5+ Effective Entry And Exit Strategies For Day Trading

Last Updated: April 25, 2024 By Hemant

Intraday trading allows you to make a profit from short-term market movements within the same trading day. Unlike swing trading positions are not held for days or weeks and you have to close your trade within the same day.

This fast-paced nature of intraday trading offers traders high profits but it comes with high risk unless you have effective entry and exit strategies for the day trading.

In this blog post, we will explore the 5+ effective entry and exit strategies for day trading that will help you find potential entry and exit opportunities in day trading.

Also, we will tell you some high-profit popular strategies used in intraday trading that you can use with these entry and exit strategies for day trading.

Along with this, we will discuss some technical indicators that will help you to confirm the entry & exit strategies for day trading.

Importance Of Effective Entry And Exit Strategies For Day Trading

After the stock selection for intraday, the next important step is identifying the proper entry and exit points. An effective entry and exit strategy for day trading helps you capture the maximum profit from the rally and minimize the loss respectively.

Let’s assume that you entered the market at the wrong time in this case your trade may go into a loss or if you entered late your profit margin will be reduced.

On top of this, your stop loss can be affected due to wrong entry. Taking a bad entry can trigger your stop-loss order which can lead to loss or trade even if the market moves according to your strategy.

Similarly, if you set the wrong exit point the share price may reverse slightly before reaching your target. Therefore effective entry and exit strategies have huge importance in intraday trading.

5+ Effective Entry And Exit Strategies For Day Trading

1) Moving Average Convergence Divergence (MACD) Strategy:

MACD strategy is one of the best intraday trading strategies this strategy shows the relationship between two moving averages of a certain stock.

Entry Strategy Using MACD: In this strategy we have to look for the two lines the MACD line & the signal line & when the MACD line crosses below the signal we have to prepare for taking short trade.

For the additional confirmation we have to look towards the MACD histogram that represents the difference between the MACD line and the signal line when the histogram bars are decreasing it indicates that the bearish momentum is becoming stronger.

Exit Strategy Using MACD: To exit the trade using this strategy we have to check for the MACD line crosses above the signal line & for additional confirmation look towards MACD histogram bars increasing for bullish confirmation.

2) Bollinger Bands Strategy:

The Bollinger bands are the bonds that are placed above and below a moving average & they are used to measure the volatility and identify the overbought & oversold stocks.

Entry Strategy Using Bollinger Bands: In this strategy, we have to prepare for the trade when the price touches or crosses the Bollinger bands. These conditions suggest that the price may have reached a level of support or oversold conditions.

For additional confirmation, we have to look at the squeeze in the Bollinger bands which tells us that there is a decrease in the volatility which further means the price reversal.

This squeeze in the Bollinger bands acts as an additional signal that the price may come back from the lower band.

Exit Strategy Using Bollinge Bands: We have to exit when the Price Touches or crosses the opposite bollinger band for additional confirmation check if their is widening of Bollinger bands.

3) Relative Strength Index (RSI) Strategy:

RSI is one of the effective strategies in intraday trading & in this strategy we use the RSI Indicator which measures the speed and change in the price movements during a certain period.

Entry Strategy Using Relative Strength Index: This period ranges from 0 to 100 and is typically used to identify overbought or oversold criteria when the RSI goes below 30 then the stock in which we are trading is oversold indicating potential buying opportunity.

For additional confirmation, we have to look for the divergence between the RSI and the price of the stock which means checking whether the RSI making higher lows while the price making lower lows.

This divergence indicated the selling pressure is weakening & their is potential reversal in the price trend.

If the RSI is making higher lows & the price is making lower lows this indicates the selling pressure is becoming more weak and there are chances of reversal.

Exit Strategy Using Relative Strength Index: To exit the trade we have to look for the RSI crosses above 70 & for additional confirmation we have to check the divergence between RSI and Price of the stock which means observing whether the RSI making lower highs while the price is making higher highs.

These divergence indicated the weakening of bullish trend and there is reversal in the price providing confirmation for the exit decision.

4) Stochastic Oscillator Strategy:

Entry Strategy Using Stochastic Oscillator: The stochastic Oscillator strategy is one of the best strategies in the intraday trading. In this strategy, we compare the closing price to its price range over a specific time period.

It consists of two lines known as %K & %D, when %k crosses below the %D and both the lines are below the 20 level, this indicates that the share may be oversold.

Entry Strategy Using Stochastic Oscillator: To exit the stochastic oscillator strategy we have to check whether if %k crosees above %d and bother the lines are above 80( long trades). For additional confirmation both %K and %D are above overbought level.

5) EMA (Exponential Moving Average) Strategy:

Entry Strategy Using EMA: EMA strategy is a type of moving average strategy that is very important in day trading as it gives importance to the most recent data points. It reacts more quickly to price as compared to the simple moving average.

To take trade with this strategy we have to look for a crossover between the short-term EMA and the long-term EMA.

To enter the trade with the help of this strategy you have to wait till the short-term ema (9-period) crosses the long-term ema (21-period). These conditions indicated the bullish signal.

Exit Strategy Using Stochastic Oscillator: To exit the trade you have to look at when the short-term EMA (9-period) crosses below the long-term EMA (21-period) which indicates the bearish signals & we should close the trade. For additional confirmation check the crossover signal with friend indicators of EMA like MACD OR RSI

Remember there are no Entry And Exit strategies for day trading that will give always profit because of the dynamic nature of the stock market these strategies (conditions) will only work under certain conditions.

You have to back-test these strategies plus make more strategies by using these conditions that will help you to take more accurate trades. Here is how you can make your strategy by taking reference from the strategies mentioned above:

• Combining MACD and Bollinger Bands: You have to check for the condition if the MACD line crosses below the MACD signal line indicating the bearish momentum to make additional confirmation you have to look for decreasing MACD histogram bars and a contracting in the Bollinger bans which tells more bearish pressure and decreasing volatility.
• Combing RSI and stochastic oscillator: You have to check for the condition in the stock which has RSI falling below 30 indicating oversold conditions along with this the %K line of the stochastic oscillator crosses below the %D line. To Make additional confirmation look for whether the RSI and stochastic oscillator are below their respective oversold area.
• Combing Volume and MACD: You have to check for the condition of the stock and whether the trading volume increases suddenly at the same time the MACD line crosses below the MACD signal line. For additional confirmation check whether there is a higher volume as compared to normal sales with the MACD histogram bars decreasing which indicates a stronger downward momentum.

Do not blindly take the trade with the help of the above strategies as the market conditions are changing day by day. This combination of strategies helps you to generate more dynamic Entry And Exit Strategies For Day Trading.

Best Practices To Follow For Entry And Exit Strategies For Day Trading

1. Before Entering the trade using the above strategies research on the market > sector > individual stocks (Stock Specific News)
2. Practice Risk Management which includes how much trade should I take? amount of capital you are willing to risk on each trade, etc
3. Utilize multiple time frames. Sometimes some strategies only work on one time frame and not on rest. Enter the trade by analyzing multiple time frames.
4. Wait for the confirmation signals that will help you minimize the losses.

Best Technical Indicators For Entry & Exit Strategies For Day Trading

Technical indicators are very crucial For Entry & Exit Strategies For Day Trading. With the help of proper indicatros you can make best strategies that helps you to make robust strategies.

In this post we have made strategies with the help of 5 Indicators. To make your strategy you make to use dozens of indicators. Here is list of best technical indicators for Buliding Entry & Exit Strategies For Day Trading:

1. Volume Indicators.
2. ATR: Average True Value.
3. Fibonacci Retracement Levels.
4. Pivot Points.
5. Ichimoku Cloud.
6. Average Directional Index.
7. Money Flow Index.
8. Chaikin Oscillator.
9. On-Balance Volume.
10. Williams %R.
11. Parabolic SAR.
12. Momentum Indicator.

Also:

1. Choose Stocks For Day Trading
2. Powerful Indicators for Intraday Trading
3. Technical Indicators for Swing Trading