Stock market participants engage in two types of activities—trading and investing. Intraday trading is one type of trading that involves buying and selling shares on the same day.
There are various types of intraday trading strategies employed by traders that play a huge part in their success in online trading.
Rules for intraday trading
You can follow a few basic rules for success in intraday trading.
- Plan your trading strategies.
- Trade only in stocks that are suitable for intraday trading and have a good trading activity in volumes of shares.
- Follow the trading trend of the day.
- Book profits quickly and at regular intervals.
- You should not trade in a volatile market where the market moves up and down frequently in a very short time.
- Stop losses are an important part of intraday trading and should be strictly followed. Not following stop-loss rules may result in market-to-market losses. There should also be clear profit targets.
- Capital protection is a vital part of intraday trading. You should be clear about the maximum loss you are willing to bear per trade and the total loss you are ready to suffer.
- It is also important to avoid averaging your trade as an intraday trader. Traders have a tendency to buy more of a stock if it falls. But there is a risk of the stock falling further, which will increase your losses further.
- Avoid overtrading. Traders sometimes overtrade to recover losses. However, it’s crucial to avoid taking decisions led by panic in intraday trading. While you may want to dwell on losses in the market, try to move on and look at other trades. Similarly, upon earning huge profits, avoid getting carried away by the success.
Best intraday trading strategies for traders
Momentum trading strategy
This strategy involves investing in a stock that has momentum, either in the up or down direction. This is done by selecting a stock after studying news reports, which may be positive or negative.
It’s important to make a quick decision about the trade as soon as the market opens. How long the stock position is kept open depends on the speed of the market. Waiting for too long can nullify the impact of the news.
Reversal trading strategy
Reversal trading is recommended for experts and not for newcomers. This strategy requires a lot of skill and knowledge. This trade is made in expectation of the reversal of an existing trend. A trader adopts a sell trading strategy in case of a stock that is in a bullish position. The daily pivot is the supporting technique used by intraday traders, where the focus is on trading the daily low and high pullback.
Breakout trading strategy
Timing plays an important part in this strategy. Certain threshold points are identified for a stock above or below it may trade. If the stock closes above the threshold level, it is considered to be a breakout in the upward direction. An increase in trading quantities is an important factor in breakout strategy.
Gap-and-go trading strategy
Sometimes stocks open sharply, either higher or lower, with a significant gap. This may be due to news flow before the market opening. The trader, employing this strategy, expects the gap to be filled up as trading starts and makes deals accordingly. This is useful for traders who want quick profits but lower risks.
Moving average crossover strategy
If the price of the stock closes above or below a moving average, it is considered a change in momentum. When shares close above the moving average, it is considered to be in a bullish position. In contrast, if the stock closes below the moving average, it is considered to be in a downtrend. Moving averages can be simple or exponential. There are 10-day moving averages, 20-day moving averages and 50-day moving averages.
The basic rule for a trader in intraday trading is to keep it simple, keep strict stop-losses and protect your capital. The easier trading strategy should be followed by beginners, like the moving average strategy.
Only expert traders should follow the reversal trading strategy and gap-and-go trading strategy. Also, all the above strategies can only work if you have the right technology and an intraday trading platform or a trading app by your side. So, before planning over the strategies it is very crucial to choose the right trading partner.