InvestorQ : Can you give me some very useful and actionable strategies that I can deploy to trade in the intraday market? I want to use it in my daily trading activities.
Tisha Malhotra made post

Can you give me some very useful and actionable strategies that I can deploy to trade in the intraday market? I want to use it in my daily trading activities.

Moii Chavate answered.
3 years ago

There is no golden formula in intraday trading just as there is no royal route to intraday trading. It has to be learnt with diligence and discipline. Here are some basic ideas you can adopt to trade intraday.

· Always try and trade on the side of momentum. This is the golden rule of intraday trading. The market always has a story of momentum to tell. As an intraday trader, identify this momentum. If the market is bullish, don’t try to take bearish calls on the market.

· Learn how to place orders smartly. On the intraday trading terminal you can place market orders or limit orders. They need to be properly applied. If you are buying a stock that is showing weakness then a market order will work better. Similarly, in volatile markets, limit orders will fetch a better price.

· When it comes to intraday trading, protection comes first. The stop loss is your insurance against large losses. Always keep stop losses based on the risk you are willing to take. But don’t ever get into an intraday trade without prefixing the stop loss. This must always be part of your order.

· Profit is what you book and everything else is book profits. This is an important aspect of intraday trading. Keep churning your liquidity so that there is margin available when opportunities arise. More importantly, don’t ever convert your intraday positions into delivery positions. It is OK to book smaller profits if you can churn money better.

· Make very effective use of technical charts for intraday trading. Technical charts are based on past price experience. These experiences help in identifying supports and resistances. You normally buy intraday when the stock consolidates around the support level and sell intraday when the stock consolidates near the resistance level. Breakouts can also be used for a contrarian approach.

· The next big challenge is to be able to identify breakouts in intraday trading as it can give big money in a short span of time. Breakouts can be on the upside or on the downside. Breakouts must be read as clear signals to trade intraday as they define a clear direction for the stock. You can sell when the stock breaks out below the support level or you can buy when the stock breaks out above the resistance level. Breakouts emphasize a new direction or a clear shift in direction of the market and are useful to intraday traders.

· Volumes of the stock are a useful add-on indicator. When stocks typically break out, you are still not sure whether the break out is real or it is just a false breakout. In intraday trades, it is quite normal to get trapped in false breakouts. The answer is to focus on volumes. Normally, a breakout supported by volumes in the same direction is double affirmation before trading intraday.

· Don’t spread your list too thin and just focus on a handful of stocks that you can give full attention to. Focus on small set of stocks to trade intraday. We often tend to believe that intraday trading does not require too much of understanding about the stock. That is not exactly true! Intraday trading is also about specialization and you need to understand the language of the stock extremely well. Keep yourself abreast of the news flows, charts, triggers and financials of the stocks that you trade intraday. You cannot specialize on too many stocks so keep your intraday universe limited to 15-20 stocks.

· What are the stocks that make good intraday stories? It is one thing to say that your intraday trading universe must be limited. But, what kind of stocks should you typically select to trade intraday. For example, you need stocks that can display intraday price movement. Wider the range, better are your prospects of making money on these stocks intraday. Spreads are also important as they reflect volumes and breadth of ownership.

· If you want to be a successful intraday trader, don’t miss out on the risk-return trade-off. That is at the core of getting a good and decent trade. When you initiate a trade a buy a stock, keeping a 1% stop loss and 1% profit target that is really bad trading economics. You must have a minimum ratio of 2:1 in favour of profit target in volatile markets or 3:1 ratio in favour of profit targets in trending markets. Don’t be too ambitious as you may end up missing out on opportunities.

The foremost rule you need apprehend is that intraday trading is largely about managing risk. Returns will automatically follow. Traders will trade with finite capital and therefore protecting capital becomes the primary driving force for any intraday trader. Once you set limits to your losses on per trade and per day basis, the next step is to keep the discipline to adhere to these rules. That is the key to success in intraday trading.