Successful Day Trading

Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.

Judging from the contents of an increasing number of emails more and more investors are
choosing to "actively" trade the market rather than simply "buy and hold" it. In the main, this is
due to the fact that in a bear market the latter strategy creates losses that are difficult to accept
long term. However another reason is that smart investors are realising the potential for "income
generation" rather than capital gain from their investments.
Accordingly I set out below some parameters to help these new "traders" avoid the worse pitfalls
and hopefully guide them towards the mind-set required for long term success.
(This article has some notes from earlier publications for ease of reference).

Start. Markets are rational. The best theory to gain this insight is Dow Theory (see note
1). Learn everything you can about Hamilton's and Dow's perceptions and make it part of your
investment "macro-view".
Due to the growing complexity in financial reporting and the opportunity for abuse
therein, with its concomitant risk, it may be advisable to trade through exchange traded funds
(ETF') or Contracts for Difference (CFD's). These funds trade like stocks but offer exposure to
equity sectors, commodities, currencies and interest rates. Thus you have better opportunity for
diversification with less risk. (If you do not understand CFD's see note 2 below).
When you enter a position know beforehand your exit point. Always place a sell stop thus
limiting your potential loss.

As your profits rise adjust your sell stop upwards thus locking in your profits.


A trading platform offering discount commissions is absolutely vital.

Technical analysis data is vital to judge your entry and exit points. Get a good system that
offers "real time" streaming providing one minute, five minute, ten minute and one hour ticker
readings in addition to the regular daily timelines. I prefer the five minute screen for active day
Using too many technical indicators creates "paralysis by analysis". Get to know the
indicators that work for you and stick to them. Consistency will bring greater reward. I like
MACD (moving average convergence divergence, 10 and 20 DMA's (daily moving averages)
and purchase volume. For price I use the candlestick format rather than the simple line as it gives
more information on the market psychology of actual price movement. (See note 3 below).

You must adopt a trading strategy. If you do not have one find one. If you are new to
trading use the many simulation packages available online to test and retest your knowledge and
approach. Do not start to spend a major part of your capital until you have proven to yourself that
you can consistently make good investment decisions in real time. It is better to be losing time
rather than time and money. For me the best strategy to successfully day trade is a Momentum
Strategy. This strategy highlights only top Growth Stocks with high Price Earnings Ratios. A
good BUY indicator is a BULLISH ENGULFING candlestick moving up through a significant
DMA on high volume. ideally with a MACD changing from negative to positive. A good SELL
indicator is a BEARISH ENGULFING candlestick moving down through a significant DMA,
ideally with MACD moving from positive to negative.
The holy grail of trading is patience. If you do not have a trade that has a good
probability to work profitably for you the best place to be is in cash. This is hard to learn but is
absolutely essential.
If you think trading is gambling you have missed the point and need to be re-educated.
Go back to start and get your thinking rational.
----------------------------------------------------------------------------------------------------------------Read Christopher M. Quigley’s decade of published essays on Trading & Investment at MarketOracle.Co.UK.

-----------------------------------------------------------------------------------------------------------------Day Trading Strategies Taught At

Straddle Trade.


Wall Street & German DAX: Interactive Arbitrage/Confirmation Trade.
(Charts: Wall St./DAX: 3 min/60 min/24 hour).


Momentum Trade.
Price Consolidation Break
Moving Average & Bullish Engulfing Cross
Moving Average & Bearish Engulfing Cross
VIX/McClennan Oscillator Trend Confirmation


Swing/Continuation Trade.
Price Action Formation Patterns.


Double Top/Bottom
Head & Shoulders


Bollinger Band Volatility Squeeze Trade.


Channel/Range (Slow Stochastic)Trade.


Candlestick Pattern/Scalp Trade.
Hammer & Spinning Top
Shooting Star &Hanging Man
Bullish Engulfing
Bearish Engulfing

Wealthbuilder’s Day Trading Strategies Explained:
-------------------------------------------------------------------------Straddle Trade.
Straddle trades take advantage of major market moving news events. Once the trend is identified, following news
release, the negative side of the trade is closed (or allowed stop out) and the positive side is allowed to run until a
sell candlestick or consolidation technical trigger is received or profits are banked by personal preference.
Arbitrage Trade
The Arbitrage Trade seeks to activate trades that have a high probability of success by utilizing early bearish or
bullish movement on the Wall St DBT to trade the German DAX or vice versa.
Momentum Trade.
With the momentum strategy one aims to enter a strong trend and remain in the position as long as technicals are
Swing/Continuation Pattern Trade.
Flag/Pennant Formation.
The objective of this strategy is to identify high probability swing or continuation pattern trades.
The flag pattern forms what looks like a rectangle. The rectangle is formed by two parallel trend lines that act as
support and resistance for the price until the price breaks out. In general, the flag will not be perfectly flat but will
have its trend lines sloping. The pennant forms what looks like a symmetrical triangle, where the support and
resistance trend lines converge towards each other.
Swing/Continuation Pattern Trade.
Descending Triangle Formation.
The descending triangle is a bearish formation that usually forms during a downtrend as a continuation pattern. No
one can tell for sure how long it will last. There are instances when descending triangles form as reversal patterns at
the end of an uptrend, but they are typically continuation patterns. Regardless of where they form, descending
triangles are bearish patterns that indicate distribution.

Bollinger Band Trade
The Bollinger Band Squeeze occurs when volatility falls to low levels and the Bollinger Bands narrow. Periods of
low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the
bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals
the start of a new move.
Channel/Range Trade.
In the context of technical analysis, a channel/range is defined as the area between two parallel lines and is often
taken as a measure of a trading range. The upper trend line connects price peaks (highs) or closes, and the lower
trend line connects lows or closes. An example of a channel/range is shown below. Breakout points in channels
indicate bullish (on upward trends) or bearish (on downward trends) signals.
Candlestick Pattern Trade
Formation: Hammer.
Candlestick pattern trades seek to “scalp” profits through trading highly recognizable candlestick formats.
The hammer pattern normally appears when a short term doen trend is about to change. The longer the length of the
taper the better.
Formation: Bullish Engulfing.
Candlestick pattern trades seek to “scalp” profits through trading highly recognizable candlestick formats.
The longer the candle with the bullish engulfing formation pattern the higher the probability that the bull trend it
indicates will persist.
Formation: Bearish Engulfing.
Candlestick pattern trades seek to “scalp” profits through trading highly recognizable candlestick formats.
The longer the candle with the bullish engulfing formation pattern the higher the probability that the bear trend it
indicates will persist.

Formation: Shooting Star.
Candlestick pattern trades seek to “scalp” profits through trading highly recognizable candlestick formats.
The shooting star pattern normally appears when a short term up-trend is about to change. The longer the length of
the taper the better.
Formation: Doji.
Candlestick pattern trades seek to “scalp” profits through trading highly recognizable candlestick formats.
The Doji pattern normally appears when there is complete indecision as to future trend. The next significant candle
that appears normally indicates the future micro trend.

-------------------------------------------------------------------------------------------------------------------------------------------Read Christopher M. Quigley’s decade of published essays on Trading & Investment at MarketOracle.Co.UK.
----------------------------------------------------------------------------------------------------------------- ---------------------------

Note 1:
Dow Theory

The Dow theory has been around for almost 100 years. Developed by Charles Dow and refined by
William Hamilton, many of the ideas put forward by these two men have become axioms of Wall Street.

Charles Dow developed the Dow theory from his analysis of market price action in the late 19th.
Century. Until his death in 1902, Dow was part owner as well as editor of the Wall Street Journal. Even
though Charles Dow is credited with initiating Dow theory, it was S.A. Nelson and William Hamilton who
later refined the theory into what it is today. In 1932 Robert Rhea further refined the analysis. Rhea
studied and deciphered some 252 editorials through which Dow and Hamilton conveyed their thoughts
on the market.

Main Assumptions:
Manipulation of the primary trend as not being possible is the primary assumption of the Dow
theory. Hamilton also believed that while individual stocks could be influenced it would be virtually
impossible to manipulate the market as a whole.

Averages discount everything. This assumption means that the markets reflect all known
information. Everything there is to know is already reflected in the markets through price. Price
represents the sum total of all the hopes, fears and expectations of all participants. The un-expected will
occur, but usually this will affect the short-term trend. The primary trend will remain unaffected.
Hamilton noted that sometimes the market would react negatively to good news. For Hamilton the
reason was simple: the markets look ahead, this explains the old Wall Street axiom "buy on the rumour
and sell on the news".

Even though the Dow Theory is not meant for short-term trading, it can still add value for traders. Thus
no matter what your time frame, it always helps to be able to identify the primary trend. According to
Hamilton those who successfully applied the Dow Theory rarely traded on too regular a basis. Hamilton
and Dow were not concerned with the risks involved in getting exact tops and bottoms. Their main
concern was catching large moves. They advised the close study of the markets on a daily basis, but they
also sought to minimise the effects of random movements and recommended concentration on the
primary trend.
Price Movement:
Dow and Hamilton identified three types of price movement for the Dow Jones Industrial and Rail


Primary movements


Secondary movements


Daily fluctuations

Primary moves last from a few months to many years and represent the broad underlying trend
of the market.

Secondary or reaction movements last for a few weeks to many months and move counter to
the primary trend.

Daily fluctuations can move with or against the primary trend and last from a few hours to a few
days, but usually not more than a week.

Primary movements, as mentioned, represent the broad underlying trend. These actions are typically
referred to as BULL or BEAR trends. Bull means buying or positive trends and Bear means negative or
selling trends. Once the primary trend has been identified, it will remain in effect until proven
otherwise. Hamilton believed that the length and the duration of the trend were largely
undeterminable. Many traders and investors get hung up on price and time targets. The reality of the
situation is that nobody knows where and when the primary trend will end.

The objective of Dow Theory is to utilize what we do know, not to haphazardly guess about what we
do not. Through a set of guidelines. Dow Theory enables investors to identify the primary trend and
invest accordingly. Trying to predict the length and duration of the trend is an exercise in futility.
Success according to Hamilton and Dow is measured by the ability to identify the primary trend and
stay with it.
Secondary movements run counter to the primary trend and are reactionary in nature. In a bull market
a secondary move is considered a correction. In a bear market, secondary moves are sometimes called
reaction rallies. Hamilton characterized secondary moves as a necessary phenomenon to combat
excessive speculation. Corrections and counter moves kept speculators in check and added a healthy
dose of guess work to market movements. Because of their complexity and deceptive nature,
secondary movements require extra careful study and analysis. He discovered investors often mistake a
secondary move as the beginning of a new primary trend.

Daily fluctuations, while important when viewed as a group, can be dangerous and unreliable
individually. getting too caught up in the movement of one or two days can lead to hasty decisions that
are based on emotion. To invest successfully it is vitally important to keep the whole picture in mind
when analysing daily price movements. In general they agreed the study of daily price action can add
valuable insight, but only when taken in greater context.
The Three Stages of Primary Bull Markets and Primary Bear Markets.
Hamilton identified three stages to both primary bull and primary bear markets. The stages relate as
much to the psychological state of the market as to the movement of prices.

Primary Bull Market
Stage 1.


Hamilton noted that the first stage of a bull market was largely indistinguishable from the last reaction
rally in a bear market. Pessimism, which was excessive at the end of the bear market, still reigns at the
beginning of a bull market. In the first stage of a bull market, stocks begin to find a bottom and quietly
firm up. After the first leg peaks and starts to head down, the bears come out proclaiming that the bear
market is not over. It is at this stage that careful analysis is warranted to determine if the decline is a
secondary movement. If is a secondary move, then the low forms above the previous low, a quiet
period will ensue as the market firms and then an advance will begin. When the previous peak is
surpassed, the beginning of the second leg and a primary bull will be confirmed.
Stage 2.

Movement With Strength

The second stage of a primary bull market is usually the longest, and sees the largest advance in prices.
It is a period marked by improving business conditions and increased valuations in stocks. This is
considered the easiest stage to make profit as participation is broad and the trend followers begin to
Stage 3.


Marked by excess speculation and the appearance of inflationary pressures. During the third and final
stage, the public is fully involved in the market, valuations are excessive and confidence is
extraordinarily high.

Primary Bear Market
Stage 1.


Just as accumulation is the hallmark of the first stage of a primary bull market, distribution marks the
beginning of a bear market. As the "smart money" begins to realise that business conditions are not
quite as good as once thought, and thus they begin to sell stock. There is little in the headlines to

indicate a bear market is at hand and general business conditions remain good. However stocks begin to
lose their lustre and the decline begins to take hand. After a moderate decline, there is a reaction rally
that retraces a portion of the decline. Hamilton noted that reaction rallies during a bear market were
quite swift and sharp. This quick and sudden movement would invigorate the bulls to proclaim the bull
market alive and well. However the reaction high of the secondary move would form and be lower
than the previous high. After making a lower high, a break below the previous low, would confirm that
this was the second stage of a bear market.

Stage 2.

Movement With Strength

As with the primary bull market stage two of a primary bear market provides the largest move. This is
when the trend has been identified as down and business conditions begin to deteriorate. Earnings
estimates are reduced, shortfalls occur, profit margins shrink and revenues fall.

Stage 3.


At the final stage of a bear market all hope is lost and stocks are frowned upon. Valuations are low, but
the selling continues as participants seek to sell no matter what. The news from corporate America is
bad, the economic outlook is bleak and no buyers are to be found. The market will continue to decline
until all the bad news is fully priced into the stocks. Once stocks fully reflect the worst possible outcome,
the cycle begins again.

Identification Of The Trend

The first step in the identifying the primary trend is to analyse the individual trend of the Dow Jones
Industrial Average and the Dow Jones Transport Average. Hamilton used peak and trough analysis to
ascertain the identity of the trend. An uptrend is defined by prices that form a series of rising peaks
and rising troughs [higher highs and higher lows]. In contrast, a downtrend is defined by prices that
form a series of declining peaks and declining troughs [lower highs and lower lows].
Once the trend has been identified, it is assumed valid until proven otherwise. A downtrend is
considered valid until a higher low forms and the ensuing advance off the higher low surpasses the
previous reaction high. Conversely, an uptrend is considered in place until a lower low forms.


Averages Must Confirm

Hamilton and Dow stressed that for a primary trend or sell signal to be valid, both the Dow Jones
Industrial and The Transport averages must confirm each other. For example if one average records a
new high or new low, then the other must soon follow for a Dow theory signal to be considered valid.



Though Hamilton did analyse statistics, price action was the ultimate determinant. Volume is more
important when confirming the strength of advances and can also help to identify potential reversals.
Hamilton thought that volume should increase in the direction of the primary trend. For example in a
primary bull market, volume should be heavier on advances than during corrections. The opposite is
true in a primary bear market. Volume should increase on the declines and decrease during the reaction
rallies. Thus by analysing the reaction rallies and corrections, it is possible to judge the underlying
strength of the primary trend.


Trading Ranges

In his commentaries over the years, Hamilton referred many times to "lines". Lines are horizontal lines
that form trading ranges. Trading ranges develop when the averages move sideways over a period of
time and make it possible to draw horizontal lines connecting the tops and the bottoms. These trading
ranges indicate either accumulation or distribution, but are virtually impossible to tell which until there
was a clear break to the upside or the downside.

The goal of Dow and Hamilton was to identify the primary trend and catch the big moves up and be out
of the market the rest of the time. They well understood that the market was influenced by emotion and
prone to over-reaction, both up and down. With this in mind, they concentrated on identification and
following the trend.
Dow theory [or set of assumptions] helps investors identify facts. It can form an excellent basis for
analysis and has become the cornerstone for many professional traders in understanding market
movement. Hamilton and Dow believed that success in the markets required serious study and analysis.
They realised that success was a great thing, but also realised that failure, while painful, should be
looked upon as learning experiences. Technical analysis is an art form and the eye and mind grow
keener with practice. Study both success and failure with an eye to the future.

Note 2:
Contracts for Difference

ONE of the most innovative financial instruments that have developed over the last decade or so
is the CONTRACT FOR DIFFENCE, better known as a CFD. The explosion in the use of this
product is one of the reasons why London, as opposed to New York, is becoming the financial
location of preference for many financial managers and hedge traders. CFD's are not allowed in
the U.S. due to legal restrictions imposed by the American Regulators.
Contracts for Difference were developed in London in the early 1990's. The innovation is
accredited to Mr. Brian Keelan and Mr. Jon Wood of UBS Warburg. They were then initially
used by institutional investors and hedge funds to limit their exposure to volatility on the London
Stock Exchange in a cost-effective way, for in addition to being traded on margin, they helped
avoid stamp duty (a government tax on purchase and sale of securities).
A CFD is in essence a contract between two parties agreeing that the buyer will be paid by the
seller the difference between the contract value of the underlying equity and its value at time of
contract. This means that traders and investors can participate in the gains and losses (if shorting)
of the market for a fraction of capital exposed if the equity was purchased outright. In This
regard the CDS's operate like option contracts, but unlike calls and puts, there are no fixed
expiration dates and contract amounts. However contract values are normally subject to interest
and commission charges. For this reason they are not really suitable to investors with a long-term
buy and hold strategies.
CFd's allow traders to invest long or short using margin. This fixed margin is usually about 510% of the value of the underlying financial instrument. Once the contract is purchased there is a
variable adjustment in the value of the clients account based on the "marked to market" valuation
process that happens in real time when the market is open. Thus for example if a stock ABC Inc.
is trading at $100 it would cost approx. $10 to trade a CFD in ABC. If 1000 units were traded
it would therefore cost the investor $10,000 to "control" $100,000 worth of stock. If the stock
increased in value to $110 the "marked to market" process would add $10,000 to the client's
account (110-100 by 1000). As we can see the situation works very similarly to options but for
the fact that there are no standard option contract sizes and expiration dates and complicated
strike levels. Their simplicity has added greatly to their popular appeal amount the retail public.
Contracts For Difference are currently available in over the counter markets in Sweden, Spain,
France, Canada, New Zealand, Australia, South Africa, Australia, Singapore, Switzerland, Italy,
Germany and the United Kingdom. Their power and scope continue to grow. This development
poses a problem to American financial institutions in that unless there is a change in security
regulation Wall Street will lose out on a financial instrument that is changing the manner in
which the greater public and aggressive financial managers are investing for the future. It is
expected that Contracts for Difference will become the medium of transaction for the majority of
World traders within the next decade.

Note 3:
Moving Average Convergence Divergence (MACD)

Developed by Gerald Appel, MACD is one of the simplest and most reliable indicators
available. MACD uses moving averages, which are lagging indicators, to include some trend
following characteristics. These lagging indicators are turned into a momentum oscillator by
subtracting the longer moving average from the shorter moving average. The resulting plot forms
a line that oscillates above and below zero.
The most popular formula for the standard MACD is the difference between a stock's 26-day and
12-day exponential moving averages. However Appel and others have since tinkered with these
original settings to come up with a MACD that is better suited for faster or slower securities.
Using shorter moving averages will produce a quicker, more responsive indicator, while using
longer averages will produce a slower indicator.
What does MACD do?
MACD measures the difference between two moving averages. A positive MACD indicates that
the 12-day EMA (exponential moving average) is trading above the 26-day EMA. A negative
MACD indicates that the 12-day EMA is trading below the 26-EMA. If MACD is positive and
rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates
that the rate-of-change of the faster moving average is higher than the rate-of-change for the
slower moving average. Positive momentum is increasing and this would be considered bullish.
If MACD is negative and declining further, then the negative gap between the faster moving
average and the slower moving average is expanding. Downward momentum is accelerating and
this would be considered bearish. MACD centerline crossovers occur when the faster moving
average crosses the slower moving average. One of the primary benefits of MACD is that it does
incorporate aspects of both momentum and trend in one indicator. As a trend following
indicator, it will not be wrong for long. The use of moving averages ensures that the indicator
will eventually follow the movements of the underlying security.
As a momentum indicator, MACD has the ability to foreshadow moves in the underlying stock.
MACD divergences can be a key factor in predicting a trend change. For example a negative
divergence on a rising security signifies that bullish momentum is wavering and that there could
be a potential change in trend from bullish to bearish. This can serve as an alert for traders and
In 1986 Thomas Aspray developed the MACD histogram in order to anticipate MACD
crossovers. The MACD histogram represents the difference between MACD and the 9-day EMA
of MACD. The plot of this difference is presented as a histogram, making centerline crossovers
and divergences more identifiable. Sharp increases in the MACD histogram indicate that MACD
is rising faster than the 9-day ema and bullish momentum is strengthening. Sharp declines in the
MACD histogram indicate that the MACD is falling faster that its 9-day ema and bearish
momentum is increasing. Thomas Aspray recognized the MACD histogram as a tool to
anticipate a moving average crossover. Divergences usually appear in the MACD histogram
before MACD moving average crossover. Armed with this knowledge, traders and investors can
better prepare for potential change. Remember the weekly MACD histogram can be used to
generate a long-term signal in order to establish the tradable trend, thus allowing only short-term
signals that agree with the major trend to be used for investment action.

© Christopher M. Quigley 2017 Dublin, Ireland,

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