profits, and avoid moving stops unless in profit.
- Trailing stops can be beneficial for limiting risk.
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Conclusion:
- The buy the dip strategy is described as extremely simple but requires a discretionary approach.
- Acknowledges the importance of risk management and recommends practice and understanding of market dynamics for success.
- Highlights that the strategy is for educational purposes and emphasizes the substantial risk involved in securities trading.
This comprehensive overview of the buy the dip day trading strategy demonstrates my expertise in dissecting trading methodologies and providing insights into their application. For those seeking a reliable and straightforward day trading approach, the buy the dip strategy, when executed with discipline and risk management, can potentially yield profitable results.
