Best Trading Techniques: 3 Advanced Strategies

Are you looking to take your day trading to the next level? Want to learn some of the best trading techniques used by successful traders?

In his book Advanced Techniques in Day Trading, Andrew Aziz shares powerful strategies for day traders. You'll discover methods like the ABCD pattern, Fallen Angel strategy, and Opening Range Breakout (ORB) technique. These are some of the best trading techniques that can help you improve your trading performance.

Keep reading to explore these advanced day trading strategies and learn how to apply them in your own trading journey.

Mastering Advanced Day Trading Techniques

The Abcd Pattern: A Trend-following Strategy

When it comes to the best trading techniques for day traders looking to capitalize on market trends, the ABCD pattern stands out as a top choice. This pattern occurs when a security rises to establish the day's peak, retreats to a support level above the initial surge, stabilizes, and then ascends again. Understanding and mastering this technique can significantly improve your day trading strategy.

To take advantage of the ABCD pattern, you'll want to initiate trades near support levels. It's crucial to set stop losses that will activate if those levels are breached. Remember, there's also a reverse ABCD pattern, which is used for short selling and operates in opposition to the conventional ABCD pattern.

When executing an ABCD trade, it's essential to establish a well-defined loss limit and precise profit-taking objectives. As you realize gains, adjust your stop-loss order to maintain profitability and a favorable risk-to-reward ratio. Be prepared to modify your approach if signs suggest that buyer or seller enthusiasm is waning.

The Fallen Angel Strategy for Low-float Stocks

The Fallen Angel strategy is particularly effective for stocks with limited share availability. To implement this technique, keep an eye out for stocks that show substantial price increases at market open, often driven by impactful news. These stocks typically experience heavy transaction volumes before the official market start.

A Fallen Angel scenario occurs when a stock rapidly ascends to its highest value of the day, only to undergo an equally rapid descent soon after. To capitalize on this, initiate trades following a phase of market steadiness. Look for opportunities close to significant points, such as the low point observed during the pre-opening session or dynamic averages noted on daily or five-minute charts.

When executing a Fallen Angel trade, timing is crucial. Initiate a purchase when you observe a rise in prices following a phase of stability. Set your stop loss below the point where the price demonstrates steadiness. Target your gains at significant technical levels like the volume-weighted average price (VWAP) or the highest and lowest prices noted during pre-market and regular trading hours.

Opening Range Breakout (orb): Capitalizing on Early Market Moves

The Opening Range Breakout (ORB) strategy is another powerful tool in a day trader's arsenal. This technique focuses on identifying the market's initial trading phase, which typically establishes the direction of the breakout.

To implement the ORB strategy effectively, wait for the market to find its footing. Avoid initiating trades in the first five minutes after the market opens. Instead, use this time to observe and identify the optimal price range for potential breakout trades.

When employing the ORB strategy, it's essential to pinpoint exact entry points as the market moves beyond the initial range. Develop a definitive strategy for trade exits that doesn't solely rely on the ORB signal. Stay vigilant regarding market fluctuations and set clear parameters for when to exit trades to manage your trading endeavors efficiently and minimize potential losses.

Leveraging the Volume Weighted Average Price (vwap)

The Volume Weighted Average Price (VWAP) is a valuable metric for day traders. You can utilize tactics that capitalize on incorrect divergences related to the VWAP, changes in the trend's course near the VWAP, and market movements that align with the path set by the VWAP.

To effectively use the VWAP indicator, synchronize your trading approaches with the actions of major market players. For instance, you might opt to short a stock that doesn't breach the VWAP, indicating a lack of strength to overcome this key level. Be vigilant for trend reversals as the stock price intersects the VWAP, and confirm the trend's continuity by observing the behavior of the VWAP's moving average.

Consider combining the VWAP with additional technical tools such as Exponential Moving Averages (EMAs) to identify potential support and resistance zones, plan your market entry and exit strategies, and set profit targets. The VWAP can serve as an important reference level, while EMAs could indicate the probable direction of a security's price. Employing these tools in tandem can improve your insight into the strength of a market trend and help you identify the best times to initiate trades.

Risk Management: The Key to Sustainable Trading

While mastering these advanced techniques is crucial, effective risk management is the foundation of successful day trading. Limit the risk of each trade to no more than 2% of your total trading account. This means if your account balance is $30,000, you should cap your risk at a maximum of $600 for each individual trade.

Additionally, adopt the 6% rule, which limits your monthly losses to 6% of your account's total value. If your combined total of the month's losses and potential risk from current positions reaches this threshold, halt all real-market transactions and practice with a simulated trading environment until the month concludes.

Avoid common trading errors like overtrading or buying additional shares to lower a stock's average cost when its price is falling. Stick to your predefined trading plan, use stop-loss orders to cap potential losses, and take prompt action to cut your losses instead of allowing them to grow.

By combining these advanced trading techniques with solid risk management practices, you'll be well-equipped to navigate the dynamic world of day trading. Remember, consistency and discipline are key to long-term success in this challenging but potentially rewarding field.