Investors with a long-term outlook usually follow the buy-and-hold strategy in the stock market. However, if you are interested in short-term positions, you need to focus on other types of trading. One such ultra-short-term trading technique is intraday trading, also known as day trading.
What is intraday trading?
Intraday trading is the process of buying and selling stocks and securities within the same trading day. You can choose to go long and buy stocks or securities or take short positions by selling at a high price and buying them back at lower price. The important thing is to close all open positions within the same trading day, so no trade is carried over to the next trading session.
Best intraday trading strategies
To capitalise on short-term price fluctuations, there are many good intraday trading strategies that you can use as a part of your overall plan. Let’s take a closer look at some of the best intraday trading strategies commonly used by traders.
Momentum trading strategy
Momentum trading is one of the best intraday strategies if there is a clear trend in the market. This intraday trading strategy is effective when there is a strong price momentum in a particular direction. You can use it to place orders that align with the direction in which the market is strongly trending.
For example, if a stock shows strong bullish momentum, you can take a long position and exit it when the price increases. Similarly, in the case of a bearish momentum, you can short sell the stock.
Reversal trading strategy
If a trend reversal is imminent, this is one of the most effective intraday trading techniques you can use. You need to use candlestick charts and technical indicators to assess if a prevailing trend in the market is likely to reverse during a given trading day. If the signs all point to an impending reversal, you can enter trade positions accordingly.
Since this is a high-risk strategy that goes against the current market trend, you must use stop-loss orders to limit the downside risk. Otherwise, you could lose a significant portion of your capital if the market trend does not reverse.
Breakout trading strategy
In a sideways market, stocks generally trade within a specific price range. There will be defined support and resistance levels. However, at some point, the stock price may break out of this established range. Here is where the breakout trading strategy can be effective. It is a simple intraday strategy that you can use if you expect a price breakout.
A short position may be suitable when the price breaks out below the support level since the price trends downward. Similarly, a long position could be ideal if the price breaks out above the resistance level.
Scalping trading strategy
When you use it right, scalping can be a very successful intraday trading strategy in a volatile market. Since there are many small but frequent price fluctuations, making an intraday trade that offers large profits may not be possible. However, with scalping, you can make multiple trades that each have the potential to deliver small gains.
By the end of the trading session, these small gains can add up to a considerable profit. However, scalping can be a high-risk technique that could also lead to many small losses that add up during the day. So, ensure you set stop-loss limits as needed.
- CFD trading strategy
CFD trading allows traders to take advantage of price movements without owning the assets, using leverage to control larger positions with less capital. It enables trading across various markets and short selling. However, the amplified risk from leverage necessitates strict risk management, including stop-loss orders and careful margin monitoring.
- Gap and Go trading strategy
Gap and Go trading exploits price gaps at market open, driven by news or earnings reports. Traders identify gaps with high volume, entering long positions on upward momentum or short positions on downward moves. This strategy's success hinges on swift action and volume confirmation, with stop-loss orders to manage risk.
- Bull flag trading strategy
The Bull flag strategy identifies continuation patterns in uptrends, marked by a sharp price rise (flagpole) followed by consolidation (flag). Traders enter long positions on breakout above the flag with increased volume, using the flagpole's length to set targets and placing stop-loss orders below the flag to prevent losses from false breakouts.
Intraday trading tips
To enhance your intraday trading success, consider these essential tips:
- Develop a trading plan: Create a detailed plan outlining your strategy, risk management rules, and profit targets. Maintain discipline and avoid emotional decisions.
- Choose liquid shares: Select shares with high liquidity for easy buying and selling within the same day.
- Set realistic goals: Aim for consistent, small gains rather than chasing large profits.
- Use stop-loss orders: Protect against significant losses with automatic sell mechanisms.
- Avoid highly volatile stocks: Stick to stocks with predictable movements to reduce risk.
- Monitor news-sensitive stocks: Trade stocks that react to news events but be cautious of unpredictable changes.
- Utilise technical analysis: Read and interpret indicators like moving averages and RSI for better entry and exit points.
- Manage risk: Diversify trades and never risk more than a small percentage of your capital on a single trade.
- Keep emotions in check: Maintain a level-headed approach, regardless of market fluctuations.
- Review and learn: Regularly analyse your trades to understand what worked and refine your strategies.
Intraday trading rules
If you are a beginner to intraday trading, it helps to set some ground rules that you can use as a benchmark for your trades. This will help you make the most of the best intraday trading strategies, maximise your profits and limit your losses. Some helpful intraday trading rules you can follow are outlined below.
- Have a detailed trading strategy that you can follow.
- Conduct thorough research to identify stocks that offer good intraday trading opportunities.
- Refrain from infusing more capital than you can afford to lose.
- Ideally, choose stocks that are very liquid and have narrow bid-ask spreads.
- Close all your open positions to avoid automatic squaring off.
Conclusion
Intraday trading can be profitable, but it's vital to understand your strategy well before using it to make money. Keep up with stock market news and watch market trends closely. This helps you make smart decisions at the right times, boosting your chances of success in the fast world of intraday trading.
