In previous article, we spoke about how to get started with Intraday trading. In this, we will cover things you need to do become successful at Intraday trading.
Intraday Trading has become the talk of the town due to advancement in technologies enabling faster charting, analysis and decision making. To some extent, intraday pumps up the blood which is always missing in investment. The swing of profits and losses within a fixed time interval, the challenge to get out from the market on the same day with some profit is very daunting. All of this makes intraday an extremely power pack show for a trader.
Keeping all the fancy aside, it needs immense discipline and trading to master the art and become a successful intraday trader. Some of the high performing Intraday strategies are the following:
Momentum Based Strategy
It is one of the best strategies for intraday trading, around 15-25% of stocks show high price fluctuations. This strategy usually involve identifying those stocks whose prices are strongly moving away from the moving average without any resistance. It is usually termed as breakout. A stock scanner can be used to identify high volume price breakout in any stock. A fundamental event like an earnings report can also trigger such action. It works best during early trading hours when the volume is high.
A stock which is endlessly going in an upward or downward trend will slowly fade out. This is the time when the price reversal strategy can be applied. Scanning for top gainers and losers of the day will help in identifying potential price reversal stock. It has a very high risk to reward ratio as the stop loss is very small in such trades.
When a stock gaps up or down during pre-market trading, it has a high probability that there is some catalyst and the stock will continue in that direction. These gaps can occur due to multiple factors like news, earnings, mergers, fraud, etc. A trader can identify these stocks from pre-market data and can take position at the opening price.
Sometimes we miss the trend of a stock and regret it. A pull back strategy can help you enter in such trades. When there is a breakout or a long-term trend, stock price shows a little pull back because of profit booking. You can treat this pull back as trend reversal and buy at its weakness. A good opportunity to buy a pullback is just after the breakout.
Stock price has some resistance and support. It can be on minute, hourly, weekly or daily charts. When the price goes beyond these levels with volume, a trader can enter in the direction of price. Technical indicators like Price Volume breakout can be used to identify potential stocks. It needs quick entries and exit. The bigger the time frame stronger is the breakout, 52 week high/low and all time high is one such breakout level.
Moving Average Crossover Strategy
Moving average crossovers involves two phenomena - price crossing moving average or two moving average crossovers. Usually when price goes below the moving average it shows a downtrend whereas the crossover above moving average shows the uptrend.
On the other hand if a short-term moving average crosses long-term moving average, it indicates path reversal. When 50 DMA crosses below 200 DMA, it indicates downtrend and is called the Death cross, and vice versa for Golden Cross.
Pivot points are usually called as point of inflections. A trend may completely reverse from these levels. They are special kinds of support and resistance levels. The range bound traders and breakout traders can take advantage of this.
It’s a very famous strategy of the forex market. It focuses mainly on executing multiple trades with small gains. The timing and execution skills should be top notch.
You don't just need a good strategy but also need to practice discipline to become successful in Intraday trading. Below are the 10 Most important tips for becoming successful in intraday trading:
1. Maintain a strict stop loss
A trader should mark his entry and exits before entering into a trade. Never put stop loss in your mind, it should always be in the system. It’s the best intraday trading tip for beginners.
2. Cut your losses and learn from it
Greed and fear are two enemies of a successful intraday trading strategy. A winning trade must continue and losing trade be exited on time. A bad exit of a trade may wipe out a significant portion of your capital. It will decrease your confidence and takes even more effort to even reach your initial capital. Sometimes, people get aggressive after a major loss. Remember, profit and losses are cyclic. Avoid over-trading during loss and protect your capital.
3. Journal your trade daily
Journaling daily trades will create a sense of responsibility in you because digital money has no emotional value attached to it. A very healthy habit is to feel your loss or profit in cash. It will make you realise the importance of earning even 500 bucks, which is considered miniscule in the trading world.
4. Don't try to catch a falling knife
Always go with the trend. It’s difficult for a beginner to accurately time the reversal of a trend. So it's better to look for pullbacks and enter into the trend.
5. Avoid over trading
It is wiser to trade less but consistently. A good trading setup won’t have more than 2 to 3 trades per day. Learn to trade less. Aim for the perfect setup and be patient. It’s a free intraday tip for beginners.
6. Book smaller but consistent profits
Its important to remember that the most successful intraday trading strategies don't generate huge profits. They have minor gains but are consistent. It helps in avoiding capital drawdown. A risky trade with huge gain may also have a big stop loss.
7. Emotions and biases are enemy
Greed, fear, FOMO and biases are four enemies of an intraday trader. Don't be greedy for profits, book smaller gains. Never fear taking a trade within your setup. Don't rush into a missed trade, the market is open 5 days a week.
8. Make a checklist of your trade setup
Always create a checklist of your trade setup. If a chart satisfies all your checklist, then only initiate a trade. Always try to find positive and negative points in your trade.
9. Fix a clear profit and loss target
It’s advisable to trade with a fixed risk and reward. The ideal ratio is 2:1. For a Rs.2 gain, never risk more than Re.1
10. Focus on few stocks:
Restrict your trading world to a group of stocks. It’s the best thing to focus on a sector and master the art in it. A famous Japanese trader who converted $13,600 into $153,000,000 by trading, focuses mainly on finance stocks.