This is my tactical day trading cheat sheet. It’s thing I do that make my trading easier and less complicated, so I can focus on what matters: implementing my strategies.
It’s easy to get caught up in details that don’t matter…that pull your focus away from the market, stress you out and won’t improve profitability or consistency. This “tactical cheat sheet” is your bridge between theory and the real-world. Subtle things you can do to improve, that you likely haven’t been taught.
Below, I simplify what to trade, how to set stop losses and targets, position sizing, controlling daily risk, when to trade, time frames to watch, chart scaling, news monitoring and strategies.
By combining these tactics in my day trading process I maximize my efficiency and consistency.
Note: This is my tactical cheat sheet. There are other ways to trade, and by sharing this I’m not necessarily saying other methods are bad. These are tactics I’ve learned since I began trading in 2005, that work for me.
Tactical Day Trading Cheat Sheet – Market/Stock/Forex Pair/Futures Contract
I always trade the same thing, every day. When I day trade forex, I only day trade the EUR/USD.
When I day trade futures, I only trade the E-mini S&P 500 futures (ES).
When I trade stocks/ETFs, I only trade the SPDR S&P 500 (SPY), or one or two other stocks that are consistently listed on my Day Trading Stocks Picks (posted on this site every Tuesday before US stock market opens). With stocks, I will trade the same stock or stocks every day for a week or more. I don’t look at other charts. I don’t care what’s happening elsewhere in the market; I focus on SPY or the other stock I have chosen for the week. At one point I traded McDonald’s (MCD), every day for 6 months, because I liked the movement of it.
This keeps it simply. You don’t need to do any research, and you become an “expert” at what you trade all the time. If you can make several trades a day, win about half of them, and make a bit more on winners than you lose on your losers, you will produce a great day trading income. Nothing fancy required. Lots of people get distracted. They’re trading one futures contract, forex pair or stock, but then see another stock/forex pair/futures contract is having a big move, and so they start trading that one. You don’t need to.
Simplify your trading, and stick to day trading the same thing all the time. As long as it has lots of volume and some movement every day, you can make a living from it. Pick what you will trade, and stick with it.
Tactical Day Trading Cheat Sheet – Stop Losses and Targets
I utilize a strategy (discussed later) where I always use the same stop loss and target. This works because I’m trading the same stock/forex pair/futures contract every day. For example, when trading the E-mini S&P 500 futures contract, I use a 4 tick stop loss and an 8 tick target. My strategy is designed around that. I only take trades where I can utilize the 4 tick stop loss and an 8 tick target—I must think there’s a higher probability the price will move 8 ticks in my favor as opposed to 4 ticks against me. If I think the price will move more than 4 ticks against me (before it moves in my favor), I don’t take the trade.
I determine how I trade the market; I don’t let the market determine how I trade. Until the market provides an opportunity for me to trade the way I want (and it always does, multiple times a day), I don’t trade. That said, if there is pandemonium in the markets, and volatility is way higher than usual, then I may expand my stop loss to 5 ticks or 6 ticks, and my target to 10 or 12 ticks to compensate for the volatility. But this is quite rare.
Notice how my expected profit is twice as large as my expected loss. That means I only need to win about 1/3 of my trades to break even, and when I win 50%+ of my trades I’m making a nice profit (my average win-rate is 60%…and if you don’t think that is high enough, see how much money you make with a 60% win rate).
Fine tune your strategy to the point where you can keep it simple and use the same (or almost the same) stop loss and target all the time. THIS IS NOT A REQUIREMENT for successful trading, but it does make trading simpler, especially when it comes to position size.
Tactical Day Trading Cheat Sheet – Position Size
If you know what your stop loss is going to be on every trade, then you also know what your risk is on every trade, and therefore you can trade the same position size all the time.
My recommendation, and what I do, is to never risk more than 2% of my capital when day trading. Risking 1% is better. If you have a $10,000 account, risk $200 per trade (2% of $10,000), or less.
I don’t calculate my position size for every trade though. If you use the same stop loss on every trade, you already know what your position size is.
For example, assume you have a $6,000 futures account and are willing to risk 2% per trade. You can lose up to $120 and still be within your risk tolerance. As discussed prior, I use a 4 tick stop loss (almost always). Each tick on an E-mini S&P 500 contract is $12.50, so I’m risking $50 per contract (4 x $12.50) I trade. I’m allowed to lose up to $120, so I can trade 2 contracts. If the price hits my stop loss I lose 2 x $50, or $100, plus commissions. That’s just below my $120 maximum risk. I can’t trade 3 contracts because then I’m risking 3 x $50 (or $150), and that’s too much. So in this case, always trade 2 contracts. No need to think about it.
Same with forex or stocks. Trade the same position size all the time. If you know your stop loss, then you should already know your position size before the trading day even starts. Keep it simple.
Only adjust your position size if your account value significantly changes. Your account value will constantly change. If it goes from $6000 to $5500 or $7000, you don’t need to change your position size. Don’t worry about fine tuning your position size on every single day trade.
Set what your stop loss will be before each trading day, as well as your position size based on your stop loss amount and your account size. Stick to it for the day.
Tactical Day Trading Cheat Sheet – Daily Stop Loss and Loss From Top
I not only control how much I lose on each trade, I control how much I lose in a day. This assures that one day doesn’t ruin my profits for the week or month, or worse yet, ruin my account.
I set my daily loss maximum at 3 x Stop Loss. As mentioned above, my E-Mini S&P 500 stop loss is typically 4 ticks (or 1 point), so my daily stop loss is 12 ticks (3 points). If I lose 3 trades in a row, I’m probably not implementing my strategy effectively, I’m not seeing the market correctly or the market conditions today don’t favor my strategy. Also, if I lose 3 trades in a row I’m likely going to be a little annoyed, angry or frustrated. Not good emotions for a day trader. I accept the losses and quit trading for the day. The small loss is easily recouped on another day.
This is my number. Yours may be a bit different. This number is based on my average winning day (I only trade for 2 hours each day–discussed later). A single day loss is never more than I can reasonably make back on another day. I don’t mind losing 3 points, because on profitable days I can easily recoup that.
I also apply my 3 point maximum loss rule to a “loss from top.” Assume I have a good start to the day, and am up 6 points. Then, I lose 3 trades in a row (-3 points). Now I’m only up 3 points. I’ve hit my “loss from top,” which in my case is 3 points, and I quit trading for the day. Things were good, but the tides have turned, so I take my money and quit for the day.
Control how much you lose on the bad days, so you can easily recoup it on good days. Walk away when the market sours. Take your remaining profit (or small loss) and don’t chase lost money. There is always another day–where you’ll have a clear head–to do that.
Tactical Day Trading Cheat Sheet – When to Trade
I trade at the exact same time every day. For day trading E-Mini S&P 500 futures, I trade from 8:30 to 10:30 AM EST (6:30 to 8:30 my local
time). That’s it. If the price is forming a trade setup within a few minutes of 10:30 AM (or I’m still in a trade), I’m allowed to trade it, extending my trading session slightly. But usually 2 hours is the maximum. At 10:30, if I’m not in a position and there are no trades forming right then, I turn off my monitors.
Why? My strategies are designed for the market(s) I trade, and are fine-tuned to the hours I trade. My strategies do work at other times, but while I may get 5 trades in my 2 hour window, I may only get another one or two trades if I sit around for another couple hours. My best ‘bang for buck’ is trading just those 2 hours.
Plus, if you trade all day you need to be good at trading the fast moving conditions in the morning, and the slow moving conditions mid-day. Most day traders struggle with this, which is why most trade near the open and/or the close (I just trade the morning). Or they just trade the slow afternoons, because they don’t like the fast movement of the open/close.
Know what you like and what you’re good at, and then only focus on that. Don’t be a hero and trade all day. Pick when you will trade, be diligent about it, and trade it well. The rest of the time, live your life. Enjoy the freedom trading provides.
Tactical Day Trading Cheat Sheet – Strategies
I write lots of strategy articles, and even wrote a Forex Strategy eBook packed with strategies. Are you going to trade 50 strategies though? NO! In my forex strategy guide I tell traders to pick one or two, and combine them with the information they learned about market dynamics (how prices move in waves, velocity and magnitude and shifting trends). I combine all the information into one or two strategies I utilize all the time.
The theme so far has been to SIMPLIFY! Strategies are no different. Don’t try to learn 20 different strategies. Look at how prices fluctuate, and take elements from strategies you like, combining them into one (or two) strategies that use all the time. You only need to make a few trades a day, and if you win approximately 50% of those trades, and your expected profit is slightly larger than your expected loss, you’ll build a consistent income.
Don’t try to be someone else. It won’t work. If you show a price chart to 10 different traders, they’ll all see something different. Take elements you like from other people’s strategies, and then apply them to how YOU see the market. Or, come up with your own strategies based on what you see in the price action. If you want to day trade futures, and want coaching on a cohesive trading method for all market conditions, check out the Trader Mentoring page. If you prefer forex, then the Forex Strategy guide (linked above) provides lots of strategies and trading concepts that will get you started on the right path.
Tactical Day Trading Cheat Sheet – Time Frame
When day trading, don’t get caught up in analyzing multiple time frames. I don’t care if there is an uptrend or downtrend on the daily chart. On my 1-minute or tick chart I can see the current trend, and that’s what matters. When I start day trading at 8:30 AM EST, I look at the price action from 6 AM EST onward, and that’s it. That’s all I need (based on my strategy).
If you want a bit bigger picture, keep your same time frame just zoom out your chart a bit. Could you create a strategy where you use multiple chart time frames? Sure. I’m just saying you don’t have to. If you trade on a 1-minute chart, trade on a 1-minute chart. It shows everything a 5-minute chart shows (if you zoom out a bit), except the 5-minute chart is less detailed.
Focus on the day and time frame you’re trading; it’s unlikely that analyzing other time frames will boost your profits significantly (and may even hurt you, because it may make you second guess taking trades your strategy tells you to take, or compel you take trades your strategy says you shouldn’t).
Tactical Day Trading Cheat Sheet – Chart Scale
This is a weird one, but I find it important for maintaining perspective.
I always keep my y-axis (price) on my trading chart fixed to a certain amount.
For trading ES futures I always have my y-axis showing 20 points of movement. For example, 1870 is the bottom of the screen and 1890 is the top of the screen. No matter how volatile or sedate the market is, I keep that axis at 20 points. This maintains my visual perspective of volatility (opportunities and risk) from one day to the next. This suits me, and your number may be a bit different, but for my trading style and my day trading market, that 20 point y-axis shows me everything I need to see to make trading decisions.
A problem some traders run into is that on really quiet days, when they market is barely moving, they zoom in their chart (or their software does it automatically for them) so each tiny fluctuation looks huge, compelling them to trade. But if you keep the same y-axis each day you’d see the market is doing nothing, and it may be better to stay away. The reverse happens on volatile days. The swings are so big that traders zoom out their charts and thus all the waves look small, and so they lose the perspective that the price may be too volatile for their strategy (the size of price moves look the same as any other day, but they are not).
By keeping the same y-axis all the time you maintain your perspective on how the market is moving from one day to the next…and in my experience helps you make better trading decisions.
Tactical Day Trading Cheat Sheet – News and Outside Input
I don’t ever watch or listen to news, or listen to outside input, while I’m trading. I trade my own way–which I have researched and practiced–so listening to someone else who could cause me to deviate from my methods (which I know work) is a mistake.
Trust yourself and the work you’ve put in…after all….isn’t that why you’re learning to trade?
When I’m not trading, sure, I watch CNBC sometimes for entertainment, or talk about stocks and strategies with my trading friends. I just don’t let it affect how I trade. If I hear or see something I think may be of value, I test it and practice it before implementing it in my own trading.
The only thing I check in the morning is the economic calendar for any major data releases scheduled during the day. Before I start trading I make a text note on my chart of when the news events are, so I can step aside during those times. I don’t hold trades through high impact economic data releases.
Tactical Day Trading Cheat Sheet – Monitors, Mice, Drawing, Screenshots and Hiding the Irrelevant
I will briefly point a few other things I like to do/have while day trading.
–I always trade with two monitors, preferably. If I’m traveling, and I just have my laptop, that is fine, but I like having a second monitor. Above I discussed how I set up my chart: y-axis, time frame and what I data I focus on. On my second monitor I have a chart that shows the whole trading day. I use the same time frame on both charts, but typically my second monitor is a little more “squished” than my monitor that only shows a 20-point region (on ES). The second monitor provides a bit more perspective. Often it isn’t needed (remember, I only trade two hours). But on some days, when there’s lots of movement, it helps to glance over and see how the whole day has been playing out.
–On the topic of laptops. If you use one, use a mouse. Those little laptop cursor pads can cost you a lot of money if you accidentally tap it or move your order inadvertently. You won’t think it’s a liability…until it is. Also, don’t day trade from your smart phone or tablet. If you’re going to day trade, be serious about it.
–I draw on my charts constantly throughout the day. I day trendlines, horizontal lines along highs and lows, mark any chart patterns I
see and also make constant text notes right on my chart about what I’m thinking. This serves to keep me focused on the market movement (don’t write your notes right before or during a trade) and it also serves as a real-time record of what my analytical perspective was at a particular time on a particular day….
—I then take a screenshot of my chart, with my trades and all my notes, at the end of trading day. This is my trading journal, where being able to see the actual day, and how I traded it, is worth more than a thousand words scribbled on a piece of paper. Review your sceenshots at the end of each week, and scan through your screenshots for the whole month at the end of the month. With clear and unemotional eyes do you notice any tendencies? Could you reduce risk on losing trades? When could you be taking bigger profits? Are you skipping opportunities? Are you getting into trades you shouldn’t be in? Note strengths and weaknesses. Find ways to implement more of what you’re good at, and find ways to minimize (or work on) your weaknesses.
–Another thing I do–on my second monitor, which often shows the whole trading day–is literally “X” out price data that’s no longer relevant. For example, the price is trending up, but then tops out and has a big reversal. The uptrend is no longer relevant. We are now in a downtrend, and that’s what my focus should be on. So I “X”out all the data prior to what the current market structures is (uptrend, downtrend, range, triangle, expanding triangle, etc), so I only focus on what is going on right now.
Lots of traders are trying to focus on way too much data (see some of the sections above) and thus get analysis paralysis…they can’t think straight because their chart could be interpreted in so many possible ways. X-out what no longer matters, because what doesn’t matter shouldn’t be affecting your decision making. You can also simply draw a vertical line whenever the market structure changes, then only focus on price action to the right of the line. You can also draw arrows showing the general direction you should be focusing on right now.
Tactical Day Trading Cheat Sheet – Final Word
Simplify! Everything discussed is designed to simplify your trading to the most basic elements–a simple repeatable strategy that works most days and produces several trades where your expected profit is slightly larger than your expected loss. All the elements discussed here help accomplish that, in an efficient way, that doesn’t take up much time. By simplifying in these ways you’ll produce way better results than cramming your head with strategies and trying to trade them all (inevitably trading them all poorly).
I hope this helps clarify my trading process, and ties a few things together which maybe you had questions about. If you have questions, please ask them, or if you have a “tactical cheat” that works for you, share it with us.
To learn more about how to day trade forex, including basics to get you started, strategies and a plan to get you practicing and successful, check out my Forex Strategies Guide for Day and Swing Traders 2.0 eBook.