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5 Popular Day Trading Strategies, Exposed!

5 Popular Day Trading Strategies, Exposed!

Want to know the real success data behind some of the most common beginner day trading strategies out there? In this article, we take a deep dive into five of the most googled setups for active day traders and put them to the test in TrendSpider’s No-Code Strategy Tester!

The entry and exit criteria within these strategies varied, but all other factors remained constant;

  • We tested all strategies against the SPY ETF
  • We tested on the 5m, 15m, and 30m time frames, with a focus on the 15m
  • We tested back 7000 candles on each time frame

The results were quite interesting, so let’s jump in! 

RSI Strategy

The first strategy we tested was a basic RSI strategy. We started here because of how common the idea is. Every trader has heard of ‘overbought’ and ‘oversold’ conditions. In this strategy, we buy when RSI is less than or equal to 30, and sell when it’s greater than or equal to 70. Here are the results;

For such a simple strategy, it actually did perform quite well over the time period we tested. We found that the strategy yielded a net gain of +14.85%, slightly beating the performance of buying and holding over that same period of time. This is clearly a nice, simple strategy for a beginner! Below, we review how the data compared on a few different time frames; 

As shown here, the 15 minute time frame was the top performer of the three time frames that were tested. It was the only time frame that beat out the asset over the same period of time, and with a win rate of 66%, the odds are in the favor of the trader looking to capitalize on this particular edge.

MACD/Bollinger Band Strategy

Next, we took a look at the MACD indicator. In this strategy, we buy when the MACD line crosses up on the signal line. In addition, we also require price to be closing above the upper Bollinger Band. This helps to define that momentum is showing strength. Let’s see how it performed; 

Considering that we utilized more specific criteria for our entry, one would think that this strategy would have yielded more favorable results but that actually was not the case here. Our net profit on this strategy was only +6.01% vs. the buy and hold of +14.10% over the same period of time. Lets see how some other time frames compared;

As shown in the table above, the 15 minute time frame was again the best performing of the three time frames that we tested. Not only did it yield the highest percentage return, but it also offered the highest win rate, as well.

Ichimoku Strategy

In our next strategy, we utilized the Ichimoku indicator. There are six different components that make up this particular indicator, but for this strategy we focused on the Kumo cloud. The Kumo cloud is comprised of the Senkou A and Senkou B lines. In this strategy, we buy when price is above the Kumo cloud (above the Senkou A and Senkou B lines) and sell when price is below the cloud. Here are the results;  

The results of this strategy were relatively favorable, yielding an +11.03% gain over the time period. Unfortunately, however, the strategy did not beat the return of buying and holding. In addition, with a win rate of only 36%, this strategy is bound to frustrate any beginner trader. Let’s see how the alternate time frames stacked up; 

As we can see, the best performing time frame for this strategy was the 30 minute time frame. With a net profit of +37.15%, it slightly edges out the buy and hold return over the same time period. Again, however, it’s important to note the win rate of only 42%. An active trader will have to keep a keen eye on their charts if they intend to utilize this strategy.

Moving Average Strategy

By far, some of the most common day trading strategies utilize moving averages. Different traders have different approaches when it comes to moving average length, but in this strategy we utilized the 3 period and 8 period SMA. Here, we buy when the 3 period moving average crosses up on the 8 period moving average, and sell when the 3 period crosses down on the 8 period. Let’s see how we did;  

As you can see, the results of this test were quite good. The net gain on the strategy was +18.44%, which beat out the buy and hold by 3.73%. Additional attention should be paid to the sheer number of trades taken in this scenario. At a whopping 495 trades, be prepared for lots time in front of the screens. Let’s see how the 15m compares to the other time frames we tested; 

When it comes to this strategy, the clear winner is the 30m time frame. It outperforms the asset by 17.73%, has the highest win rate of the bunch, and requires the least amount of trades! Win, win, win.

Reversal Candle Strategy

For our last strategy, we utilized reversal candlestick patterns because, after all, what is trading without candles? In this strategy, we’re buying and selling on any of the most common reversal candles. This includes a hammer (or inverted hammer), a doji, or an engulfing candle (bullish or bearish, respectively). In addition, we’ve added a 2x average volume criteria by defining RVOL (relative volume) as greater than 2. Let’s see how we do;

With a win rate of 63% and a net profit of +20.36%, this strategy seems to work quite well over the time period that was tested. So well, in fact, that it actually beats out all of the other strategies that we tested. Let’s take a look at the other time frames to see how they fared;

Interestingly, not only does the 15m time frame outperform the buy and hold, but so too does the 30m time frame. In addition, the number of trades taken over the 7000 candle period was relatively small for both time frames, which certainly favors the trader who prefers the ‘less is more’ style of trading.

Final Conclusion

The results of these tests when stacked against each other were quite illuminating. Most interesting was the fact that the simplest methodologies seem to work better than the more complex methodologies.

Overall, the strategy with the best results was the Reversal Candle Strategy. Both the 15m and 30m time frames performed well, but the 30m was the overall winner outperforming the asset by a whopping +18.14% over the time period we tested. Second runner up went to the SMA Strategy, and specifically the 30m timeframe, which outperformed the asset by +17.73%.

On the opposite side of the curve, we find the MACD strategy as the weakest performer of all of the strategies that we tested. Below is a breakdown of the net profit, across time frames, of each of the strategies.

We hope this helps to shed some light on the some of the most common day trading strategies out there!