Intraday trading is as much an art as it is a science and art has to be perfected. However the science of intraday trading has time-tested measures like breakouts, supports, relative strengths etc; which can be used to profitably trade intraday. Let us understand how to make profit in intraday with some intraday trading examples.
Intraday trading begins with discipline in stop losses, profit targets and capital protection. The bigger question is how to do intraday trading and how to earn money in share markets daily; or at least on most of the days. Intraday share tips and intraday trading tips are available aplenty but the bigger challenge is to understand how some simple tools can be applied by you to trade profitably intraday. Before we get into the strategies to be profitable in intraday trading, here is a basic mantra; Focus on reducing costs to the bare minimum. Remember, a rupee saved is a rupee earned in intraday trading.
Making profits everyday in intraday trading may be a complete misnomer because that is just not possible. However, it is possible to be profitable more often by following a basic structured approach to intraday trading. Here are some successful intraday trading strategies..
Using supports and resistances of stocks to trade intraday
In technical analysis, supports are price levels where a stock shows the tendency to take support and bounce back. When you see this happening multiple times, it is a sign of the stock taking support and it is a buy signal. Similarly, if the stock is consistently hitting an upper level and reverting, it is a sign of a short term top. You can use that level to sell the stock. This can be your starting point for intraday trading.
Intraday trading using breakouts supported by volumes
Another way to make profit in intraday trading is to identify breakouts. When a stock breaks out of a range after a long time supported by volumes, then it is a signal to trade in the direction of the breakout. That means you must buy in case of upward breakout and sell in case of a downward breakout. How do you distil a false breakout? A breakout supported by spurt in volumes is more reliable for an intraday trader.
Using Higher tops and lower bottoms for intraday trading
This is again part of your charts which you can use to make profit in intraday trading. In fact, one way to learn intraday trading is to watch for higher tops and lower bottoms in a chart. They can be seen with the naked eye if you take a slightly longer chart. If the stock price chart is making consistently higher tops, then intraday traders must use every dip to buy. If the chart is making lower bottoms then use every bounce to sell. The intraday trading tip is that if higher tops are also supported by higher bottoms, then the trend is confirmed.
Use volume imbalances but test before intraday trading
When you open your trading terminal, you will see buy side orders and sell side orders. These are orders that are not yet executed. One of the ways for intraday traders to profit from these imbalances is to buy when the demand far exceeds supply. However, one needs to be cautious since there are hidden orders and algo orders which can appear in a microsecond and actually prove your judgement wrong. Use this method in a limited way and test it thoroughly before using it.
Buy on rumours and sell on news
During the day you will be getting a lot of intraday share tips. The big challenge is how to use these tips. One of the accepted techniques of intraday trading is to buy on rumours and sell on news. If you find the rumour about bad results from a company quite strong, you can sell the stock intraday with a stop loss, ahead of results. When the actual results are announced, use the lower levels to exit. This is more the art of intraday trading than a science.
Overbought and Oversold zones as an approach to intraday trading
This is about how to trade in intraday with a mix of charts and subjective judgement. When stocks have corrected sharply, how to differentiate between smart buying and catching a falling knife? The answer is to use RSI indicators in charts to identify the overbought and oversold zones. For intraday trading, if other factors are also supportive, then you can buy in oversold zone and sell in overbought zone!
Intraday trading is a short term trading approach and it must be treated as such. Your focus must be to manage your risk and keep churning your capital rapidly so that your ROI can be enhanced. Above all, intraday trading is about a continuous learning experience!