A Guide on Best Intraday Trading Strategies for Beginners: There are hundreds of Intraday Trading Strategies for traders to apply to make money in the stock market. However, not all are simple enough for beginners to implement and make money.
In this article, we are going to cover four of the best Intraday Trading Strategies for beginners. Let’s get started.
What is Intraday Trading?
As the name would suggest, the Intraday is that event that completes within the same day. Similarly, Intraday trading is a form of trading, in which the buying and selling of the shares or assets are completed within the same trading session.
Intraday trading is one of the most sought after (and one with maximum volume) forms of trading amongst traders in the market. With proper analysis and execution, it has the potential of generating very handsome returns.
The General MYTH with Intraday Trading
It is a general Myth among many, that Intraday trading is all about buying and selling throughout the day. And one has to be on the go, all the time. No doubt, that intraday trading requires more focus and attention than investing or delivery based trading. But the level of planning which goes about in finding the stock or move for intraday trading is second to none.
About 85-90 % of day traders’ time goes into analysis and planning of trade opportunity, and the rest 10-15% of the time goes into trade execution.
Therefore, the whole world of day trading is entirely based on proper planning and execution. It has the potential of making 20-30% returns on the investment amount, but intraday trading can never be a part-time avenue of making quick money. One has to devote a lot of time and to be a successful intraday trader, it is advised to be in front of your trading screen throughout the market trading hours.
Intraday Trading Factors
Choosing the shares for intraday trading is no Rocket Science. One needs to keep certain parameters, which if met, can a share/stock be chosen for Intraday trading. Following are some of the parameters which should be given due importance while choosing stocks for intraday trading:
- Liquidity: This is the single most important factor in choosing shares for intraday trading. Illiquid shares/assets should be avoided. Even while trading commodities for Intraday trades, liquid commodities like Gold, Silver, crude oil, etc. should be traded.
- Volatility: As the sole purpose of Intraday trading is to earn quick returns. And for this objective to be fulfilled, the stocks need to have a broader range i.e., high beta stocks should always be preferred while doing intraday trading.
- Volume: This tells us about the quantity of stocks that have traded within the specified time frame. The higher the volume, it generally means that there is more interest in that particular share that day. And any move which happens in the share price, with volume in the market is more trusted than the moves with low volume.
- Consistency: It is a general rule while doing intraday trading that one should be consistent in his/her approach while doing trading. One should not let emotions take over while doing intraday trading. The decisions should be based on logic, maths, and price action.
- Patience: This is very important is all forms of trading, let alone intraday trading. One should not expect wonder trades (i.e., the hope of making all the money in one trade). One needs to bide his time and grind it out if one expects to have a long and fruitful trading career.
Intraday Trading Strategies for Beginners
Now, having understood the basics of Intraday trading the various facets should be kept in while choosing the shares to intraday trade. One thing which should always be kept in mind is that these strategies do not guarantee making money. Let us try and understand a few intraday trading strategies:
Intraday Trading Strategy 1: Momentum Strategy
As the name suggests, the whole premise of this strategy is to catch momentum in the market. It is imperative to track these stocks before the actual momentum starts in the market. I spotted at the right time, these stocks have the potential of generating returns of 20-30% within one session.
These movements could be because of Fundamental (Overnight news, Quarterly earnings, some big order procurement, new projects, etc.) and Technical (breakout) factors.
Img 1: 15 mins Chart of ESCORTS (source: www.zerodha.com)
Now, if you look at the picture above, the market opened near the previous day high, but the momentum soon fizzled out and we saw selling pressure coming into the market. And we saw a series of lower highs and lower lows in the market. And it ended the day near the lows of the day. So, this is a classic case of momentum intraday trade in the market.
Intraday Trading Strategy 2: Breakout Strategy
As the name would suggest, this strategy focuses on finding the trade which is going to trade in a new territory or has broken out of its usual territory. One thing should be kept in mind that the breakout has happened with volume (thin volume breakouts generally tend to be false breakouts).
If the breakout is on the upside, then we go long and if the breakout is on the downside, then we go short. One should always mark the supports and resistances, so as to have the right stop losses for the breakout trades.
Image 2: 15 Mins chart of Maruti (source: www.zerodha.com)
Now, if you carefully look at the image above, we see a classical breakout trade. These trades when spotted, have the potential of generating significant returns. The Stop loss for this kind of trade is always the low of the range prior to the breakout.
Intraday Trading Strategy 3: Scalping Strategy
This strategy is the most beneficial strategy for a day trader. The whole idea is to constantly keep scalping in the market for small profits. This strategy is a very common method of trading while trading commodities. This kind of trading is generally done by high-frequency traders in the market.
The overall technical and fundamental setup does not have a major bearing on this trade. Price action plays a very important role while selecting the trade for scalping.
The stocks or commodities chosen for purpose of scalping should be liquid and volatile. And one important thing to always keep in mind is to have a stop loss for every trade. One should not let the position drift away. The scalping strategy is best suited when the market is stuck in a tight range. Liquidity and tighter range are two friends of scalpers.
Img 3: 15 Mins chart of TCS (source: www.zerodha.com)
If we look at the image above, the market is stuck in a tight range and it provides a great opportunity for scalpers.
Intraday Trading Strategy 4: Moving Average Strategy
This Strategy can also be called the moving average crossover strategy. This is generally a trend reversal strategy in the market.
When the price of the underlying asset goes above or below the moving average, it generally signals a change of momentum in the market. When the crossover happens from bottom to top, it is called Bullish crossover and when the crossover happens from top to bottom, it is called a Bearish crossover.
Image 4: 30 Mins chart of ICICI Bank (source: www.zerodha.com)
The image above is a 30 minutes chart of ICICI Bank. We see an obvious weakness in the market when its price is trading below the two moving averages (13 EMA and 34 EMA). And when the market starts trading over the moving average, the dips are being bought back in the market.
Therefore, when the market is trading over MA, it is advised to go long and when the market is trading below MA, it is recommended to initiate a sell position. For a long position, the stop loss is below the Moving Averages (MA) and for a short position, the stop loss is above the MA’s.
In this article, we covered the four best Intraday Trading Strategies for beginners. Here are a few key takeaways from this post:
- Intraday trades are those trades for which the activity of buying and selling is completed within the same day.
- About 90% of the time in intraday Trading goes for planning and the remaining 10% goes in execution.
- Liquidity, Volatility, Volume, Patience, and Consistency are the key ingredients of Intraday trading.
- One has to devote complete time and dedication if one wants to be a successful intraday trader.
- Traders need to always have good Risk management. Always place stop loss for all orders while taking intraday trades.
That’s all for this post on Intraday Trading Strategies for beginners. I hope it was useful for you. Happy Trading and Money Making.
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!