Short term trading strategies that work

Over the past week or so, I’ve written a bit about short term trading strategies on my blog, and I’ve also done two podcasts (here and here.) Starting tomorrow, I’m going to start a few posts that will look into the statistical behavior of the trading day, but I thought it might be helpful, first, to look at some broad intraday trading ideas that either have worked for me, or have worked for other people.

No type of trading or timeframe is easy, but the challenges of daytrading are especially difficult. Whatever you do, you have to do between the open and close; distortions and risks can wipe out many profitable trades; and the psychological experience of daytrading can cover the full range from elation to utter despair back to elation (sometimes within the same minute!)–this isn’t easy. However, I want to share a few ideas that I’ve seen work:

1. Trade with the trend. Usually, “trend trading” means a channel breakout system with a very long-term perspective. Indexing or “buy and hold” is actually a kind of trend trading, with a multi-decade time horizon. You can do the same thing intraday, but I think you have to adapt. Trade pullbacks, breakouts of lower timeframes, opening range breakouts–these ideas work. They all take supremely focused risk management, but it’s possible to put on a few entries and just “let them work” throughout the trading day. Note that many traders who trade this style hold at least partial exposures overnight.

Trading a downtrend in 10 year Notes
Trading a downtrend in 10 year Notes

2. Fade moves. There are many ways to do this, and you can adapt for your personality. You can be a trader who sits watching for news in a stock, and then looks to trade around the overreactions. If you do this, you will need to scale in, scale in more, and be prepared to add to losing trades. Obviously, sometimes you will be full sized and wrong, so you have to limit your risk. There certainly are traders who do this, but it’s a hard way to make a living. I traded a system for a few years that basically faded new highs and new lows on the S&P futures during the midday. With good discipline, you can pick up a few points pretty consistently doing so, and you could probably also extend the idea to individual stocks (though, I’d ask why you’re taking the risk of an individual stock when you’re basically making a market play!)

Fading highs and lows can be a profitable strategy
Fading highs and lows can be a profitable strategy

3. Trade opening tendencies. There are some trades around the open that work pretty well. Indexes tend to be “wrong” and reverse early on, gaps tend to close (except when they don’t), and the opening range breakout idea is legendary. There are certainly things to be done here, but make sure you understand the math and risk.

4. Trade breakouts. There are points where market activity is “bottled up”, whether by order flow, anticipation of news, or due to some other reason. It takes skill, but it’s certainly possible to trade around these points. Be aware that many of the textbook examples of breakout trades are carefully chosen; the real market is much messier and much harder to trade, but this is another idea that works for some traders.

I don’t claim that this is an exhaustive list of everything that works, but it is everything that I, personally, have seen work. I’m very suspicious of ideas based on ratios, averages, simple price patterns, trend indicators (even if combined on multiple timeframes), though some of these may have a place in a supporting role in some strategies. As I said in the podcast, there’s basically nothing new here with the exception of the structures around the open: we can trade with the trend or trade against the trend, but everything is complicated by the additional challenges and risks of daytrading. I’ll continue tomorrow with a look at some of those stats around the open.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 10 Comments

  1. BobT123

    Excellent post. Loving this day-trading stuff.

  2. rossgreenspan

    Fading the highs and lows is what I call “trading the failure.” Marginal highs/lows that violate by less than a certain amount (fraction of 20 D ATR for me) and then return through the prior high/low are failed breaks that signal short-term exhaustion and signal to fade.

  3. Matt Haines

    Hi Adam. I don’t usually listen to podcasts, but had an “opportunity” to do some driving recently, so grabbed a few of yours to listen to. I really enjoyed them, and had only one suggestion: podcasts (and blogs) have an appeal because they combine information with personality. I was going to recommend being less general and more specific about what you, Adam H Grimes, does. That’s way more interesting than hearing what’s possible…we want to know what YOU actually do. Whether it’s trading or making coffee. 🙂 And lo and behold, here’s a post doing that very thing. So all I can say is “keep it up!” And the next time I’m traveling, I’ll load up on more of your podcasts.

    1. George Selinsky

      I would venture to disagree, I find the fact that Adam has researched a lot of different approaches and talked to so many different professionals to be interesting. It widens the scope of the material and provides you with a pallette of ideas as opposed to being given a few rigid ideas. Trading is a personality thing and we’re not all like Adam.

  4. George

    What is the logic behind the red and blue lines from ‘Fading highs and lows can be a profitable strategy’ chart? Very interesting that no one reading this post is asking this question… I am looking at that chart and can’t possibly get the idea behind these 2 lines (but maybe that’s the reason I don’t make money in the market 🙂 ).

    1. ewtnewbie

      George, they are simply the last “known” high (red) and low (blue) price of that market. They are placed on the chart merely to visually identify to the trader that the period high or low has been violated. If you trade with the breakout, it alerts you to enter. If you fade the breakout, as rossgreenspan details below, the line alerts you to watch for a reversal or failed breakout. Hope that helps.

      1. George

        Thanks ewtnewbie

        If the red line is the last known high, the red line should never drop. Still, it does. The only thing I can image is that the red line drops because it is reset when the time unit ends. So let’s say a new time unit starts somewhere above “can” from “Fading highs and lows can be a profitable strategy” – where the red line drops. If that’s the start of a new time interval, why does the blue line immediately rise?

        1. Adam Grimes

          It is simply the high and low of the day. The “reset” is the beginning of the next trading day. That’s a very simple “indicator”… not even really worthy of the label… but a useful one to have on your charts intraday just as a reminder when you are coming to the high or low of the day. (I think this example treats the 16:00 – 16:15 aftermarket session as a separate session. That might be the source of the confusion.)

          1. George

            Thanks Adam for these details, I understand now.

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