How to Day Trade Stocks in Two Hours or Less (Extensive Guide)

Last Updated July 23rd 2021
24 Min Read

In this article on how to day trade stocks in two hours or less, we're bringing you an extensive guide to show you how to day trade stocks if you have limited time.

You will learn how to find stocks to day trade, the best time to day trade stocks, and even how to day trade stocks for a living.

Contents:

How Much Can Day Traders Make?

When you are day trading stocks, you can expect the best return if you limit your trading time to between two to three hours per session. You are likely asking how much money can I make from day trading stocks in two hours or less? So. Let's answer that.

As a successful day trader, you can expect to make around $1000 in a two-hour trading session and, if you trade for, say, five hours, your return could be about $1300. Of course, you can day trade stocks for the entire day. But, the truth is, the more time you spend day trading stocks, your returns will diminish.

The day trading strategies you are about to learn will teach you how and why to day trade stocks for two hours or less a day.

How to Day Trade Stocks for Profit

Once you know how to find stocks to day trade, it might seem easy to day trade stocks. Buy a few hundred stocks, watch for a few minutes as their price rises and then close the trade for a nice, fat profit.

But, is day trading stocks easy? No, not really. If it were, millions of people would be day trading stocks for a profit.

Before you head off to the car showroom to put a deposit on a Ferrari, let's look at some day trading facts.

As a day trader, you have to analyse different stock price charts.

As a newbie to day trading stocks, the charts can appear complex, and they move fast. You could get lucky and place a trade for a quick profit. But, day trading stocks for a living has to be about more than luck.

The truth is, you need a trading plan to day trade stocks, and your plan includes day trading rules, including how to manage your losses.

A trading plan is a guideline for your trading sessions. It will include:

  1.   Your chosen day trading strategies
  2.   What time of day to trade stocks
  3.   How to select stocks to day trade
  4.   How much money to risk per trade on day trading stocks
  5.   Your maximum loss before you close your trading station for the day

Without a trading plan, making money from day trading stocks may be hit and miss.

Don't worry. We are here to help you to put together a trading plan for day trading stocks, so you know how to day trade stocks for long-term profits.

It is possible to make a living from day trading stocks if you put in the time and effort. And it will take time. Only 4% of day traders are successful in generating consistent monthly income from day trading stocks.

Set aside at least six months to spend educating yourself and forming your trading plan. It may take a year or more of hard work before you can make regular profits from day trading stocks.

Treat your day trading like a business, rather than a game, and commit to improving business practice by becoming a better day trader every day.

To become a successful day trader, buying and selling stocks, you need a winning plan.

You have tested your strategies, and overall they return more winning trades than losing trades. Or your winnings outweigh your losses. Either way, the aim is to hold your discipline and refrain from gambling on a stock.

You have roughly twenty days a month to focus your trading efforts. Before committing to a stock purchase, constantly assess your risk. New traders tend to concentrate on how much they can win and overlook the potential loss.

By limiting the size of your losses, the wins will keep you ahead with profits.

Best Times to Day  Trade the Stock Market

The stock market opens at 9:30 AM EST.

The best time to trade stocks is in the first hour after opening. Some day traders only trade stocks in this hour. They make their morning profits and close for the day.

Before the stock market opens, spend some time watching your selected stocks. You gain insight into how the market may shape up once it opens. Are their major biases for a trend? Has there been recent news about the stocks or the company? And which stocks are on the move?

Half an hour spent checking the stock market before opening prepares you mentally and can transform your trading for the day.

Suppose you trade the open stock market, aim for a trading window between 30 – 90 minutes. After this, your focus and concentration may drift, leading to mistakes or overtrading.

The last hour of the trading day is also popular with day traders. 3 PM to 4 PM is when other traders may be offloading their stocks for the day or swing traders buying stocks to make overnight gains.

Because most day traders focus on the opening or close of the stock market, the middle of the day is not the best time to start day trading stocks as there may be less liquidity.

How to Find Stocks to Day Trade

Every trading day, there are thousands of stocks to trade, which seems like a good thing. However, the massive choice makes it challenging to narrow your selections.

There are three ways to find stocks to day trade:

  1. Trade the same stocks each day – become an expert in day trading stocks by picking the same two or three stocks to trade each day. The more familiar you become with a stock, the more expertise you gain in trading that stock.
    The extra benefit is the time-saving as you don't have to spend hours each week researching potential stocks to trade. Choose stocks with high volume and liquidity because it allows you to change your position size, which is essential for long-term growth (more on that later).
    On some days, a stock may be more volatile, so you reduce your position size with slightly larger targets and stop losses. If the stock has low volume, increase your position size to accommodate smaller stop losses and targets, which means you can make a decent return on day trading stocks or ETFs regardless of the volatility at the time of trading.
    One of the most widely traded ETFs is the S&P 500 SPDR (SPY), so it's a good one to add to your daily selection to trade.
  2. Run a weekly stock screener – a stock screener finds the stocks with volatility and good volume. Resist the temptation to trade stocks that aren't on your list. It will distract you from your intention to become an expert with a few select stocks.
    Each week, run the stock screener to choose your stocks. You may find the same stocks come out every week, and that's OK. Stick with those stocks because they're likely to give you a better return.
    The stock screener searches for stocks with moderate to high volume and high volatility. It's a great way to find volatile stocks for day trading in 20 minutes or less. You can add filters to thin out the stock choices to suit your trading strategies.
  3. Look for stocks that are moving – find stocks that are on the move, showing clear direction. You may need to do some research the night before to look for stocks that may break out on the opening the following day.
    Check the economic calendar for scheduled, high-impact news. Or subscribe to an alert service for real-time data for stocks.

Do I Need to do my 'Homework' or Watch the News Before or During the Trading Day?

How much homework you need to do depends on the stocks you are trading.

But, you don't need to watch the business news channels.

The issue with the opinions of other business or financial channels is that they are just opinions. That doesn't mean these experts can predict price movements correctly. However, an excellent source of information for day traders is an economic calendar.

How to Use an Economic Calendar for Day Trading Stocks in two hours or less

It's essential to be aware of scheduled financial news. High-impact news can significantly influence the price of company shares. On the release of data such as earnings, budget changes, unemployment etc., the market may see increased volatility, causing price swings.

In the morning, before the stock markets open, check the economic calendar for upcoming news that day. Look for high-impact news – sometimes flagged red. Low and medium impact news tends not to cause volatility in the stock markets.

Exit live trades a few minutes before the news announcements and don't trade a stock before a high-impact news release. Watch the price charts to see what happens with the stock price after the release.

Once the market has settled down, you may find another opportunity with a good set-up.

Some day traders trade with the economic news, but this can be a gamble. For a novice day trader, it's high-risk trading. A gambling approach could result in considerable losses. Only focus on top quality set-ups as a way to increase your day trading profits.

Day Trading Stocks Between 9:15 AM to 10 AM EST

To trade stocks successfully between 9:15 AM to 10 AM EST, you'll need a good strategy, one that you can rely on each day and that you know well.

One such strategy is called the Truncated Price Swing Strategy.

How to Trade the Truncated Price Swing Strategy for Day Trading Stocks

The truncated price swing strategy consists of guidelines, which is unusual as most day trading strategies are rule-based. There's a bit of a learning curve, so practising day trading in a demo account may be an option for you to become familiar with it.

Truncated means shorter or reduced, or cut off. It's a move on the charts that fails to hit the high/low of the previous price move.

Typically, the set up will occur during the first fifteen minutes of the stock market opening, and you will be looking for stocks with volatility.

When the market consolidates, the price moves sideways in a range indicating buy and seller uncertainty.

When the price breaks out of consolidation, you wait for confirmation that this is the direction for the trade to continue. Price often consolidates in a trend when it has reached a new high or a new low. From that point, it can rest and continue, or it may retrace to a previous price point.

Your analysis will guide you on the directional bias for a stock.

With that in mind, here are the guidelines for trading the truncated price swing strategy for day trading stocks:

  1. When the market opens, you look for a breakout of consolidation, and it breaks above or below. The price may retest consolidation, but if it keeps moving up and down, leave the trade alone and find another stock to trade.
  2. If the price broke above consolidation, you consider a buy (a long trade), especially if the price pulled back then broke away again
  3. If the price broke below consolidation and retests, you are looking for a short (sell)

The above image shows the price consolidating, breaking out of the box and then retesting. After the retest, the price flew up

  1. If the stock price rose on market opening, you would consider a buy if, after a pullback, the price consolidates above that
  2. If the price went down when the market opened, you would consider a sell if, after a pullback, the price consolidated below

The first pullback won't always consolidate above the open. Sometimes it opens below the price. It is best to wait and watch to assess the directional bias for the day.

Wait to see if it breaks to the high or the low and then take the trade accordingly.

There may be an element of waiting, so be patient to see how the price plays out.

Be aware of overall price action, as well as resistance and support zones.

Look for a pullback of at least 40% of the initial break out.

So, on the open, if the stock price spiked by $1, you wait for a retrace of, say, $0.40 to $0.70.

As a guideline, this price difference gives a good trading opportunity.

If the price retraces to say $0.10 to $0.30, it's not a big enough opportunity for the risk.

Trade the strong moves and ignore the weak moves.

How to Manage the Truncated Swing Day Trading Strategy

  1. Risk management – always have a stop loss for your trades. Place a stop loss a few cents below the low or the high of the consolidation. If the price hits your stop loss, it prevents bigger losses. If your stop loss doesn't get hit and the price moves in your favour, all good.

risk management day trading strategy

In the above image, you would be buying in this trade. But it also shows you where you would place your stop loss if you were selling

  1. Set a target – for a long (buy), set your target slightly above the highest price from the open price. For a short (sell), place your target a little below the lowest price after the market opened.
    This is one strategy, and the parameters are guidelines. Other day traders may have different targets.
  2. Risk to Reward (RTR) – to get ahead with your day trading efforts, aim for an RTR of 1.5 to 1 as a minimum. For every $1 you risk, there is a potential gain of $1.50. Check out where your stop loss is against your target. If the trade cannot match up to a 1.5 to 1 RTR, it isn't worth taking the trade. There are plenty more trades where you can find a good RTR.
  3. Advanced targets – you have chosen highly volatile stocks, and you are aware of how quickly the price moves. The objective is to get in and out of the market for a profit. If the price has aggressive momentum, you may be able to ride the wave a little longer.
    It's is an advanced move, but if you set a limit for when you will get out of the trade, you can do it. You may rule that if the price moves back $0.10, you will exit the trade. Don't wait to see a clear reversal signal. Often, by the time you see a signal for an exit, it's too late, and the price has moved against you.
  4. Pre-market analysis – spend some time before the open, watching what the pre-market is doing. If you see an aggressive move, observe it and be prepared for when the market opens.
    If the price follows through, you could have an excellent opportunity for a day trade in the first few minutes of the open. For instance, you might see a breakout, followed by a pullback to consolidation. If it holds when the market opens, there's an opportunity for a long trade.
    Make sure there is sufficient volume in the market before you take the trade. If there is no order flow, leave the trade alone and look for another.

 Read Also: How Much Money Can I Make as a Day Trader?

Day Trading Stocks Between 10 AM to 11 AM EST and 3 PM to 4:30 PM EST

The best time to trade is on the market open at 9:30 AM EST.

If you want to trade at other times, you may experience some challenges. The market has got going, and the charts may not look as clear as they did first thing in the morning. Volume may have dropped, and volatility may be lower.

Once the market has settled at around 10 AM, you may observe some trend patterns on the charts. Check your stock scanner and pick out one or two that match up with your requirements.

If the market trend appears to the downside, wait for lower highs and lower lows before considering a trade.

Wait for the price to fall back to a lower high and look for consolidation below that. As before, trade from retracement pullbacks of no less than 40% to make the risk worthwhile.

If the trend is up, look for higher highs and higher lows. If the low falls below the last low, beware. You want to see the price reaching for the previous low but not able to make it. If the price drops below the previous low, leave the trade alone and look for another.

Keep your stop loss to a few cents above the high (or below the low). Aim for an RTR of 1.5 to 1 as a minimum.

Other Considerations Before Day Trading This Strategy

As a day trader trading stocks, you are always looking for high-probability, low-risk trades. It is better to wait for one good trade than five wishy-washy, low probability trades. You don't want to depend on luck because that's gambling, not professional day trading.

The truncated price swing strategy is a great method as long as you only trade on significant pullbacks.  You are looking for higher highs and higher lows for a long trade and lower highs and lower lows for a short trade.

Patience wins the day.

Sometimes the price may reach for the previous high or low several times before moving off in a clear direction. This price action can indicate market uncertainty. But if the price continually fails to reach the previous price point, watch and wait.

How Do I Day Trade Stocks Using Price Action?

Price action always maps out on the chart.

Trade what you see rather than what you want to see.

Always look at both options for a trade and be prepared to change your mind according to price action. For instance, if you focus on a buy, you may fail to see a signal for a sell and the same principle if you are looking for a sell.

Be non-commital other than 100% focus on the price action.

  1. Look for trades with big movement – this indicates buyer or seller sentiment. When price action has momentum, you can ride the pullbacks until the price becomes exhausted or hits a support or resistance zone
  2. Look for slow, choppy pullbacks – if the price has zoomed up to a new high but then dropped back down equally as fast, avoid this trade. You want to see that the price is having difficulty coming back to a previous price zone.
    For instance, if a stock had risen sharply from $12 to $13.50 but then had crashed back to $12.25, it could be a false breakout.
    But, if the price takes time to get back to $12.25, it shows a conflict between buyers and sellers. You observe this as choppy movement on the chart. It's an indication that buying pressure may be stronger than selling pressure.
  3. Wait for consolidation – FOMO can be an issue for new day traders. But, waiting for a 3-minute consolidation can prevent you from getting into a lot of losing trades. When learning to day trade stocks in less than two hours, it is crucial to build your trading confidence. A string of needless losses will damage your confidence and lead to future hesitation in taking trades.

In day trading, price action can change in less than a minute.

Using Tick Charts for Day Trading

Some day traders use tick charts for day trading.

Tick charts are data-based interval charts that prints a bar at the end of a set data interval. These charts are unlike a typical chart based on time, such as 5-minute, 15-minute candles etc.

Tick charts show a set number of transactions so that traders can collect information about market action and order flow.

A tick bar is created every 200 or 500 ticks or whatever your settings. A bar isn't complete until it has filled up. Then it will open a new bar, which gives you the chance to assess order flow.

If you trade multiple stocks, one drawback is you may need to adjust the tick chart for each stock as they vary by stock and ETF, which means the results could be more subjective.

You will be waiting to see a pause on the tick chart to assess when to enter a trade.

A 500 tick chart will form 500 tick bars. That bar may fill in minutes or a few hours, depending on order flow, or it could take days.

high volume day chart

The above image shows an 800 tick chart on a high volume day. Each bar is 800 transactions.

It is easy to read the subtle shifts on the chart. If liquidity is low, you can drop down to a 500 tick chart.

 Compare with the below 1-minute chart, which shows a lot less information

1-minute chart

A tick chart is somewhat like Renko blocks in Forex trading.

Placing Day Trading Orders for Stocks in the Real World

You now know where to place your trade entries, stop losses and trade targets. Your stop loss should be a market order. When the price hits the target, your order executes at whatever market price is available.

There's no reason to be afraid of market orders.

Day traders sometimes worry about slippage but, if you have concerns, don't trade that stock or ETF. There will be times when minor slippage occurs. It's part of the trading process, but it isn't an everyday occurrence, and it shouldn't affect your overall probability.

Your target is visible to the market. If you have bought a long trade for 800 shares, there will be a live market order ready to sell 800 shares at your target price.

To exit a trade manually is a little more complicated. Because the price is going against you, it will be a race to find liquidity.

It isn't a problem if you are trading an ETF such as the S&P 500 SPDR (SPY) because it's popular with day traders, so liquidity is usually available. The trick is to exit the trade as soon as you realise there's a problem. Liquidity can change rapidly, so dithering about can cost you more money.

A big part of the art of day trading stocks is the speed of your reactions. Novice traders typically hold on to a trade hoping the price will come back. Consequently, delaying exit decisions can lead to bigger losses and will impact your results and your confidence. Taking a few small hits is significantly better than rolling big losses, one after the other.

Day trading stocks takes a lot of practice, and it does take some finesse to know when to enter a trade. Much as you can incur bigger losses from waiting, conversely, waiting too long to take an entry can impact your profits.

Watch the Level II (see below description) and take the shares when you can, bearing in mind that there are a limited number of shares available.

 (Level II is essentially the order book for Nasdaq stocks. When you place an order, it goes through many different market makers and other market participants. Level II will show you a ranked list of the best bid and ask prices from each of these participants, giving you a detailed insight into the price action)

To trade stocks in two hours or less each day takes a lot of focus. You have to be on your toes and aware of everything happening around the shares you are considering.

Check Out: How To Make Money Trading Stocks?

Recap of How to Day Trade Stocks

The method we have outlined for day trading stocks is subjective. Indeed, day trading itself is subjective. No two traders will see precisely the same opportunities even if they are looking at the same chart at the same time.

This day trading strategy requires lots of practice.

Before day trading stocks with real money, trading in a demo account helps you become 100% clear on the method before risking money day trading stocks. The market moves fast, and an amateur trader can quickly get swallowed up, confused and baffled by the price action.

Practice in a demo account for several months until you are consistently profitable.

Take the time to pick out your favourite shares and get to know them well. It's not quite the same in a demo account because you can always get shares at reasonable prices. In the real world, that's not always possible. But trading stocks in a demo account will get you better acquainted with how the market moves.

When you start day trading stocks with real money, start small. Buy 100 shares and take small profits. Compound your account and build up slowly by only risking 1% of your capital on each trade.

It is possible to day trade stocks in less than two hours a day. Be ready to trade at 9:30 AM EST when the market opens, having done half an hour or so of pre-market study.

With time, practice and determination, you will soon be on track to making an income day trading stocks in less than two hours a day.

Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.

Trading or investing in financial instruments such as stocks & ETFs may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.

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