Day Trading Cheat Sheet for Forex, Futures, and Stocks

By:

James Knight

James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.

Updated: Oct 12, 2022

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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 don’t improve profitability or consistency. These day trading “cheats” are subtle things you can do to improve, some of which 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 with your own day trading process, hopefully they help you develop more efficiency and/or 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 simply a few of the tactics I’ve learned, since I began trading in 2005, that work for me.

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 EURUSD (sometimes GBPUSD if the EURUSD isn’t moving well).

When I day trade futures, I only trade the E-mini S&P 500 futures (ES).

When I trade stocks/ETFs, I only trade one or two (usually just one) that have I have handpicked. With stocks, I will trade the same stock every day for a week or more…and often for months. I don’t look at other charts. I don’t care what’s happening elsewhere in the market. I simply find a stock that has a good amount of volatility, a good amount of volume, and has nice intraday trends. For some ideas, see the Day Trading Stock Picks page. Once I find one I like, I trade it every day until I start to notice that it isn’t moving as well. Then I look for another stock.

This keeps it simple. 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 because they are trying to focus on too many things. Ironically, this additional work often means missing the opportunities you are trying to capture because your attention is too divided.

I don’t look for confirmation from any other charts or indexes, I only trade the one asset I have chosen to trade and that is the only chart I watch.

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.

Day Trading Cheat Sheet – Stop Losses and Targets

I like to trade consolidation breakouts and engulfing patterns. These are what trigger me into the trade. The direction of that trade is based on the size and velocity of the waves that preceded the trigger.

With nearly all my trades being triggered by these small patterns, I always know that my stop loss will be just below the pattern if going long or just above the pattern if going short. That makes it easy to place a stop loss, and we can plan out where that stop loss will be as bars forming. That means when a trade triggers I already know exactly where my stop loss will be.

I usually aim for a 1.6:1 to 2:1 reward:risk ratio. That means that if I am risking 10 cents on a stock trade, I should reasonably expect to make 16 to 20 cents. As the bars are forming, since I know where my stop loss will go, I can also assess whether my target is likely achievable. If it is, I proceed with the trade. If it isn’t, I skip the trade.

The stop loss and target must both be reasonable based on the price action. My stop loss is based on the small pattern that triggered the trade, and my target must be within the realm of possibility based on recent price movements.

Since I only day trade the EURUSD when forex trading, I find my average stop loss is about 5 pips, and my average profit is about 8 pips. When trading ES futures, my typical stop loss is 4 ticks and my average profit is 7 pips. During very volatile times the stop loss and target will expand.

Since I trade many different stocks, there is no typical stop loss amount due to the fact that prices vary significantly from one stock to the next. Once you have traded a certain stock for a while, you will likely find that your stop loss level amount is very close to the same number for most of your trades.

Day Trading Cheat Sheet – Position Size

Never risk more than 2% of capital on a single day trade. Risking 1% or less 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 a similar 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, most of my futures trades risk 4 ticks. Each tick on an E-mini S&P 500 contract is $12.50, so total risk equates to $50 per contract (4 x $12.50). You’re allowed to lose up to $120, so trade 2 contracts. If the price hits the stop loss you lose 2 x $50, or $100, plus commissions. That’s just below the $120 maximum risk for this account. You can’t trade 3 contracts because then you’re 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.

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.

The only exception is if the day ends up being very volatile. Say you trade the EURUSD and your stop loss is usually 5 pips, but today you are taking trades that require a 9 or 10 pip stop loss. Since the risk is almost double, cut the position size in half.

On most trades you won’t need to think much about position size, assuming the stop loss is normal. If the stop loss is quite a bit different than normal then take a couple seconds and make an adjustment to your position size for that trade.

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.

Walk away when the market sours. Take your remaining profit (or small loss) and don’t chase lost money. There is always another day.

An alternative daily stop loss strategy is to use your average daily profit. For example, if over the last 20 days your average profit is $500/day, then that is the most you can lose. That way, a losing day is recouped by a normal winning day. This number can also be used as a loss from top. If you start out the day well and make a quick $1,000, but then give $500 back, quit trading for the day.

Pick one method and stick with it.

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, stocks, for futures I trade from 8:30 to 10:30 AM EST (6:30 to 8:30 my local time). For forex, I also sometimes trade the early London session, but that means I am staying up very late, so I don’t trade it all the time.

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.

Day Trading Cheat Sheet – Strategies

I write lots of strategy articles and even wrote a Forex Strategies 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 you use all the time. You only need to make a few trades a day, and if you win 50% or 60% 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 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.

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 and just zoom out your chart a bit. 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. It may even hurt you, because it may make you second guess taking trades your strategy tells you to take, or compel you to take trades your strategy says you shouldn’t.

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.

For the EURUSD, I typically keep my y-axis at 60 pips. As soon as I log in to the platform I adjust that y-axis.

If trading the same stock all the time, try to maintain a similar chart scale each day.

A problem some traders run into is that on really quiet days, when the 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 much the market is moving from one day to the next…and in my experience helps make better trading decisions.

During very volatile periods in the market you need to expand your y-axis. Strive for consistency though. Keep it the same as much as possible.

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 (anyone!) else who could cause me to deviate from my methods would be 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 I may watch CNBC 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 (medium to high impact) 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.

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 or the 60 pip region on EURUSD. The second monitor provides a bit more perspective on 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. Also, avoid trading from a smartphone or tablet. If you’re going to day trade, be serious about it.

–I draw on my charts constantly throughout the day. I draw 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. 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.

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.