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Successful Daytrading Strategies

Using Patterns to Pick Winning Stock Trades

Nov 28, 2007

This article identifies specific patterns in the price movement of Yahoo stock and how to take advantage of the trading patterns in other stocks.

Daytrading stocks requires discipline and strong nerves. Successful daytrading requires a plan and the ability to stick with it when it is working, and adjust it when it isn’t.

Some stocks trade in patterns that can be identified by looking at historical prices. A particular pattern relates to how stocks trade at the opening each day in relation to the prior day’s closing price.

On average over an extended time period, some stocks trade higher at the open than at the previous close, and lose value during the trading day. This is not a one day occurrence, but a general trend that yields profit over months.

Patterns in Yahoo Stock

A real world example can be found in the case of Yahoo stock. In two separate three-month periods, traders in Yahoo could have increased profit by following a simple strategy of buying just before the close and selling short after the open.

In the three-month period ending 11/27/07, Yahoo gained $2.05. During this period, the stock gained $7.80 from close to open, and lost $5.75 during the trading day. In the prior three months, Yahoo lost a total of $6.13. Only $0.52 of that loss happened from close to open, with $5.61 occurring during the trading day.

Over the six-month period, Yahoo stock lost a total of $4.08. By recognizing the pattern and making just two trades a day (buying at the close and shorting at the open), a trader could have gained $18.64.

Negatives of Pattern Daytrading

In the stock market, patterns continue until they are discovered by large numbers of investors. If there is an opportunity to earn above average returns, traders will “jump the pattern” (to use a football term) in order to reap gains before others do, effectively eliminating the pattern.
Since the benefits of this strategy play out over months, this strategy requires discipline. The data show that there are days when the price falls overnight. The pattern is based on overall results from the three month period.
Not all stocks move in way the Yahoo stock did in the study. Some stocks move in the opposite direction, and many lack a clear pattern. As patterns become evident to traders, they may disappear altogether. Following this strategy is a not a guarantee of greater profits. Prior performance is not necessarily an indicator of future results.
Commissions on stock purchases will reduce the amount of gains. As with all daytrading techniques, evaluate the entire cost of the transaction, including commissions.
Buying and selling stocks may have a tax implications.
Federal law requires a substantial balance in an investment daytrading accounts.

Making Money Daytrading Stocks

Using intuition and gut feelings may produce short term daytrading gains, but for continued successful results, traders need to identify patterns and take advantage of them. The real-world pattern in the price movement in Yahoo stock is a great example of how a exploiting a pattern can produce above average results.

The copyright of the article Successful Daytrading Strategies in Shares/Stocks is owned by James Hutchinson. Permission to republish Successful Daytrading Strategies in print or online must be granted by the author in writing.