If you are a novice in the colossal field of trading, you might often find yourself perplexed with questions. However, SEBI certified Intraday Trading Strategies can help you align your trading goals with an actionable plan. You might have questions like:
With the overabundance of numerous intraday trading strategies, which ones work?
What are the most effective intraday trading rules that I should follow, which would aid me to trade commodities, forex, or stocks and lead to gains?
If these questions ring a bell to you, then you have landed on the right page. Here we will guide you with the authentic intraday trading strategies certified by SEBI. It is a fact that a plethora of strategies in trading are flooding the Internet nowadays.
Hence, any trader must have a clear foundation to avoid losses
“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliché, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”
– Victor Sperandeo, financial commentator, trader & index developer
People often possess the wrong notion of trading. They tend to think that only those who have a natural talent and flair can succeed in this field. This is one of the biggest myths about trading.
The success in intraday trading or day trading depends upon the determination and discipline of the trader rather than their talent. Moreover, it has been observed that successful traders treat intraday trading as a process, and the unsuccessful ones always end up buying low and selling high.
Having the fundamental understanding of trends and developing the ability to make the best use of it have proved to be a time-tested formula to succeed in intraday trading.
Therefore, to know the right strategies for a successful trade, you first need to understand intraday trading.
Understanding Intraday Trading Strategies
Intraday Trading Strategies or day trading comprises of short-term trades that usually last less than a day. At times it can even last for as little as a few seconds or minutes. Many often believe that intraday trading is the path to get rich overnight. However, it is a big myth in this field.
Not only do the traders require having a practical approach, but they also need to possess emotional intelligence in pursuance of earning profits from this trade.
If you are a novice in this field, then it is imperative for you to get rid of all these myths before you begin to trade. You should not have a false assumption of generating good profits just after a single trade.
Also, beware of all the ‘get-rich-quick’ tips and tricks in trading that are found on the Internet in overabundance.
On the brighter side, it is also true that you can start earning profits in a considerably short period with intraday trading. However, it would help if you put in efforts for months studying the market with dedication, patience, and perseverance to accomplish that.
Now that you have understood the prerequisites of day trading let us move on to the most effective strategies of intraday trading.
SEBI Certified Intraday Trading Strategies
#1 Momentum Intraday Trading Strategies:
Before you begin day trading, you should know that it is all about momentum. While you are studying the market to grasp a better understanding, you will often notice that around 20% to 30% of stocks move daily.
Your job is to find these moving stocks before they make a big move and be ready to catch the movement as soon as it is made. In the beginning, it can seem to be a daunting task, but worry not, as there are stock scanners which make your job easier. They help you to find such moving stocks.
The Momentum Trading Strategy is mostly effective either at the beginning of the trading hours or during the time of a news spike, which brings humongous volumes of trade. With a high relative volume and a no-close resistance, these stocks, having potential momentum, move above the Moving Averages.
In this strategy, as a trader, your sole focus should be on the stocks with a momentum that is moving significantly in a single direction and high volumes. All in all, trading here is mostly done at a 2:1 profit loss ratio and it is one of those day trading strategies that can bring upon a quick impact on your profits.
#2 Gap Up and Gap Down Intraday Trading Strategy
In this Intraday Trading Strategies, there are gapers, the securities that portray a gap between the prices on a chart. This gap is created when an upward or downward movement in the price is noticed that do not have any trading in between.
The Gap Up & Gap Down Trading Strategy capitalizes on these gapers. There are numerous factors due to which these gaps are created, like earnings announcements or changes in the outlook of the analysts.
The seasoned intraday traders make the most use of these gaps when they occur during the time the exchanges open due to a difference between demand and supply.
It is imperative to tap these gaps in pursuance of earning profits before they get filled with the establishment of equilibrium. There is a common trend that is followed in the Gap Up & Gap Down Strategy.
To clarify, it is “rising above the established range indicates a buy and falling below that range indicates a sell”. Therefore, using this, traders can make quick small profits with low risks possibilities.
#3 Reversal Trading Strategy:
In intraday trading, it is always advisable to buy low and sell high to earn decent profits. With the aid of this strategy, you will get an opportunity to enter the security very close to support.
You will be able to set the stops with the help of the Reversal Trading Strategy. Here, you take a position on the security that lies very close to the support level. By keeping the bar low and success rates high, the Reversal Trading Strategy provides you with an excellent risk to reward ratio.
#4 Break Out Intraday Trading Strategies:
Talking of Intraday trading strategies, being accompanied by an increase in volume, break out trading usually indicates when a trader enters the market when the prices move above a specific price range.
Traders often use the technical indicator known as Volume Weighted Moving Average in pursuance of understanding and catching these breakouts. However, one has to be significantly fast and aggressive while applying the Break Out Trading Strategy for entries and exits.
You cannot afford to wait for this strategy. Consequently, experienced traders know it in the very instance whether the trade is going to work or not.
#5 Pull Back Trading Strategy:
A short-term move in the security in the opposite direction of a long-term trend is called a pullback. With the aid of a pullback, traders get an opportunity to join the trend without following the security.
There is a very well known saying in the world of intraday trading, and it says, “Trend is your friend”. With the aid of the Pull Back Trading Strategy, you are protected from drowning when you are flowing with the trend.
To clarify, the pullback here is different from trend reversal. In this strategy, the strengths are sold, and weaknesses are bought. Pulling back the securities that are trending provides low-risk buying chances.
On the other hand, the securities that are down-trending will move up, which makes way for a low-risk selling opportunity.
#6 Bull Flag Trading Strategy:
This one is an example of aggressive intraday trading strategies. A bull flag is a situation where you will get to witness a significant price hike that shoots up and reaches its peak and then in an orderly fashion pulls back. In this situation, the highs and lows are almost parallel to each other.
There is a systematic and diagonally symmetric pullback after an explosively strong price move that forms the shape of a flag. The Bull Flag Trading Strategy requires much patience for the formation of the flag and then the upper and lower trend lines formation.
Two spots, one of flag break and the other on the break of the high are marked which form the two entry spots into the trade. Furthermore, there are numerous technical indicators such as the Bollinger Bands or Stochastic Oscillator to derive the target prices in a bull flag pattern.
#7 Moving Average Crossover Strategy:
It is generally a price crossover strategy where when the security prices go above or below a moving average, and then a potential change in the trend is indicated. By eliminating all emotions, this strategy shows the shift in momentum when the security prices cross over from one side to the other of the moving average.
It is to be noted that a crossover above the moving average shows an uptrend and a crossover below the moving average indicates a downtrend.
#8 Stop Loss is a Mandate:
It is always advisable in the field of intraday trading that one should not enter a day trade without a stop loss.
You might be aware of the requirement of stop losses in some of the other trades, but when it comes to intraday trading, stop losses become a mandate. It is said, not to become an investor by default; rather stay a day trader by design.
#9 Inputting the Stop Loss is Equally Imperative:
It is often observed that in the absence of stop losses, traders often end up holding positions with unmanageable M2M losses.
Furthermore, it has become a mandate for any intraday trader to input the stop loss as a necessary part of your buy or sell order and not just talk about identifying the stop-loss levels.
#10 Set a Profit Target:
Similar to a stop loss, it is highly advisable not to enter into intraday trade without a profit target.
It is crucially imperative for any intraday trader to have a clear target of reward to risk ratio. You can have a rewards/risk ratio of 3:1 or 2:5:1. On the other hand, having a ratio of 1:1 is not viable at all.
#11 Put your Capital to Better Use:
The profit target that you decide should be made based on the risk-return trade-off and then at the time of placing the order you need to input the profit target.
You will be able to achieve greater leverage if you can use cover as well as bracket orders in intraday trading so that you can put your capital to better use.
#12 Follow the fundamental rule:
One of the most fundamental rules of entry in all intraday trading strategies is to avoid averaging your position. It is often observed that novice investors purchase more of a stock when it corrects, and this needs to be avoided.
#13 Avoid Averaging:
Averaging is another big-no in day trading, and it is so because of two specific reasons. Firstly, you have the risk of being wrong two times.
Secondly, you can end up putting your capital at a higher risk by increasing your exposure to some specific volatility or downtrend.
#14 It’s all about Data, News & Charts:
You must know that entry and exit in Intraday Trading Strategies is all about data, news, and charts. Therefore, it becomes imperative for you to understand and learn to interpret graphs.
This might seem to be complicated in the beginning, but eventually, you will get the hang of it. In order to make your fundamentals secure, you need to be clear of the basics of resistances, supports, stochastic, moving averages, etc.
#15 Don’t Be Greedy:
When it is said that something is too good to be true, then it probably is! This is the flip side of the coin of the same story.
If your position yields impressive profits in the first hour, then it is highly recommended not to test your luck for too long. Grab your benefits and walk out, lest you face the risk of losing your profits.