Table of Contents
Day Trading Entry And Exit Points
Executing A Safe Beginner Trading Strategy
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Learning how to day trade can seem overwhelming, especially for those new to the stock market. Need an update on some of your terms? Check out my guide to common trading terminology to help you get up to speed. After this quick lesson, check out our comprehensive Day Trading Guide for everything else you need to know about day trading.
I’m excited to walk you through one of my favorite zero-experience trading strategies for beginners. As a beginning trader, one of the best things you can do is to keep things simple. It’s to take one or two trades a day, minimizing your risk while maximizing your potential for gain. The key? Focus — and not on just any stock, but the right type of stocks to trade. That way, even if you’re only right 50% of the time, hopefully, you can still walk away with a little bit of profit. The trick is to always make when you take a trade the amount you are risking is less than what you stand to gain if the trade works in your favor.
The best thing a trader who’s just beginning can do is keep it simple. So, the simplest strategy, which we’re going to cover is to focus on leading percentage gainers and gappers of each day.
Keeping an eye on the biggest percentage gainers is key to a basic beginner trading strategy.
What are Gainers and Gappers
Leading percentage gainers or top gainers refer to stocks that have experienced the most significant increase in price percentage-wise within a specific period, typically on a daily basis. These stocks exhibit substantial upward movement compared to others in the market, making them attractive to traders seeking potential profit opportunities.
By monitoring and analyzing the performance of top percentage gainers, traders can pinpoint stocks exhibiting strong momentum and upward trends. These stocks often draw attention due to positive news catalysts, earnings reports, or other market-moving events that drive their price higher.
Stock scanners like mine help identify the day’s leading percentage gainers.
Traders may leverage tools like stock scanners to identify these top performers and assess their trading potential based on factors such as volume, volatility, and historical price movements.
Gappers, on the other hand, are stocks that have a big price movement with no trading happening in between. In the example case study, we’ll cover later the price from where the stock closed the previous day and where it opened the next was up around 75%. What happened? What causes this to happen is either a major difference in supply and demand or a news catalyst causes the stock’s price to move either up or down.
News or changes in supply and demand can cause a stock to gap up or down overnight.
Gap and Go Case Study
The stock we’re looking at for this example is SNTI, which rose over 600% in a day. The day before, this stock was trading at approximately $2.18, and on the day I identified it, it hit a high of over $16. That’s an incredible percentage gain. If you’re a beginner trader, it’s my opinion that these are the types of stocks that you want to be trading. If a stock is going up 100 or 200% in a day, even if you only get a sliver of that move, that could still be a 5% or 10% gain.
What happened with SNTI? Well, the company released breaking news at 7am. The headline read “Senti Bio Announces Positive Initial Clinical Data in Phase 1 Clinical Trial of SENTI-202, a Logic Gated, Selective CD33/FLT3-Targeting CAR-NK Cell Therapy for the Treatment of Relapsed/Refractory Hematologic Malignancies Including AML.” By itself this is good news, but even better, the followed up the headline by announcing they secured “$37.6 Million Private Placement Equity Financing”. This means an institutional investment firm decided to invest $37.6 million of capital in exchange for equity. When I see a headline like that I interpret it to mean that the investors performed their due diligence and believe in the stock. Within minutes, the stock started moving higher.
Every morning my scanners are trying to identify the stocks that have catalysts, things like earning announcements, clinical trials, and partnership deals, there are all sorts of catalysts that can fuel quick movement.
Catalysts like partnerships, and earning announcements can cause a stock to gap up overnight.
Stock Supply and Demand
Another key aspect to this beginner day trading strategy is understanding beyond a catalyst what else can make a stock grow quickly. There also needs to be an imbalance between supply and demand. That seems pretty basic, but it’s crucial to understand what creates demand and what limits supply.
In the case of SNTI, what created extra demand was the created with the positive clinical data. By the way, this is a very common catalyst for biotech companies. Also, stocks that are under $10 or $20 a share are going to inherently have more demand among retail traders because they’re affordable. There’s an army of retail traders out there that are willing to buy up stocks that are up 25, 30% in hopes that they go up another 15, 20, 30% and they can capture half of the 50% move. We see these types of moves again and again and again.
The lower market cap also fuels demand, and that’s represented by the float or the number of shares available to trade. A stock like this has a particularly low float. Now, I looked at the SEC filings on SNTI. I saw that as of the last filing, November 14th, the float was 4,588,645 shares. This represents a stock that has a very low level of supply. For me, what defines a stock having a low level of supply is generally a float of under 20 million shares. There are always outliers, like GME, which had a float of 76 million shares, but that had a very unique and special catalyst as well.
Looking at SEC filings to determine the float is a key part of understanding the supply of a stock.
Day Trading Entry And Exit Points
Even after identifying the right stock, you have to work on the perfect entries. It’s not enough just to find the right stock to trade. You do have to dial in your entries. As a beginner trader, one of the safest entries is to find the first pullback. In this case, this was a five-minute pullback that is right at the volume-weighted average price.
The first pullback here was the safest point of entry to start trading SNTI.
There are some nuances here, but if you’re focusing on the leading percentage gainers each day, you have done yourself a really big favor because you are focusing on the right type of stock to trade. Now it’s about dialing in the exact entries. You could trade on the five-minute chart. You could trade on the one-minute chart. I typically trade on the one-minute and use the five minutes for reference points.
There are some traders who might trade a stock like this 50 times in a day. Just actively trading it. Getting in, getting out. Getting in, getting out. You could trade it all day long, but one of the things that is important as a beginner trader is recognizing that less is more.
These trades on SNTI produced a total profit of $12,239.76. In my experience, buying the first pullback on a strong stock is one of the simplest day trading strategies. However, it’s important to remember that trading isn’t easy — but if you start focusing on the leading gainer every single day, it can help point you in the direction of the right type of stock to trade, thus increasing your chances of success.
Managing Risk as a Beginner Trader
It’s not a good idea to over-trade. It’s not a good idea to take a hundred trades a day. It’s a better idea to try to get one good trade a day. Because if you can get one trade, a thousand shares in and out 20 cents a share, that’s 200 bucks. If you could just build that track record of consistency, getting in, get green, and get out, and just do that for 10, 15, 20, 30 days in a row, start to build some confidence, start to build a cushion, then you can start trading more actively.
Look for stocks with high demand and low supply. A good rule of thumb is 20-20, under $20 per share, and under 20 million shares available. Leveraging scanners and analyzing supply and demand dynamics are key to identifying potential gainers and gappers.
The gap strategy involves trading based on price disparities caused by market sentiment shifts or external factors. Traders aim to enter trades based on the momentum generated by these gaps. Understanding different types of gaps, such as breakaway, runaway, and exhaustion gaps, can help traders make informed decisions and manage risk effectively.
By focusing on quality trades rather than quantity and perfecting entry points, beginner traders can build consistency and increase their chances of success in day trading.
To gain more knowledge, you’re always welcome to join our classes at Warrior Trading, where you can watch live trading archives, use a paper trading simulator, and tune in every day for full trading sessions. As always, remember to manage your risk, focus on the best trades, and happy trading!