B4Trading - Tamil

DAY TRADING STRATEGIES

Day Trading Strategies :

1. Gap Trading Strategy,

2. Open High Open Low Trading Strategy,

3. PIN BAR Trading Strategy,

4. RSI Trading Strategy.

1. GAP Trading Strategy :

➢ What is Gap Trading Strategy ?

• ‘The difference between two consecutive candles’ closing price and

opening price is called the gap. A gap occurs when prices skip
between two trading periods, skipping over certain prices. A gap
creates a void on a price chart. Price gaps are simply areas on the
chart where no trading has taken place.
➢ Why do prices gap up ?
• ‘Gaps Greatest imbalance between demand and supply’. The gap up
because of aggressiveness by buyers, I mean there are more buy orders
at the open than there is available supply at the prior day’s closing price.
The gap down because of the aggressiveness by the sellers, I mean there
are more sell orders at the open than willing demand at the prior day’s
close. Therefore, gaps are almost always at price levels where there is a
supply and demand imbalance at the open.

• Gaps also occur due to the overnight sentiment of the participant or any
big news,

• Smart money trying to skip important support and resistance level, i.e. If
they are bullish they gap-up price above the supply zone.
➢ GAP act as Support and Resistance :

• The Up gap act as a support zone and the down gap act as a resistance zone. The
chart below of RELIANCE stock shows the gap up acting as support for prices.
➢ The Gap fill :

• The gap-fill refers to the price retrace and close the level where the origin of the
gap occurs. The closure rate (gap-fill) for up gaps increases if the prior day’s open
to close price trend was also up. The closure rate (gap-fill) for down gaps increases
if the prior day’s open to close move was downward.
• After the gap price tries to fill the gap. Another occurrence with gaps is that once
gaps are filled by price, the gap tends to reverse direction and continue its way in
the direction of the gap (for example, in the chart BELOW of RELIANCE, back
upwards).
➢ Types of Gap Trading Strategy :

• Gaps are divided based on the context in which they appear.

1. Breakaway (or Breakout) Gaps

2. Runaway (or Measuring) Gaps
3. Exhaustion Gaps
4. Professional gap
5. Inside gap
➢ What is the breakaway GAP ?

• The breakaway gap means breaking the important support or resistance or

significant trend line in the form of the gap. Generally appears after completion
of important patterns like price in consolidation range or any continuation or
reversal pattern. Maximum time this gap does not fill quickly or the same day. The
most important volume should be high
➢ Runaway Gap :

• After the move has been underway for a while, somewhere around the middle of the
move, prices will gap, this gap called the runaway gap. In an uptrend, it’s a sign of
continuation of trend; in a downtrend, a sign of continuation of the trend.
➢ Exhaustion Gap :

• You will find that weak gap-ups are always Gap up to resistance or gap down to
support. This price action is usually designed to trap you into a potentially weak market and
into a poor trade, catching stop-losses on the short side, and generally panicking traders to
do the wrong thing.
➢ Professional GAP
Trading Strategy :

• These gaps appear at the

beginning of the moves. Generally
occur at the supply or demand
zone. (Gap up from demand zone
and gap down from supply zone),
when price approaching the
quality supply and demand zone.
➢ Inside GAP Trading Strategy :

• Inside gaps are gaps happening inside the prior

day’s range.

1. Week market gap up

2. Strong market gap down

• However, low volume warns you of a trap up-

move (which is indicative of a lack of demand in
the market) after a gap up resistance
2. Open High Open Low Strategy :

➢ Intraday Open high Open Low Trading Strategy :

• The original name of the strategy is open drive. From a buy-sell perspective, we called,
✓ Open High and Open Low.
✓ Open High= sell
✓ Open Low= buy
✓ So open rive and open high open low both the same.
➢ The logic behind the strategy :

These are directional moves with strong hand participation and conviction.

➢ Where it occurs ?

• It occurs most of the time after a sideways price action (tight price channel), or
• You can also spot it at the start of a trading session.
• From strong supply or demand zone.

▪ If open-drive occurs after a sideways price action, it indicates that either strong buyers or
sellers were accumulating their positions in the sideways price action, or afterward, they
started aggressive buying or selling activity to move the price.

▪ If at the start of a trading session. An Open-Drive is generally caused by participants who

have made their market decisions before the opening bell. The market opens and moves
aggressively in one direction. Fueled by strong smart money activity, the price never returns
to trade back through the opening range
➢ The Rule for SELL ‘Open High’ Strategy :

• Where is the action playing out? (location in the big picture). Reason to take the
trade. Best work if breakout from any sideways price action is or gap from strong
supply or demand zone.

• First, 5 min candle(opening candle) should be a big red candle.

• Open = High, For easy reference 2-3 points buffer will be considered as equal
not carrying much weight.

• First candle open to close around lower of the candle (preferably).

• Volume must be high.
• Minimum Risk: Reward(R: R)=1:2(next support area).
• Breakout entry after opening range or first candle low(for open high set up).

✓ Let’s do it an example
Example :
 3. PIN BAR Trading Strategy :

➢ Pin Bar Structure :

Let’s understand a bearish pin bar. How it formed ?
 Phase1: After a strong extended up-trend has been in effect, the
atmosphere is bullish.
 Phase2: The price opens and trades higher. The bulls are in control.
 Phase3: But before the end of the day, the bears step in and take the price
back down to the lower end of the trading range, creating a small body for
the day. The long upper wick represents that sellers had started coming in at
these levels. A lower open or a red candle the next day reinforces the fact
that selling is going on and sellers have now taken control
• So basically pin bar is a reversal pattern. There are two types of pin (1)
bearish pin bar, explained above, and (2) bullish pin bar
➢ Criteria to Identify Pin Bars :

• First Requires old support or resistance in the background

• Price rallies above resistance only to fall back below. Price closes below
resistance and on or near its lows. reverse for support
• The “wick” (or tail) should be at least 2 – 3 times the length of the body.
• The body should be completely contained within the previous day’s range.
The body either red or black
• The body should be present towards either the upper or lower extreme of the
Pin Bar.
• The wick should stand out when compared to surrounding bars. The wick of
the Pin Bar should be larger than the previous day’s trading range
• The following day needs to confirm
• The volume can be either low ( no demand above the resistance ) or high
(supply overcoming the demand above resistance ), reverse for support
Example :
Example :
4. RSI Trading Strategy :

➢ What is the Relative Strength Index (RSI) ?

• The Relative Strength Index (RSI), developed by J. Welles Wilder. Relative

Strength Index (RSI) is a momentum oscillator that measures the speed and
change of price movements. The RSI oscillates between zero and 100
➢ How does the RSI indicator work ?

• Let’s understand the formula .how it works? The

logic behind the RSI. RSI indicator is calculated
on the closing price. We can define bullish and
bearish price on a closing chart as follows:

1. If the current closing price is higher than the

previous closing price = Bullish trend

2. If the Current closing price is lower than the

previous closing price = Bearish trend
• RSI goes up: When your average gain is greater than your average loss
in a particular lookback period, and this pretty much means that the size
of your bullish candles is larger than the bearish candles.

• RSI goes down: When your average gains are smaller than your
average loss in a particular look-back period. This means the size of
bearish candles is larger than the bullish candles. In other words, the RSI
indicator measures the momentum of price or trend

Parameters :
• The default look-back period for RSI is 14, but this can be changed. The look-
back period for RSI is lowered to increase sensitivity or raised to decrease
sensitivity. 7- Period RSI is more likely to reach overbought or oversold levels
than 14- period RSI.
➢ Uses of Relative Strength Index Trading Strategy :

➢ RSI shows overbought or oversold :

• RSI When above 70 overbought and oversold when below 30. These levels
can also be changed if necessary to better fit the security. For example, if
security is repeatedly reaching the oversold level of 30 you may want to
adjust this level to 20.
• Relative Strength Index (RSI) overbought and oversold readings work best
when prices move sideways within a range
• During strong up trends, the RSI may remain overbought for extended
periods.

So consider only oversold when the trend is strong. reverse for strong downtrend
➢ RSI pattern :

RSI also often forms chart patterns(like price chart patterns) that may not show on the underlying
price chart, such as double tops and bottoms, support resistance, and trend lines.
➢ Identifying trend using RSI :

• Uptrend :
• If RSI above 50. This tells you is that the average gain is larger than the average loss, you can
conclude that it’s in an uptrend. In an uptrend, the RSI tends to remain in the 40 to 80 range
with the 40-50 zone acting as a support zone

• Downtrend :
• If RSI below 50. This tells you that the average loss is greater than the average gain, and you
can conclude that it’s in a downtrend
• During a downtrend, the RSI tends to stay between the 20 to 60 range with the 50-60 zone
acting as a resistance zone. These ranges will vary depending on the RSI settings and the
strength of the security’s trend
➢ DIVERGENCE :

• If prices make a new high or low that isn’t confirmed by the RSI, this divergence can signal
a price reversal.

➢ Price makes lower low while RSI makes a higher low. Why ?

• A bullish divergence occurs when the price makes a lower low and RSI forms a
higher low. If RSI does not confirm the lower low and this shows strengthening
momentum. It means there were gains in between while the price made new
lows but the gains prevented the RSI from making a corresponding lower low. The
logic is reversed for the Bearish divergence.
 ✓ B4Trading – Tamil

• Watch our videos on youtube channel