Day trading or intraday trading is speculative and involves buying and selling stocks within a single trading day. Intraday trading exploits short-term price fluctuations in stocks based on market volatility to earn small amounts of money within hours. It demands a thorough knowledge of the markets, discipline, and a strict strategy to survive.
In this blog, we will describe the most effective intraday trading tips, guidelines, and golden principles of intraday trading so you can generate the maximum returns at the least possible losses.
What Does Intraday Trading Mean?
Intraday trading involves purchasing and selling stocks within the same trading day to profit from stock price movements rather than invest for the long term. This strategy leverages fluctuations in stock prices to generate earnings.
To engage in intraday trading, an online trading account is necessary, and traders must specify that their orders are for intraday trading. Since all positions are closed before the trading day ends, this practice is also referred to as intraday trading.
What are the Best Strategies for Intraday Trading?
Here are the best intraday trading strategies that you must know to make financial gains:
1. Momentum Trading Strategy
This strategy focuses on identifying stocks with strong directional movement. Intraday traders must select stocks poised for significant shifts. Before the market opens, thorough research is crucial to capitalise on upward or downward trends. Quick decision-making is key, as external factors heavily influence stock movement. Also, keep in mind the holding period, as it can range from minutes to hours, depending on the market’s pace.
2. Breakout Trading Strategy
Timing is critical in this approach. Breakout strategies involve identifying key levels where a stock price either rises above or falls below a specific range. If prices consistently breach an upper barrier, traders may take long positions. Conversely, if prices drop below a lower threshold, short positions are considered. The underlying idea is that breaking these levels leads to increased volatility and continuation of the trend.
3. Reversal Trading Strategy
Also known as Pull Back Trading, it is one of the best day trading strategies, involving betting against prevailing price patterns, anticipating a “reversal.” Traders seek stocks with extreme highs and lows, and when a security’s movement reverses, traders set a stop and await maximum fluctuation. Once the reverse value reaches a predicted limit, the trade is executed. Analysing price movements and using technical indicators can help identify and isolate potential reversals.
4. Scalping Trading Strategy
Popular in Forex and intraday options, scalping focuses on exploiting small price fluctuations. Timing accuracy is essential due to the short trading periods involved. This risk-oriented tactic aims for small profits from minor price changes, which can accumulate over time. The key is to make small, low-risk investments that yield larger rewards later on when advantageous opportunities arise.
5. Moving Average Crossover Strategy
This strategy uses the crossover of two moving average lines as a signal to enter or exit a trade. While it may not pinpoint exact peaks or bottoms, it helps identify the bulk of a trend. A crossover suggests a potential trend change, offering an opportunity for a better entry point. Crossover systems work best in volatile or trending markets but are less effective when prices range.
6. Gap and Go Strategy
This strategy centres on “gapers,” which are points on a stock chart where no trades occur. A gap-up happens when a stock opens higher than the previous close, while a gap-down indicates a lower opening. Successful gap trading involves using pre-market scanners to find stocks with pre-market volume. This approach is favoured among day traders and relies on identifying and acting on these price gaps.
7. Pivot Point Strategy
This best intraday strategy identifies critical support and resistance levels, particularly useful in the forex market. Range-bound traders use it for entry strategies, while breakout traders use it to understand breakout levels. A pivot point indicates a shift in market sentiment from bullish to bearish or vice versa. Pivot points help traders predict price movements and determine take-profit and stop-loss levels.
8. Pull Back Trading Strategy
Pullback trading identifies opportunities within a long-term trend. It involves buying dips in an uptrend or shorting rallies in a downtrend. This approach aims to capitalise on temporary price reversals without mistaking them for a larger trend change. The pullback technique suggests selling strengths and buying weaknesses, often proving effective soon after a breakout.
9. Bull Flag Trading Strategy
The bull flag pattern is a continuation chart pattern. It signals a potential continuation of an upward price trend. Before the price breaks out and continues its ascent, the price action consolidates between two parallel trend lines that slope against the uptrend. A bull flag creates a “flagpole” during a strong price movement in one direction, suggesting a further upward move is likely after the breakout.
10. CFD Strategy
CFDs (Contracts for Difference) allow traders to speculate on global markets without owning the underlying asset. These leveraged instruments offer flexibility for intraday trading, but while they can boost profits, they also increase the potential for significant losses.
What are the Top Tips for Successful Intraday Trading?
Here are the top intraday trading tips today that you can follow to make financial gains:
1. Choose Liquid Shares
For intraday trading, prioritise highly liquid shares. Liquidity ensures you can buy or sell the stock quickly, which is vital for closing positions before the end of the trading day. Opt for two to three large-cap stocks with high trading volumes. It allows you to capitalise on price movements throughout the day, enabling you to capture potential gains from significant price swings.
2. Utilising Stop Loss for Lower Impact
Employ stop-loss orders to automatically sell shares if the price drops below a predefined level. It helps limit potential losses from unexpected price declines. For instance, if you buy a stock at ₹1500 and set a stop loss at ₹1480, your loss is capped at ₹20, even if the price falls further. Stop-loss orders mitigate risk and protect your capital.
3. Volatile Stocks are a No-Go
While volatile stocks offer higher profit potential, they also carry increased risk in intraday trading. Beginners should especially avoid volatile stocks and focus on stocks they have a good understanding of. Always use stop-loss orders to manage risk and prevent significant losses from sudden price movements.
4. Correlated Stocks
Consider investing in stocks closely linked to a specific index or sector. If the index or sector does well, it is easy to predict if the price will go up too. Track the profitability of a sector on the NSE website to identify stocks with clear upward or downward trends. Trading correlated stocks simplifies decision-making, as their price movements are tied to the performance of the index.
5. Choose Transparency
One of the best intraday trading tips is to opt for stocks of companies that provide transparent information about their business activities. Transparent information helps in making informed decisions. Avoid companies that conceal important details, as it can lead to incorrect trading decisions and potential losses. Stable management can be another element to consider when trading.
6. News-Sensitive Stocks
Select stocks that are responsive to news events, as media-driven price changes can present trading opportunities. However, you must be cautious when trading stocks overly sensitive to news, as they can be unpredictable. The share value may plummet even if the news is favourable.
What are the Golden Rules for Intraday Trading?
Here are the top rules for intraday trading that you can follow to start your intraday trading:
1. Select the Right Broker
Begin with a good stockbroker, like Torus Digital, who offers market analysis, market research, charting services, and professional advice. Your broker plays a key role in your portfolio’s performance, providing valuable insights to help you make informed decisions.
2. Do Your Research
Stay updated with new trends, market analyses, and influential factors. Continuously monitor companies you are interested in. Make fact-based and research-driven decisions to optimise your trading strategy and investment outcomes.
3. Invest in Companies, Not Stocks
Invest in the fundamentals and reputation of a company. Study the history of the stock, strengths and weaknesses, finances, and reputation in the market. Invest in good companies instead of following fad stocks for long-term investment.
4. Use Logic, Not Emotions
Learn to control emotions like greed and fear in the market. Make your decisions using logic and reason. Mastering emotional control is essential for becoming a successful trader and making sound decisions in a dynamic market.
5. Use the Stop-Loss Order
Use stop-loss orders to buy or sell stocks automatically at a set price level. It protects against loss, and you can tailor stop-loss settings to your needs as an effective risk management tool.
6. Do Not Invest Borrowing
Invest only surplus funds you can afford to lose. The volatility of the stock market makes guaranteed returns impossible. Moreover, do not borrow to prevent possible financial strain because of market fluctuations and possible losses.
7. Maintain a Diversified Portfolio
Guard yourself against market crashes by diversifying your assets across different categories, industries, and capitalisations. This strategy helps minimise the risk of significant losses.
8. Take Calculated Risks
Evaluate your risk tolerance based on your situation and invest intelligently. Stay informed by monitoring stocks, reviewing research reports, and remaining vigilant. Invest with logic, not emotion. Taking educated, calculated risks is the key to successful investing.
9. Do Not Trade with an Unclear Mind
If unsure about stocks, wait for the next day. Observe market trends instead. An informed decision is superior to a hasty one, avoiding potentially costly errors from impulsive actions.
10. Listen to Facts, Not Rumours
Invest in research, not rumours. Invest in actively traded stocks with analyst coverage. Do not leap at “hot tips” before investing. Quality investment decisions are based on fact-checking and quality sources of information.
Final Words
Intraday trading offers lucrative opportunities but requires a disciplined approach, strategic execution, and effective risk management. By implementing well-tested strategies, following essential intraday trading tips, and adhering to golden rules, traders can enhance their chances of success in the highly volatile stock market.
If you are a beginner or an experienced trader, continuous learning, practice, and self-discipline are key to achieving consistent profits in intraday trading.
Dive into the world of intraday trading with Torus Digital and maximise profits and minimise losses!
