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Intraday trading is a trading style that opens and closes on the same trading day. It mainly aims at taking advantage of the prices due to the market demand, news, and technical signals. Since no positions are carried overnight, intraday trading reduces exposure to after-market risks but requires quick decision-making and strict risk management.
Key Takeaways
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Aiming for short-term price fluctuations within the market hours is the main goal of intraday trading.
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All trades are settled on the same day, thus eliminating the risk associated with holding positions overnight.
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Risk management and discipline practices are the keys to obtaining consistent results.
What is Intraday Trading?
Intraday trading is the activity that involves purchasing and selling stocks within one trading day. The word “intraday” literally means “within a day,” indicating that all positions are opened and closed during market hours. This trading approach focuses on short-term price movements rather than long-term ownership.
Since no positions are held overnight, losses from price changes after the market closes are minimised. Intraday trading requires quick decision-making and constant market monitoring. It also demands strict risk management, as price movements can be fast and unpredictable within a single session.
5 Trading Strategies
Intraday trading involves various strategies designed to profit from short-term price movements within a single trading day. Below are five commonly used intraday trading strategies.
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Momentum Trading Strategy
Using the momentum trading strategy means either buying or selling stocks that are strongly moving in one direction with high trading volume. The strategy assumes that sharp price movements can be followed for a while. It is a strategy that relies on the correct timing of entry into the trend and quick exit as soon as the signals of reversal appear to effectively manage risk.
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Reversal Trading Strategy
The reversal trading strategy is directed to the detection of points in time when a dominant price trend is losing its strength and preparing to turn around. Among the intraday trading strategies, this is used to get into trades close to the turning points and, consequently, to limit the downside risk while profiting from the price corrections.
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Breakout Trading Strategy
A breakout trading strategy focuses on identifying when prices move above resistance or below support levels with strong trading volume. The strategy of intraday breakout trading, among others, comes with the necessity of quick action, determination of entry points, and the application of stop-loss orders in advance as a measure against both false breakouts and sudden reversals.
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Scalping Trading Strategy
The scalping trading strategy captures the tiny fluctuations in price by making numerous fast trades that are completed in a matter of seconds to minutes. Scalping is the strictest of the intraday trading strategies in terms of risk and discipline, as the execution is fast and continuous market monitoring is required, for the individual trade gains are small and depend on volume and discipline.
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Gap and Go Trading Strategy
The Gap and Go trading strategy aims at the stocks that present a difference in price between the beginning of the new trading day and the last trading session. The strategy consists of a rapid market entry, setting a stop-loss limit in advance, and using disciplined exits to cope with the volatility.
Other Intraday Trading Strategies
Besides the typical intraday techniques, there are a variety of advanced tricks that traders apply in order to gain profit from the rapid changes in the market. The operation of such strategies is based on price gaps, trend continuation, technical indicators, market levels, news events, and relative price movements.
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Bull Flag Trading Strategy
A bull flag trading strategy emphasizes the continuation patterns which tracts after a vigorous upward price move, and these patterns are by nature formed through a short consolidation period. It is a method that enables traders to go along with the existing bullish power and, at the same time, to use volume confirmation and stop-loss levels to cut down on the risk of false breakouts.
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Moving Average Crossover Strategy
The moving average crossover strategy utilises two moving averages for the purpose of trend detection and change identification. This strategy provides a straightforward and rule-based approach to entering and exiting trades, making it particularly suitable for highly trending markets.
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Pivot Point Strategy
The pivot point technique is used to figure out the support and resistance levels for the current day's trading session and is based on the previous day's high, low, and close prices. If the trading happens above the pivot point, this is interpreted as a bull market, and if the trading happens below the pivot point, it is a bear market. In the case of intraday trading strategies, pivot points are utilised for trend direction identification and for short-term entry points.
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Pullback Trading Strategy
The pullback trading strategy revolves around the concept of catching the trend in the market's direction by opening positions during price retracements that are temporary. Traders look for quick reversals in the upward trend or small drops in the downward trend before they go long or short, respectively.
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News-Based Trading
Trading based on news concentrates on the price changes caused by the releases of economic data, announcements from corporations, or political events. This intraday strategy is based on events and is very sensitive to time. It needs the rapidest execution and utmost risk management due to the price swings and wider spreads that can occur suddenly.
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Pair Trading Strategy
The pair trading strategy takes advantage of short-term price differences by going long on the stock that is performing poorly and short on the stock that is performing better. This is a market-neutral intraday strategy that centres around the relative movements in the prices rather than the overall direction of the market.
Intraday Trading Tips
1. Understand the Basic Techniques of Intraday Trading:
Here’s a list of the basic techniques for intraday trading:
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Do your research: Before purchasing the stocks of a particular company, do comprehensive research to gauge the vital parameters, indicating the strengths and weaknesses of the company.
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Risk-management and risk-reward ratio: As a beginner, you must always invest only the amount that you can afford to lose. Among the basic intraday trading strategies is to invest in stocks that have a risk-reward ratio of 1:3. This will allow you to lose the amount that would not pinch, while simultaneously providing the opportunity of receiving good returns. Another risk-management technique is to avoid investing more than 2% of your total trading capital on a single trade.
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Select liquid stocks: Rather than investing in several small and mid-cap stocks, you can select a few large-cap stocks. These stocks don’t have issues of liquidity as they are traded in higher volumes. Conversely, purchasing small or mid-cap stocks might force you to hold on to them, because of the comparatively lower volume of trade.
2. Use Intraday Trading Time Analysis:
The second in the list of intraday trading strategies is to carefully analyse the daily charts. Daily charts illustrate the price movement between the opening and closing hours, in a day’s trading session.
You can analyse the price fluctuations between short-term and medium-term through the daily charts. For intraday trading, you can study a range of charts, like the 15-minute chart, five-minute chart, two-minute chart, and tick-tack chart (line charts representing every executed trade).
3. Follow Sound Intraday Trading Strategies:
The third in the list of intraday trading strategies is to follow credible strategies. You can follow the techniques given below:
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Making use of the Opening Range Breakout (ORB) to map resistance and support: The opening range is the fluctuations in stock prices -whether high or low-after the beginning of a day’s trading session. While using the ORB for intraday trading, you must remember that when a stock moves upward from the breaking range, the prices are likely to remain bullish. Conversely, a downward trend can imply a bearish price. You can use this intraday trading strategy, in tune with other market indicators.
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Use Relative Strength Index (RSI) along with Average Directional Index (ADX): While RSI is a technical indicator used to identify over-purchased and over-sold stocks, the ADX is a trend identifier to aid traders in their decisions to purchase and sell. Combining both can help you make informed intraday trading decisions.
4. Understand the Difference Between Investing and Trading:
The fourth in the list of intraday trading strategies is to understand the difference between investing in stock markets and intraday trading. Both trading and investment require different strategies. For instance, as a diligent trader, you must close all open positions on the same day, irrespective of the target price being reached or not. But investments in stocks require a long-term approach, and prudent investors are seldom affected by short-term market volatility.
5. Remember That the Market is Unpredictable: [H3]
The last in the list of intraday trading strategies is to remember that intraday trading involves a high measure of risk. Even if you are a seasoned trader with cutting-edge tools, you cannot predict the price movement with absolute certainty. At times, despite the technical indicators predicting a bullish market, the prices can fall, resulting in bearish trends. If the market moves against your expectations, remember to exit your position immediately.
Conclusion
Now that you know how to do intraday trading, follow these intraday trading strategies and maximize your returns. You must always remember to rely on a trusted financial partner to open your intraday trading account. You can select Angel One to avail multiple benefits, like comprehensive technical analysis, cutting-edge technology, and insightful research reports. What’s more, you can avail of low brokerage fees.
