Over the years I have taken the opportunity to participate in a number of trading forums and discussion groups.  I am always amazed at the number of traders who try to scalp stocks or stock index futures simply by using an overbought/oversold indicator, and I watch them get killed when the market they are trading is trending in one direction for the day.  The market could be going up and up and up, yet they would be trying to short it all day.

Successful Day Trading requires you to adapt to changing market conditions.  With that in mind, you need to learn to identify what type of trading day the market is having, a non-directional day or a directional day.

I know of a couple of traders and hedge funds that over time have traded quite successfully by capitalizing on days where the market trades in one direction for the day.  Over time, I have also read a good amount of research that indicates that markets tend to close very close to its high or low for the day a statistically significant number of times.

One way to determine whether a market is poised to make a big move or stay within a narrow trading range is to pay attention to the previous day’s price action.  Hedge Fund manager Toby Crabel wrote at length about the concept of Expansion vs. Contraction in some articles published in the late 1980’s.  When the market trades in a wide range on one day, chances are it will trade in a more narrow range the next day, and vice versa.

One other piece of information a day trader should pay attention to is the underlying trend of the market they are trading, and the strength of that trend.  The underlying trend will tend to assert itself at some point in a trading day.  If the market has traded against the trend for a few days, then it may be time for the trend to re-assert itself in a big way.

Day traders should also pay attention to the techniques that other day traders may be using in order to anticipate market action.  One popular day trading methodology involves the use of pivot points and projected trading ranges.   A number of methodologies use an opening range breakout, where they may buy or sell a breakout above or below the trading range of the first 15, 20, 30 or even 60 minutes.  And still other methodologies will enter positions if a market trades a certain distance away from the opening price.

No matter how you decide to trade, you need to be disciplined in following your trading plan.  Seat of the pants traders tend not to last too long in this business.  Determine what type of strategy or system you are going to trade, then learn how to filter that system with other market input.  When you learn to recognize the ideal days to trade your methodology, you will know when to be more aggressive and when to be more cautious.

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