Profitable Day Trading Strategy.

Profitable Day Trading Strategy.

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When I first started trading I looked for the perfect strategy, 3 years have passed and I haven’t found the “holy grail” strategy.

But I did find a pretty good one. One of the major problems beginners have is when should they buy or sell a stock? What do you EXACTLY do?

Before you read this Blog, check out my video on the same strategy. It is much more detailed, and you’ll understand the strategy more easily.

Click Here to Watch it

The Strategy: Heikin Ashi + Stochastic RSI.

Heikin Ashi is a wonderful chart type that cuts major noise. It’s a lot different than your regular candlestick charts. You get a series of green/red candles and the calculation is quite different.

Step 1. I look at the trend of the Major index.

I live in India, so I track Nifty50, you may track your country’s index (Dow or something). I look for the trend and confirm the trend on multiple setups.

If the stock has positive correlation with the market, and the market is up, I look for buying opportunities.

If the market (index) is down, I look for shorting opportunities. The correlation with the market matters.

Some stocks have negative correlation i.e. The market goes up and the stock goes down. If the stock has positive correlation and the market is up, I usually avoid shorting.

Step 2. The Trend of the Stock.

You can use something as simple as the 50 or the 200 simple moving average to find the trend of the stock.

After that I draw a few support and Resistance zones on the chart. Not a lot, usually around 3,maybe 4 occasionally.

Step 3. Confirm the trend.

I use a 4x time frame chart to confirm the trend. For day trading I use 15 minute chart and I confirm the trend on a 1 hour chart.

For swing trading you can use 30 minute chart and confirm the trend on the 4 hour chart.

If the 15 min chart is bullish and the 4 hour chart is bearish, I avoid trading.

Step 4. Use Heikin Ashi.

The rules of heikin ashi are simple, two continuous closed red candles = bearish trend and two closed continuous green candles = bullish.

There are other rules regarding the size of the candle and the trend.

Step 5. Stochastic RSI.

I use the default setting usually, and if the RSI is below 30 and rising up, when the heikin ashi has closed two green candles, I buy.

When the stochastic RSI is above 70, coming down, and there are two red candles on Heikin Ashi, I sell.

Step 6. Entry.

The 4th and the 5th point will give you the entry signal. I use a stop-loss above the high of the candle (previous) or some other way.

The risk is always less than 2%, if my capital is 10,000 the risk per trade is less than 200 bucks.

To find out the number of shares to buy you can watch my video on position sizing, or any other video on YouTube.

Step 7. Exit.

When the trend continues and I see an area of resistance (long trade) I exit my position.

Or when two continuous red candles are closed on Heikin Ashi. If the candles are red but the size is very small, I don’t exit.

Exit= Major Support /Resistance or two continuous closed candles in the opposite direction with decent size.


Some Thoughts.

The Win Rate of this strategy is theoretically 80%, but in real trading it falls to 65-70% considering that your stop loss is hit.

That’s still a good success rate. The risk reward is usually uncertain but it’s above 1.5:1 (usually).

The more rules you add, the lesser opportunities you get.

If 2 rules out of the 7 rules are violated, or if a major rule is violated, I DON’T TRADE.

This definitely decreases the opportunities I get, but my win rate is higher and I am more confident with my trade.

You can modify the strategy according to what works for you. I learnt it from my mentor and made a couple of changes.

This may not work on every stock (no strategy does) and it is good in TRENDING MARKET. In a sideways market it either doesn’t give signals or doesn’t work.

-Vikrant C.


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