To succeed in intraday trading, you need to have an action plan. Intraday traders have a very narrow focus: they examine and try to predict stock price patterns. But the decision-making is complex because any intraday trading needs to be completed before the end of the day. Because of the fast pace, you need to have your intraday trading strategies laid out in advance.
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Intraday trading strategies
Stocks tend to follow their own separate paths. So, even if stocks A and B are from the same sector, their price patterns could be starkly different at any given time. As a day trader, you need to scrutinise each stock on your wish-list very closely. And since conditions can change very quickly, you should be able to rework your strategy at any time. If you need help, here are some day trading techniques you could use:
Study the previous week’s highs and lows
Take an intraday trading chart that lists the stock prices and draw a horizontal line across the highs and lows of the week. This will give you a sense of the support and resistance levels of the stock. If the stock price has been falling, the support level is the point after which the price ceases to decline. On the other hand, the resistance level applies to stocks whose prices have been appreciating. If the stock price stops rising after a point, that point is the resistance level. The support and resistance levels generally indicate when a trend reversal might occur, allowing you to plan your trades for the new week accordingly.
Watch for a big movement
If price volatility in a particular stock has been low for a few days, greater volatility might be in store. This is a good time to enter the trade, for you could set a higher profit target. When the price does break out of its range, be safe and go with the trend. You could use the average true range (ATR) indicator, for example, to gauge volatility in the market. If you spot two or more ATRs within a single day, a trend reversal may be on the cards.
In fact, volatile markets offer more opportunities to book profits. If you do see a trend, for example, you could assess whether the trend will continue or try to time the price breakout. If you think a reversal is likely, the previous day’s high and low could help you make the right call.
Follow the news
Major news events can hamper liquidity in the markets. Some traders exit their positions to cut losses if a news event is expected. One can always re-enter the trade at a later stage. If you are worried about missing profitable opportunities, you could increase your stop loss. But this could hurt you if the price moves against you. Another option that treads the middle ground is to reduce your lot size and increase your stop loss. This would reduce your overall risk but also give you an opportunity to book profits.
Conclusion
As an intraday trader, the right techniques and access to real-time data can help you formulate effective trading strategies. It may also help to open an account with a full-service broker like Kotak Securities that provides in-depth research reports, advanced charting tools, and several value-added services. When you have all the information at your fingertips, finding intraday trading success becomes that much simpler.