What is an intraday trading strategy?
Intraday trading is a widespread practice followed by many traders. It involves buying and selling an asset within the trading day. The technique is followed in all financial markets, but the stock market and foreign exchange are some famous examples where it is frequently employed.
The day traders are generally well-funded and well-educated. They make use of short-term trading strategies and high leverage to harvest profit on small price shifts which happen in highly liquid currencies and stocks.
When making the selection of assets for intraday trading, follow these fundamental rules:
1) Select assets with high liquidity: The larger trading volume will enable you to sell and purchase assets without influencing the asset price.
2) Select assets that are trading: Try to purchase those assets which are in an uptrend. In contrast to this, sell those assets which are in a downtrend.
3) Select assets that have medium to high volatility: Volatility is the rate at which the price of an asset moves high and low. From the perspective of intraday trading, you require volatility, which will make enough gain margin to equalise the risk you take.
Top 5 intraday trading strategies for the beginner
1) Reversal intraday trading strategy
The Reversal trading strategy is also known as the pullback strategy. There are numerous debates on this technique among traders because it focuses on investing against the financial market trend. It is also regarded as a complex intraday trading strategy since it requires traders to identify the pullbacks and estimate their strengths precisely. It reflects that you will require in-depth knowledge and experience to make use of it.
2) Pull Back intraday trading strategy
There are some assets such as stocks that follow a long-term trend. However, there arise certain situations when this short-term trend occurs opposite to the long-term trend. In this pullback, intraday trading strategy traders make use of short pullbacks to harvest most out of the market. It is vital to assure that this shot-trend is not a reversal. It can be determined by monitoring the trading volume of the previous trading day.
So, if the price of an asset experiences a pullback and is trending upward, day traders view it as a low-risk purchase opportunity. As soon as the market comes back to its long-term trend and this pullback lifts, they sell and take the desired profit. In contrast to this, if the price of an asset head in the downward direction and then happens the pullback, the day trader chooses to sell the asset and purchase it back when the downward trend resumes.
3) Gap and Go intraday trading strategy
An asset often opens at the previous trading day’s gap and does not have any pre-market volume. If the asset price opens higher than the last day, it is regarded as a gap up. Similarly, if the price of the asset opens lower than the previous day, it is regarded as a gap down. In most situations, the news of a catalyst forces this gap.
Usually, the day trader tries to find assets that have adequate pre-market volumes and are gapping over the preceding days close and bet on the conditions that the gap will close throughout the day. It helps them to make small gains without any involvement of high risks.
4) Breakout intraday trading strategy
The most commonly used intraday trading strategy is breakout trading strategy. It keeps track of surge and fall in the price of the asset below a particular level with a surge in the trading volume. The day traders decide to go long or purchase the asset if the price surges above a fixed level. In contrast to this, they decide to go short on position or sell the asset if the price of the asset declines below a particular level.
The entire technique lies in the observation of asset price beyond a specific level. The surge in prices pushes the volatility of the asset. Hence price trend moves in the direction of the breakout.
5) Momentum intraday trading strategy
A trader gets success in day trading when he invests in those stocks which have momentum. These stocks generally shift about 20 to 30 per cent every day. The entire trading facts lies in searching these stocks early and spending capital before their prices shift in the financial market. The shift in price can be in two directions first, the upward shift and second the downward shift. Depending on the momentum speed of the asset investors can hold the trading positions for seconds, hours, minutes or even the whole trading day.
This strategy is generally effective at the beginning of the trading day and when news of any sudden financial event results in a sudden surge in the asset’s trading volume. Determining the financial momentum needs constant monitoring of the financial market and responding to the uptrends instantly.
How one can one implement an intraday trading strategy?
The most important thing common among various intraday trading strategies is that they all depend on one vital concept: momentum burst. The traders attempt to make a profit on the quick minimum burst. Some of the intraday trading rules which works in every situation are:
1) Follow the Stock Trend
2) Wait For the Pullback
3) Consolidation Breakout Trade
4) Use the Breakout as your Trigger Signal
5) Take Quick Profits
The Bottom Line
You can apply most of these intraday trading strategies by using several indicators and charts. Always remember that intraday trading requires awareness of the trends, deep understanding of the financial markets and knowledge of external events which causes the change in trends. You can apply any one or more than strategy at a time depending on the market conditions and prices. Novice investors should always try various techniques and find the one which suits them best.
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