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Day Trading Strategies For September

September is always an interesting time in financial markets. The end of the summer brings with it much sadness but also a renewed sense of purpose; the end of the year is in sight and the “back to school” mentality sees traders resharpening their focus on their trading plans. 

The result is that historically September has been historically the worst month of the year for the stock market, being one of the few months where the Dow Jones Industrial Average is down on average over the last hundred years.

September day trading

Beware September seasonality trends

While there are varying views on seasonality within markets, one can’t argue with the data and an observation which has made its way into common trading knowledge is that in September, stock markets tend to suffer. There is data showing that between 1928 and 2021, the S&P loses an average of 1% over the month. There are similar losses seen in the Dow Jones and Nasdaq too. The losses also extend to asset markets beyond the US.

So, if you’re typical strategy is simply to buy and hold, it might be worth looking at some alternative trading methods this month. With that in mind, let’s take a look at three-day trading strategies you can use to help keep your bottom line in top order this month.

1 – Range Breakouts

2 – Using the MACD indicator

3 – Combining Moving Averages and the Stochastics indicator

Range Breakouts

Range breakouts are an incredibly simple trading technique that day traders can employ in their arsenal. The basic premise with this strategy is to identify the high and low of the previous session and then look to trade as price breaks above or below either side of that range.

Now, considering the seasonality aspect (data shows September tends to be a losing month for stock markets), one simple way to amplify this strategy is to look to only trade breakdowns through range lows. So, in this scenario we simply identify the low of the previous session and then place a short trade as price breaks down below that level.

 

MACD trading strategy

 

In the chart above we can see the Dow Jones on a 1-hour time frame. The grey horizontal lines mark the significant lows in play on a daily basis. As you can see since the middle of August, there have been four significant breakdown opportunities in this one market alone.

The strategy here is very simple. Mark the previous day's low and, if in a series of inside days, mark the last significant swing low, and trade short as price breaks below the level.

In terms of trade management, a typical method is to have a stop loss that is around 1/3 of the day’s range upon entry, then target at least twice that distance.

At this point, the trader can either exit the trade or move their stop loss to entry and hold in an attempt to catch a bigger move. This also allows for additional trades to be placed if the market continues breaking down and again, fits nicely into the idea of September being a losing month for markets, looking to catch a bigger downside move. 

The MACD Indicator

Another strategy that can be deployed by day traders over September is the use of the MACD indicator. The MACD is a fantastic tool that measures both trend direction and trend strength. Simply put, the indicator measures the difference between a short-term and longer-term moving average (usually 12 and 26) and, when this difference is positive, the market is said to be bullish, when negative, the market is said to be bearish.

These views are indicated by the histogram which flips green when bullish and red when bearish, the size of the bars themselves indicating the strength of the moves. 

One very simple yet effective method that day traders can therefore employ, is looking to sell the market as the indicator gives a bearish signal. As we saw with the last strategy, given that we know September tends to be a down month for markets, looking to only trade to the downside improves our chances of catching a bigger move. 

 

 

In the chart above we can see the FTSE 100 on the 30-minute chart with the MACD indicator in the sub-panel. After price breaks through the initial lows marked up on our chart, we anticipate a down trend Is beginning. At that point, it’s simply a case of monitoring the MACD indicator and looking to identify bearish signals. 

When it comes to managing these trades the typical methods is to either use a stop loss based on the day’s range, such as 1/3 of the range or to use structure, so for a short entry we would put our stop above the last swing high.

In terms of targets, again we look to secure a minimum of twice our risk or alternatively can use the MACD indicator, staying in the bearish trade until we get a contrary bullish signal (MACD flips green) to exit the trade and await a new signal. 

Important Point 

To explore our third and final day trading strategy for September, we’re going to take a look at a different market, forex, which illustrates a very important point to remember when trading; diversity is your friend.

There’s no need to focus solely on one market, especially when it comes to technical trading. The methods looked at so far will work just as well in commodities as they will in FX and equities and trading a combination of markets will generally help build better returns over time. Additionally, because the adage of lower markets in September applies to stocks, this time we don’t need to contain our trading to the short side. 

Moving Averages And the Stochastics Indicator

So, the final strategy we will consider uses a moving average and the stochastics indicator. The moving average is primarily used for establishing trend direction whereas the stochastics measures momentum, identifying when price swings are either overextended to the topside, and vulnerable to a reversal lower, or overextended to the downside and vulnerable to a reversal higher.

With this strategy, we want to use the moving average to identify the trend direction to trade with and then the stochastics indicator to pinpoint entry points. 



stochastics and moving average strategy

 

So, looking at the chart above we can see EURJPY on the 15 minute chart. We have a 96-period moving average (giving us roughly the average price over the last 24 hours) and the stochastics indicator in the sub-panel.

You can see that as price breaks above the initial highs we also begin trading above the moving average, signalling a bullish trend phase. So, we then look to our stochastics indicator for entry points. The vertical lines show the areas where the stochastics indicator has moved into oversold territory, suggesting room for a reversal higher. So, essentially, we have the moving average indicator giving us our trend direction to follow and then the stochastics indicator helps us identify when corrections within that trend has become exhausted and the trend is likely to resume. 

Final Thoughts

Hopefully, now you have some good ideas to take away and test for yourselves. Remember, the strategies discussed here can be applied to any market and for those of you who don’t have the time to day trade, they work just as well on the higher time-frames.

So, take them away and see how you get on and remember, just because the market tends to be down in September, doesn’t mean your profits do!

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