Successful day traders do not trade randomly. They wait for specific setups that have proven to work over time. This guide covers the seven best day trading setups, complete with entry rules, exit strategies, and tips for avoiding false signals.
What Makes a Good Day Trading Setup?
A quality setup has these characteristics:
- Clear entry trigger: You know exactly when to enter
- Defined risk: You can place a logical stop loss
- Favorable risk-reward: Potential profit exceeds potential loss
- Repeatable: The pattern occurs frequently enough to trade regularly
Pro tip: Master one or two setups before adding more. Traders who specialize in fewer patterns often outperform those who try to trade everything.
Setup 1: Bull Flag Pattern
The bull flag is one of the most reliable continuation patterns for day traders. It forms when a stock makes a strong move up (the pole) followed by a tight consolidation that drifts slightly lower (the flag).
How to Trade the Bull Flag
- Identify the pole: Look for a strong move up on high volume (at least 30-50% above average)
- Wait for the flag: Price consolidates in a tight range, usually 3-10 candles
- Volume decreases: Volume should dry up during the flag formation
- Entry: Buy when price breaks above the flag high with increasing volume
- Stop loss: Below the flag low
- Target: Measure the pole height and add it to the breakout point
Bull Flag Example
Stock moves from $50 to $55 (pole = $5). Consolidates between $54 and $55 for 20 minutes.
- Entry: $55.10 on breakout
- Stop: $53.90 (below flag low)
- Target: $60 (breakout + pole height)
- Risk: $1.20, Reward: $4.90, R:R = 1:4
Setup 2: VWAP Bounce
VWAP (Volume Weighted Average Price) acts as a magnet for price and provides excellent entry points in trending markets.
How to Trade VWAP Bounces
- Identify the trend: Price should be clearly above (uptrend) or below (downtrend) VWAP
- Wait for pullback: Price pulls back to test VWAP
- Look for reaction: Watch for bullish candles (uptrend) or bearish candles (downtrend) at VWAP
- Entry: Enter on the first candle that shows rejection from VWAP
- Stop loss: Just on the other side of VWAP
- Target: Previous high in uptrend, previous low in downtrend
VWAP Bounce Filters
- Works best during the first two hours of trading
- Look for the first or second touch of VWAP, not the fifth
- Avoid when VWAP is flat (choppy, directionless market)
Setup 3: Opening Range Breakout
The opening range breakout (ORB) captures momentum from the market open. It is one of the oldest and most reliable day trading strategies.
How to Trade the ORB
- Define the opening range: Mark the high and low of the first 5, 15, or 30 minutes
- Wait for breakout: Price must close outside the range on increasing volume
- Entry: Enter on the breakout candle close or on a pullback to the range edge
- Stop loss: Opposite side of the opening range
- Target: 1x or 2x the range height
Time frame tip: The 15-minute ORB is the most popular. Shorter timeframes (5 min) give more signals but more false breakouts. Longer timeframes (30 min) are more reliable but offer fewer opportunities.
Setup 4: Red to Green Move
A red to green move occurs when a stock opens lower than the previous day's close (gapping down) and then rallies back above yesterday's close. This shows buyers are stepping in aggressively.
How to Trade Red to Green
- Identify the gap: Stock opens at least 1-2% below yesterday's close
- Watch for reversal: Price starts climbing toward yesterday's close
- Entry: Buy when price crosses above yesterday's close
- Stop loss: Below the current day's low
- Target: Gap fill or previous resistance levels
Best Conditions for Red to Green
- Stock has a catalyst (earnings beat, upgrade, sector strength)
- Overall market is trending higher
- Volume is increasing as price approaches yesterday's close
Setup 5: Breakout and Retest
Rather than chasing breakouts, this setup waits for price to break a level and then return to test it as support (or resistance for short trades).
How to Trade Breakout Retests
- Identify key level: Clear resistance (or support) that has been tested multiple times
- Wait for breakout: Price breaks through the level on volume
- Wait for retest: Price pulls back to the broken level
- Entry: Enter when price holds the level and shows bullish (or bearish) candles
- Stop loss: Below the retest low (or above for shorts)
- Target: The range from the level to the breakout high, projected from the retest
Breakout Retest Example
Resistance at $100, stock breaks out to $102, pulls back to $100.20 and bounces.
- Entry: $100.50 on bounce confirmation
- Stop: $99.80 (below retest low)
- Target: $104 (projected range)
Setup 6: Double Bottom Reversal
The double bottom forms after a downtrend when price tests the same support level twice and bounces. It signals that sellers have exhausted themselves and buyers are taking control.
How to Trade Double Bottoms
- First bottom: Price makes a low and bounces
- Rally: Price rallies and creates a swing high (neckline)
- Second bottom: Price returns to test the first low
- Entry option 1: Enter at the second bottom with tight stop below
- Entry option 2: Wait for break above the neckline (safer but less reward)
- Stop loss: Below the double bottom low
- Target: Height of the pattern projected above the neckline
Confirmation Signals
- Second bottom has lower volume than first (selling exhaustion)
- Bullish divergence on RSI (price makes equal lows, RSI makes higher low)
- Second bottom slightly higher than first (higher low formation)
Setup 7: ABCD Pattern
The ABCD pattern is a simple but effective four-point pattern used by many professional traders. It identifies potential reversal zones after a measured move.
How to Trade the ABCD Pattern
- Point A: A significant low (for bullish) or high (for bearish)
- Point B: Price rallies (or drops) and creates the first swing
- Point C: Price retraces but does not go below A
- Point D: Price continues and travels the same distance as A to B
- Entry: At point D when CD = AB
- Stop loss: Beyond point D
- Target: Back to point C, then point B levels
Pattern math: For the classic ABCD, the CD leg should equal the AB leg in both price and time. Some traders use Fibonacci extensions (1.27 or 1.618 of AB) for point D.
How to Improve Your Setup Success Rate
Use Multiple Confirmations
The best trades have multiple factors aligning:
- Setup pattern is clear and textbook
- Volume confirms the move
- Trend direction supports the trade
- Key technical levels align with entry
Know When to Avoid Setups
Skip trades when:
- The market is choppy with no clear direction
- Major news or events are pending (FOMC, earnings)
- The setup is messy or unclear
- You have already hit your daily loss limit
Track Your Results
Keep records of every setup you trade. After 30-50 trades, analyze which setups work best for you and focus on those.
Analyze Your Trading Setups
Pro Trader Dashboard lets you tag trades by setup type and see which patterns perform best. Identify your highest win-rate setups and focus your trading there.
Summary
The best day trading setups provide clear entry and exit rules with favorable risk-reward ratios. Start by mastering one or two patterns before adding more to your playbook. Remember that no setup works 100% of the time, but consistent execution of high-probability patterns leads to long-term profitability. Track your results to identify which setups work best for your trading style.
Ready to learn more? Check out our guide on entry signals for day trading or learn about exit strategies.