Intraday trading means buying and selling a stock on the same day. The positions are closed before the market close for the trading day. Intraday trading is about discipline and training of the mind. It is about waiting in the trenches until the right opportunity appears. The goal of a day trader is to capitalize on price movement within one trading day. The following are the strategies used by intraday traders.
Scalping is one of the most popular strategies. It is a trading style focusing on taking profits on small price changes, generally immediately after one enters a trade becomes profitable. It requires a strict and aggressive exit strategy because one large loss could wipe out the several small gains realized. Having the right tools such as a live feed, a direct-access broker and the propensity to execute many trades is required for this strategy to be successful. A scalper’s main objective is to take as many small profits as possible.
Fading involves shorting stocks after rapid moves upwards. This strategy involves a considerable amount of risk. But it is also more profitable; and can work well for novice traders as it does not involve extensive technical analysis. The fading strategy is based on three assumptions:
- the stock is overbought
- early buyers are ready to begin taking profits
- existing buyers may be scared out
Although risky, this strategy can be extremely rewarding. Here the price target is when buyers begin stepping in again.
This strategy involves profiting from a stock’s daily volatility. For many years, traders and market makers have used pivot points to determine critical support and/or resistance levels. This is done by attempting to buy at the low of the day (LOD) and sell at the high of the day (HOD). Pivots are an extremely useful tool for range-bound traders to identify points of entry and for trend traders and breakout traders to spot the key levels that need to be broken for a move to qualify as a breakout.
Momentum trading is when a trader sees a stock price picking up and joins it. This strategy usually involves trading on news releases or finding strong trending moves supported by high volume. The investor will take a short or long position in the stock anticipating that the momentum of the stock will continue. Here the price target is when volume begins to decrease and bearish candles start appearing.