One of the strategies that performed well after testing hundred times was the alligator trading strategy. In this strategy, we use a 200 period moving average to find the trend direction, because even your dog can easily identify the trend direction with a moving average. Furthermore, moving averages acts as a support and resistance on a trading chart, especially the 200 moving average. So your trade will not only have a higher probability of making a profit, but by adding the 200 moving average on your chart, you will make sure not to trade against it.

 

The second thing you should do to have a high probability of winning, is avoid charts like this. Here, the price looks like a mess. Price action should be easier to read, otherwise your entry signal indicator will give a lot of false signals. On this chart, price is below the moving average and is not flat. Your probability of making money is already pretty good if you trade with the trend, but if the price action is choppy, your trade will have a lower probability of making money. Here, price is making sudden big candles, and these big candles can easily hit your stop loss. Yes you can set your stop loss far away, but then you will have to set your profit target far away as well to get a good reward risk ratio. Setting a big stop loss is not a problem if price actually moves in your favor, but if momentum slows down and if price starts to go sideways, you will be stuck in a trade for a while.

 

This is very common with low liquidity stocks and forex pairs. Furthermore, you should be very careful, as forex pairs and stocks can have big gaps and can make sudden moves because the buying and selling pressure can greatly vary. To have a higher profitability of success, it is a good idea to stick with major forex pairs and stock with high volume.

 

And if you are a beginner, trading on major forex pairs only can be highly beneficial as the price action on these pairs are usually smoother and easier to read. Your indicators will also work better.

 

Third thing that can significantly improve your chances of making more money, is the time of the day. Even though the forex market is open 24hrs on a  trading day, you can’t trade all day. There are different market sessions that play an important role in liquidity. During the Asian session, price usually moves sideways and is less active. Price tends to make relatively bigger moves during the London and US sessions. So you will have a higher chance of finding higher quality trading setups. You can even achieve higher reward risk ratios during these sessions. I have already made a detailed video on this topic. Check it out to learn more. 

 

One of the most important things you can do to improve your strategy is to take trades where people are interested in buying and selling. In other words trade near the supply and demand zones. If the price reverses from a price level strongly, there is a high chance that price will react from the price level again, because traders are most likely to buy and sell near that level.

You can use multiple timeframes to draw support and resistance, and I have made a video on how to draw strong support and resistance areas properly, check it out if you want.

 

The most important thing you need to make money in day trading is a profitable strategy. That’s obvious, but even if you have a strategy that gives a high win rate, you shouldn’t ignore other signs of reversals or trend continuation, especially the candlestick patterns. Candlestick patterns near a support and resistance level, can provide more information about that level. For example, if price forms an engulfing pattern near a support or resistance level, there is a high chance that price will reverse or will move in the opposite direction for a short period of time.

 

But how do we apply all of these things in the live market? Let’s look at the live market then.

 

Here, one can say that this is a great chart for trading. The price is smooth enough and the 200 moving average is also indicating a down trend. Furthermore, MACD is also giving an entry signal. And if you analyze the chart even more, one can say that this is the best trading setup and the trade will have a higher probability of making money. You are not half wrong. This trading setup is screaming to take a short position, but if you switch to a higher timeframe such as the 4 hours, you will notice that price is near a strong support area. Almost everyone on higher time frames can see it. In other words, if you take a short position by only looking at your entry time frame, there is a high chance that your trade will go in the opposite direction of your entry. In the 5 steps strategy video, I talk about how to trade using multiple timeframes. So maybe check that video out as well.

 

Now if we look at this chart, you can tell that this also has a smooth price action. Furthermore, the price is above the moving average, so it’s an uptrend, and MACD is about to give an entry signal. And, if we switch to a higher timeframe, we can see that the next strong resistance is far away. Right now, price is reacting from this weak resistance. When the MACD gives a signal, price has enough room to move up before touching the support area. This setup has a higher probability of making money.

 

So here’s the key points to note from this video.

Number 1. Trade with the trend, because trend is your friend.

 

Number 2. Avoid trading on less liquid stocks and forex pairs. If you are a beginner, trading only on major forex pairs is a good idea.

 

Number 3. Time of the day makes a big difference in forex trading. Forex spreads can change and markets can become more or less volatile depending on the market session.

 

Number 4. Buy and sell where people are already buying and selling. In other words, take trades near the support and resistance areas.

 

Number 5. Use other indicators like the candles patterns and the multi timeframe analysis to filter some of the bad trades.