Best Strategies For Intraday Trading
The term ‘Intraday’ means within the day. In the finance world, intraday trading means trading the securities in the market during regular business hours. The securities include ETFs ( Exchange-traded-funds) and stocks. Intraday also signals the highs and low that the asset crossed during business hours.
Intraday is all about understanding the market and precise timing. An effective intraday trading strategy works only after technical analysis, proper risk management, and practical execution. As a beginner in intraday trading, it is essential to understand the basic strategies to prevent any unwanted losses. Either the investor makes a good profit or incurs losses based on how well the intraday trading strategies are being used.
Some of the well known Intraday Trading Strategies are:
Momentum Trading Strategy
Market trading requires one to invest in the right direction and at the right momentum, and it is called the Momentum trading strategy. In this strategy, the selection of stocks is facilitated by the news reports related to the stocks that push the graph either in an upward or downward direction.
As an intraday trader, your role is to study the news before the market is available for investment and then trade accordingly. You can hold the security for minutes, hours, or even the entire day based on the speed of the market direction.
The momentum trading strategy is effective but it demands great speed in investments as soon as the related news comes out. Also, the duration for which the securities are held is entirely based on the analysis of these market trends which should be followed closely to be able to take the right decision.
Reversal Trading Strategy
This is one of the risky trading strategies in which the investments are against the trends. With proper analysis and calculations, the trader will snap back and make a good profit. This strategy is not suitable for beginners as it demands a lot of knowledge and experience of the market. The investor is required to identify the pullbacks and their strengths. The investors use the technique of daily pivot in reversal trading to focus on trading the daily high and low pullbacks.
Breakout Trading Strategy
In a breakout trading strategy, timing is a crucial factor. It involves the identification of threshold points when the price of the stock rises or falls below the specified time. If the trend increases the price above the threshold point, the investors prefer long positions and buy the stock. Similarly, if the prices fall below the threshold limit, the investors prefer the short position or sell the stock. The thought process behind this strategy is if the price crosses the threshold point, there will be more volatility and the trend will continue.
Gap and Go Trading Strategy
There are times when the stock does not have the pre-market volume and opens at a gap from the previous day. When the gap opens higher than the previous day, it is called gap up opening, and if the gap opens lower than the previous day, then it is called gap down opening. These situations occur when the news acts as a trigger. The investors look for these stocks and bet on them, believing that the gaps will close by the end of the day. This type of strategy is best for the trader who wants to earn quick profits with minimum risk.
Moving Average Crossover Strategy
Every stock has a moving average which is used to signify the trend of the stock price. A good technique to select the stocks for intraday trading is to pick the ones that go above or below the moving average as it signifies a change in the market trend. If the price of the stock falls below the moving average, then it is a downtrend and if the price goes above the moving average, then it is an uptrend.
The traders can make a decision based on the triggers behind this change in trend. The stock prices have a long-term moving average and a short-term moving average. An upcoming strong move is indicated when the short-term average crosses above the long-term average and the traders tend to buy. However, if the short-term average crosses below the moving average, the intraday traders tend to sell.
The key in the moving average crossover is to select the stocks at the right moment. This can be done with the help of catalysts like the news related to the stocks.
Bull Flag Trading Strategy
Let’s consider a stock whose price had risen explosively in the last few days. Once it reached a peak, a pullback is started in a diagonally symmetric manner which gives the impression of a flag. The highs and lows are almost parallel to each other in a pullback zone. The traders need to remain patient and wait for the flag to take shape. Based on the lows and highs, the traders need to identify lower and upper trend lines, spots of entry on the lower and higher side, and stop-loss points. This allows the traders to gain profits before another trend sets in.
Pull Back Trading Strategy
Generally, a stock follows a long-term trend. But there are times when a short-term develops in the opposite direction of the long-term trend. In the case of pullback trading strategy, the traders enter the trade during the short pullbacks and earn profits. It is essential to ensure that the short-trend is not a reversal but a pullback. This can be validated by looking at the trading volumes of the previous day.
Therefore, if a stock price is going upwards and experiences a pullback, the intraday traders see it as a low-risk buy opportunity. Once the pullback eases and the stock continues with the long-term trend, the traders sell the stocks and book their profits. However, if the stock is trending downwards and a pullback is observed, the traders sell the stock and buy it back when the downward trend sets in.
Most of the above strategies can be implemented effectively with the help of charts. Intraday trading requires a thorough understanding of the markets and external factors that may bring significant changes in trends. Most of the traders use these intraday strategies interchangeably based on the market conditions. Beginners should learn intraday trading first and then try different strategies and find out the ones that work well for them. The key to successful intraday trading is to buy or sell the right stock at the right time with minimum losses.