FataFat DayTrading Strategies

Opening Gap

Opening gaps in intraday trading refer to the price difference between a stock's previous day's closing price and its opening price on the current trading day. They present unique opportunities for day traders due to the following reasons:
 

• Volatility and Opportunity: Gaps signify sudden shifts in market sentiment driven by overnight news, earnings reports, or other significant events. This volatility creates opportunities for traders to capitalize on quick price movements.
   
• Early Momentum Indicators: A gap up indicates bullish sentiment, suggesting potential continuation of upward momentum, while a gap down signals bearish sentiment and potential for continued downward movement. Traders use these signals to plan their trades accordingly.
   

Strategic Entry and Exit Points: Traders often adopt specific strategies around opening gaps:
 

Gap and Go: Buying into a gap up early in the session with the expectation of further price increase.
 

Gap Fill: Anticipating the price to retrace and fill the gap, especially if it's perceived as an overreaction.
 

Fade the Gap: Taking a contrarian approach by betting on a reversal of the initial gap movement.
 

Opening gaps provide day traders with valuable opportunities to profit from early market sentiment and momentum shifts. By understanding the types of gaps and implementing appropriate trading strategies alongside effective risk management, traders can enhance their intraday trading outcomes significantly.

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Open Equals High or Low 

In intraday trading, the relationship between the opening price of a stock and its subsequent movement provides crucial insights into market sentiment and potential price direction.

When the opening price (Open) equals the lowest price traded during the session (Low), it signifies a bullish scenario. This alignment suggests that despite the possibility of opening lower, buyers have swiftly stepped in to support the stock at that level. This early buying interest indicates confidence among traders, often interpreted as a bullish signal. If the stock continues to hold above this level and begins to trend higher, it reinforces the notion that the initial low acted as a strong support, potentially leading to further upward movement as the day progresses.
 

When the opening price equals the highest price traded during the session (High), it presents a bearish scenario. This situation indicates that despite opening higher, the stock faces immediate selling pressure. Sellers are active from the start, viewing the higher price as an opportunity to offload shares. This early selling activity can signal resistance at the high of the day, suggesting potential for a reversal from upward momentum. If the stock fails to break above this level and starts to decline, it reinforces the notion that the initial high acted as a strong resistance point, potentially leading to further downward movement throughout the trading session.
 

In intraday trading, "open = low" is generally seen as bullish because it reflects strong buying support at the opening price, potentially leading to upward momentum. Conversely, "open = high" is considered bearish as it indicates immediate selling pressure at higher levels, potentially leading to downward movement. These observations help traders assess market sentiment early in the trading day and adjust their strategies accordingly to capitalize on potential price movements.

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Opening Range Breakout

The Opening Range Breakout (ORB) stands as a prevalent strategy among day traders globally. It aims to define the high and low boundaries of a stock's price range shortly after the market commences trading each day. This strategy involves executing trades in alignment with the direction in which the price breaks out of this initial range. Typically, traders designate specific time frames, such as 15 minutes, 30 minutes, or 1 hour, to demarcate these crucial price levels when implementing Opening Range Breakouts in their day-to-day trading activities.

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New Intraday Highs & Lows

The concept of identifying New Intraday Highs and Lows is pivotal for day traders due to several key reasons:
 

• Definition of Intraday Trend: The Intraday trend is characterized by significant price movements accompanied by substantial trading volume within a single trading day.
• Criteria for Day Traders: Day traders seek stocks that exhibit consistent price movement in one direction coupled with increasing trading volume. This combination suggests strong momentum, which is advantageous for short-term trading strategies.
   
• Identifying Trend Candidates: Stocks that establish New Intraday Highs or Lows are particularly attractive to day traders aiming to capitalize on sustained trends. Buying stocks making new intraday highs or selling short stocks making new intraday lows aligns with the expectation that these trends will persist throughout the trading session.
   
• Assumption of Continuation: This strategy operates under the premise that stocks displaying upward momentum will likely continue to rise, while those showing downward momentum will likely continue to decline within the same trading day. Day traders leverage these trends to execute timely trades for potential profit.
   

Focusing on New Intraday Highs and Lows enables day traders to identify and capitalize on strong, ongoing trends in the market. By aligning with the momentum indicated by price movements and volume, traders can strategically enter and exit positions to maximize their trading opportunities throughout the trading day.

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Pivot Support & Resistance

Pivot Support and Resistance crossovers based on the Classical Pivot Formula are significant for day traders for several reasons:
 

• Magnetic Effect of Support and Resistance: These levels, derived from yesterday's High, Low, and Close, act as magnets for price movements. Traders observe how the intraday price reacts when it approaches these predefined levels.
   
• Significance of Price Movements: When the price crosses above or below these Pivot levels (such as Pivot Point, R1, and S1), it signals potential strength or weakness in the market sentiment. These crossovers are crucial indicators for identifying possible shifts in momentum.
   
• Availability and Use: Classical Pivot indicators are widely accessible on most trading platforms, making them easily accessible for traders to incorporate into their strategies. Traders specifically monitor price movements at Pivot Line, R1 (first resistance), and S1 (first support) for actionable trading signals.
   

Leveraging Pivot Support and Resistance crossovers allows day traders to capitalize on significant price movements around these key levels. By understanding how price reacts at these predefined points, traders can make informed decisions to potentially enhance their trading outcomes.

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Previous Day High & Low Rejections

Understanding the Previous Day High and Low Rejections is crucial for day traders who employ the Previous Day Range Breakout strategy. Here's why these rejections at key levels are significant:
 

• Counter-Trend Indicators: Rejections at the Previous Day's High or Low levels often occur when today's price attempts to move against the prevailing daily trend cycle. These levels act as barriers where price movements are halted or reversed, indicating potential shifts in market sentiment.
   
• Strategic Trading Opportunities: Traders favor specific actions based on where the rejection occurs:
   

Rejection at Yesterday's Low from above: This scenario is favorable for initiating long intraday trades. It suggests that buying interest emerges as the price rejects lower levels, potentially signaling a reversal or continuation of an upward trend.

Rejection at Yesterday's High from below: Conversely, this situation is preferred for short intraday trades. It indicates selling pressure as the price fails to breach higher levels, possibly leading to a reversal or continuation of a downward trend.

Recognizing and interpreting these rejections at key levels from the previous day's trading range, day traders can strategically align their trading decisions with prevailing market dynamics and enhance their chances of executing profitable trades. This approach complements the broader strategy of Previous Day Range Breakouts by providing actionable insights into potential trend reversals or continuations during intraday trading sessions.

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Narrow Range 7 Breakout

The Narrow Range 7 (NR 7) breakout strategy focuses on identifying trading opportunities based on the narrowest trading range observed over the past seven days. Here's how it works:
 

• Definition of NR 7: NR 7 occurs when yesterday's trading range (high - low) is the narrowest compared to the previous six trading days.
• Execution of the Strategy: Once an NR 7 pattern is identified, traders monitor the price movement throughout the current trading day. They wait for the price to break out either above or below yesterday's narrow range.
   
• Trading Decision: Trades are initiated in the direction of the breakout from yesterday's narrow range. If the price breaks above the narrow range, traders typically take a long position, anticipating further upward movement. Conversely, if the price breaks below the narrow range, traders consider a short position, expecting continued downward movement.
   
• Short-term Trend Cycle: The NR 7 strategy operates on the assumption that today's breakout will establish a new short-term trend cycle for the stock. This approach aligns with similar range breakout strategies discussed earlier, which capitalize on momentum and directional movements following price breaks from defined ranges.
   

The NR 7 breakout strategy provides traders with a clear framework for identifying and capitalizing on short-term trading opportunities based on recent price volatility. By focusing on the narrowest trading range of the past seven days and trading in the breakout direction, traders aim to profit from anticipated price movements within the current trading session.

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Narrow Range Breakout On True Gap

The strategy of trading Narrow Range (4 or 7) Candle Breakouts in the direction of TRUE Gaps focuses on identifying trading opportunities based on specific market conditions. Here’s how this strategy is executed:
 

• Definition of TRUE Gap:
  Bullish TRUE Gap: Today's low is above yesterday's high.
  Bearish TRUE Gap: Today's high is below yesterday's low.
   
• Trading Setup:
  
  Long Screening: Traders screen for opportunities where today's market conditions show a GREEN candle (indicating a higher closing price compared to the previous day) and a TRUE Gap (today's low above yesterday's high). This setup suggests potential bullish momentum, prompting traders to consider long positions.
  
  Short Screening: Conversely, traders look for setups where today's market conditions show a RED candle (indicating a lower closing price compared to the previous day) and a TRUE Gap (today's high below yesterday's low). This setup indicates potential bearish momentum, prompting traders to consider short positions.
   
• Implementation on Trading Platforms: Traders typically use scanning tools on their trading platforms to filter stocks based on these criteria. They focus on identifying GREEN or RED candles along with the presence of a TRUE Gap to signal potential breakout opportunities.
   
• Execution of Trades: Trades are executed in the direction of the breakout, aligning with the direction indicated by the TRUE Gap and the candle color (GREEN for long positions, RED for short positions). This strategy leverages the momentum created by the breakout from the previous day's range, coupled with the narrow range candle breakout, to potentially capture intraday price movements.
   

Trading Narrow Range Breakouts in the direction of TRUE Gaps combines technical analysis of candlestick patterns (such as Narrow Range Candles) with breakout trading principles based on gap analysis. By identifying and trading breakouts aligned with the TRUE Gap conditions, traders aim to capitalize on short-term price movements driven by momentum and market sentiment shifts.

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Consecutive Daily Gainers & Losers

Identifying consecutive daily gainers and losers is crucial for day traders due to several reasons:
 

• Indication of Market Sentiment: When a stock shows consistent price movement in the same direction over several days, it signals underlying shifts in supply and demand. A string of consecutive gains suggests increasing investor accumulation, while consecutive losses may indicate distribution of holdings.
   

• Interest for Day Traders: Day traders are particularly drawn to these patterns as they highlight potential short-term trading opportunities. Stocks that have been consistently gaining or losing value are viewed as candidates for capitalizing on ongoing trends within the trading day.

• Strategic Advantage: Trading based on consecutive daily movements assumes that these trends will continue in the short term. Day traders aim to enter positions aligned with these trends, anticipating further price movements in the same direction.
   

Monitoring consecutive daily gainers and losers provides day traders with valuable insights into evolving market dynamics and helps identify potential opportunities for profitable trades based on short-term price trends.

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Daily Outside Candle Pattern Breakout

The Daily Outside Candle Pattern Breakout strategy focuses on identifying trading opportunities based on the previous day's outside candle formation, where the candle's range surpasses the previous day's high and low. Here's how this strategy is executed:

 

 

• Identification of Outside Candle Formation: An outside candle forms when the range (high to low) of the current day's candle exceeds the range of the previous day's candle, encapsulating both the high and low of the previous day within its range.
   
• Proximity to Previous Day's High or Low: The setup requires the current day's close to be near either the previous day's high (for a potential bullish setup) or low (for a potential bearish setup).
   
• Intraday Breakout Trades:

Long Screening: Traders look for opportunities where today's candle formation is outside of yesterday's range and the current price (Last Traded Price, LTP) is above yesterday's high (YH). This indicates potential strength and a bullish breakout scenario.

Short Screening: Conversely, traders screen for setups where today's candle is outside of yesterday's range and the LTP is below yesterday's low (YL). This suggests weakness and a bearish breakout scenario.

 

• Execution of Trades: Trades are initiated in the direction of the breakout—long positions above yesterday's high or short positions below yesterday's low. This approach leverages the momentum created by the breakout from the previous day's range to potentially capture intraday price movements.
   
• Implementation on Trading Platforms: Traders typically use specific screening criteria on their trading platforms to filter stocks that meet these conditions, using parameters like "OUTSIDE" for outside candle formation, "NEAR HIGH" or "NEAR LOW" for proximity to previous day's high or low, and comparing the Last Traded Price (LTP) with yesterday's high (YH) or low (YL).
   

The Daily Outside Candle Pattern Breakout strategy combines technical analysis of candlestick patterns with breakout trading principles. By identifying and trading breakouts above or below the previous day's high or low after an outside candle formation, traders aim to capitalize on potential short-term price movements driven by momentum and market sentiment shifts.

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Previous Day Range Breakout

Previous Day Range Breakouts (PRB) are significant in day trading for several reasons:
 

• Identification of Market Sentiment: By observing whether the price breaks above the previous day's high or below the previous day's low, traders can gauge market sentiment. A move above the previous day's high suggests increasing demand and bullish sentiment, while a move below the previous day's low indicates increasing supply and bearish sentiment. This helps traders understand the underlying dynamics driving price movements.
   

• Trading Opportunities: PRB strategies provide clear entry signals based on the breakout direction. Traders initiate trades in the direction of the breakout, aiming to capitalize on potential continuation of the trend established from the previous day. This approach can lead to profitable trades if the breakout is sustained and supported by other technical indicators.
   

• Combination with Other Strategies: Day traders often combine PRB with other technical analysis tools and strategies to enhance their trading decisions. This might include using moving averages, volume indicators, or chart patterns to confirm the breakout and validate the trading signal. By incorporating multiple factors, traders aim to increase the probability of successful trades.
  
  Incorporating Previous Day Range Breakouts into day trading strategies provides traders with valuable insights into market sentiment, clear trading signals based on price movements, and opportunities to enhance trading decisions by combining with complementary strategies and risk management techniques. This approach can help traders increase their odds of success in the dynamic and fast-paced environment of day trading.
  
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Early Bear Reversal Gap

The Early Bear Reversal Gap Strategy capitalizes on the immediate market reaction following a stock's gap up at the open. It relies on observing that despite the initial bullish sentiment indicated by the gap up, the presence of a red (bearish) first 10-minute candle signals early selling pressure. This suggests that initial buyers are either taking profits or encountering resistance, potentially prompting a reversal or preventing sustained upward momentum. Traders employing this strategy enter short positions if the price breaks below the low of the first 10-minute candle, anticipating further downside as bearish sentiment unfolds. Risk is managed by placing a stop loss above the high of the first candle, while profit targets are set based on technical levels or anticipated support areas to capture potential gains from the expected bearish move. This approach leverages swift market reactions and aims to profit from the immediate reversal or lack of follow-through after the gap up.

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