5 Day Trading Strategies 2024 — (Backtest)

A day trading strategy is a trading approach in which a trader buys and sells a financial instrument within the same trading day, with the aim of exploiting the inevitable up-and-down price movements that occur during the trading session.

In the past, the only people who could trade actively in the stock market were those working for large financial institutions, brokerages, and trading houses. That is no longer the case today, as many individual traders make a living day trading stocks or futures.

What exactly are day trading strategies?

Day trading strategies ensure that all positions are closed before the market closes for the trading day to avoid unmanageable risks and negative price gaps between one day’s close and the next day’s price at the open.

In this post, we focus on day trading and how to profit from it. At the end of the article we provide you with an example of a day trading strategy, and we backtest it.

Here you can find more than 200 trading strategies similar to the above strategies.

What is day trading?

Day trading is a trading approach in which a trader buys and sells a financial instrument within the same trading day. That is, the trader ensures that all positions are closed before the market closes for the trading day to avoid unmanageable risks and negative price gaps between one day’s close and the next day’s price at the open. Day trading aims to exploit the inevitable up-and-down price movements that occur during a trading session.

Traders who trade in this capacity are generally classified as speculators, in contrast with the long-term investors who often buy and hold their investments for a long time (see the buy and hold strategy). Day trading is similar to swing trading, in which positions are held for a few days, and it is made easier using day trading software.

While it is most common in Forex and futures trading, it is also very popular in the stock markets. Day traders are typically well-educated in the minutia of trading and are attuned to events that cause short-term market moves. Many of them use leverage to increase the size of their stakes. In other markets, like Forex and futures, day traders can trade with as low as $1,000 or less, but stock day traders tend to be well funded, in accordance with the pattern day trader rules.

The pattern day trader rule

The pattern day trader rule etablishes that a pattern day trader is required to maintain minimum equity of $25,000 in their margin account on any day that the customer day trades.

The Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that regulates member brokerage firms and exchange markets in the US, designates a pattern day trader as one who executes four or more “day trades” within five business days — provided that the number of day trades represents more than six percent of your total trades in the margin account for that same five business day period.

A pattern day trader is required to maintain minimum equity of $25,000 in their margin account on any day that the customer day trades. This minimum equity, which can be a combination of cash and eligible securities, must be in the trading account before engaging in any day-trading activities — if the account falls below the $25,000 requirement, the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level.

Also, a pattern day trader cannot exceed their day-trading buying power, which is generally up to four times the maintenance margin excess as of the close of trading the day before. This maintenance margin excess is the amount by which the equity in the margin account exceeds the required margin. In other words, pattern day traders are only allowed up to 4x leverage.

How to by-pass the pattern day trader requirement

One way to by-pass the pattern day trader requirement is to trade stock options via some day trading platforms like Robinhood. With stock options, you don’t need to maintain a $25,000 margin on your trading account. Thus, it is still possible to day trade the US stock market without meeting FINRA’s pattern day trader rules.

Another way to day-trade US stocks without restrictions is through online CFD brokers that offer stock CFDs. A stock CFD is a contract between the trader and the broker to exchange the difference in the price of a stock between the time a trade is opened and the time it is closed. Stock CFDs don’t give the trader ownership of the stocks, but a day trader is only interested in the price movements and not the stocks anyway.

Another option is to start trading as a proprietary trader. We were prop traders ourselves for almost two decades where we did only day trading (successfully). A prop trader is not liable to the pattern day trader requirement because you are not trading your own capital but rather the firm’s capital.

Why day trade?

You day trade, for those who have mastered the art, because day trading can be a rewarding business. A good day trader can make insane returns on the capital invested, but this requires a high turnover of capital and unique skills, which only a few can boast of.

How many day traders can turn over up to a million USD in a week? On each dollar, the profit may be a fraction of a cent, so a high turnover is needed to realize a reasonable profit from the trades. The best traders probably turn over their capital once per day to benefit from the law of high numbers work for them. But before one can e