How I Day Trade for a Living with this 6 Steps – Mastering the Market Dynamics

Day trading is the purchase and sale of securities in a short period of time. Many novices struggle with day trading since it needs rapid judgments and market reaction. Beginners easily blow up their accounts due to their fast price action and lack of knowledge of the market dynamics.

Day trading requires mastery of price action methods such as drawing patterns, trend lines, candlesticks, identifying breakouts, reversals and so on. So if you’re someone like me who prefer technical analysis over fundamentals, then this guide is for you.

There are different types of day trading strategies. Some use breakouts, some use reversals / retests. The problem with breakouts are most of the times, we get false breakouts. And, you need to pay higher premium to enter the trade. Personally, I hate paying more. So I’m a big fan of reversal type trading.

Just as we find patterns for swing / long term investment, we must understand how price reacts within a day.

Have you ever wondered why prices fluctuate at the open? If you’re not sure why, this article will supply you with enough information to help you decide when to buy/sell a security.

I keep telling my students,

“Emotional discipline is the key. Trust your trading system and focus on making the best trades. Money is secondary. “

This article will not teach you any trading methods or indicators. These ideas must be coupled with your existing trading method. I mainly trade price action. When these strategies are combined with price action, it’s as if you’ve discovered the third eye of day trading.

Before I go in depth, there are few terminologies that you need to master:

What is Initial balance?

Initial balance is the heart beat of day trading.

When the market opens, it seeks liquidity in order to determine the next move. It is continually looking for the next supply and demand zones.

In order to get the day’s initial balance. Change to the 5min period and see how the first 12 candles form. You do nothing until the first 12 candles appear. The first 12 candles predict how the rest of the day will unfold. And we call it the day’s initial balance (IB).

We immediate mark the high and low and it’s called as Initial balance High (IBH) and Initial balance Low (IBL).

Every trade day, in my opinion, should not be a trading day. Many traders assume that since they are traders, they must always be in a trade. It’s a badge of pride for these traders to inform their trading buddies that they traded forty-two round trips today…before lunch. As a result, they are forced to trade in the most unfriendly markets, frequently to their loss. I am on the other side of the spectrum.

You should only trade when the odds are in your favor for a profitable outcome.

There are 6 types of trading days that you can observe day to day:

Trending day:

If next day has narrow CPR, it’s *likely* to be trending day. If you’re new to CPR, check out my article on Secrets of CPR. Also we can confirm only based on initial balance. Once IB has formed, if the price doesnt reach IBH or IBL and if it continues going in one direction, we call that as trending day. Trending day is hard to enter as it requires advanced price action techniques to enter it. So as a beginner, we avoid days like this.

Double distribution Trend Day:

Market opens in a quiet manner with a narrow initial balance, trading within a tight range. If the IB is too narrow, price will breakout from that range and moves freely and forms another range. Think of it like a jogger. Jogger will properly stretch and warm up. Once the “warm up” is done, the jogger runs at a moderate pace towards a destination. Once he has finished the run, he will cool down at the destination.

Typical day:

Typical day rallies at the open or drops sharply to begin the session, in search of liquidity. The market participants tends to push the price to the day’s extreme. Once the push it, it generates stays quiet throughout the session.

Expanded Typical Day:

Price opens strong but it’s not as strong as typical day, which is wider than double distribution day. In these type of day, one of the extremes are violated. Usually the price trends to breakout, at any of the extremes.

Range day:

Once the market has established an initial balance, price tends to go back and forth from IBL to IBH and vice versa. Think of it like a game of tennis. Buyers and sellers are actively pushing price back and forth.

Sideways day:

Once the market has established an initial balance, price tries to stay calm. Both buyers and sellers remain quiet. These types of days are seen before any major economic events.

The faster you try to identify these trading days, more profitable is the outcome but remember these patterns are not carved in stone. So be flexible and understand the mechanics behind it.

I have written book on day trading called S&P 500 Options Mastery. It’s not just another trading course. It’s my years of backtest and hardwork where I have put together my entire trading system in a PDF.