Intraday trading, commonly called day trading, concerns the acquiring and selling of stocks or other financial securities within the same trading day. The intention is to benefit from short-term price movements in the market.
Traders involved in intraday trading do not hold positions overnight. Instead, they buy and sell quickly, sometimes within minutes or hours, to capitalize on market volatility. In this article, we will help you understand how to profit by intraday trading.
1. Momentum Trading
Momentum trading works by identifying stocks that show strong price movements and then trading in the direction of those movements. The idea is to capitalize on continuing existing trends and exit before the stock signals move downward.
Suppose a pharmaceutical company named ABC announces a breakthrough drug approval. Following the news, their stock price jumps from Rs 100 to Rs 120 within minutes. You buy 100 shares at Rs 120, expecting the momentum to continue. The price reaches Rs 140, and you sell, securing a Rs 2000 profit.
2. Breakout Strategy
A breakout strategy is a trading method in which you enter a trade when the price goes beyond a set level, called support or resistance. This suggests that the price will keep moving in that direction.
Suppose a XYZ stock is trading at Rs 100 but has been fluctuating between Rs 95 (support) and Rs 100 (resistance). As a breakout trader, you would watch this stock closely. If the stock price moves above Rs 100 with increased volume, it indicates strong buyer interest.
In such a scenario, you would take a long position, hoping the price to continue advancing. Conversely, if the stock falls below Rs 95, you might take a short position, anticipating further decline.
3. Reversal Trading
This method helps identify potential points where the market’s price direction is likely to change. Traders implementing this strategy look for key indicators such as price action and volume and technical analysis tools like moving averages, oscillators, and trendlines.
The hypothetical situation explaining this strategy is a retail stock falling because of poor earnings but hitting a historical support level of Rs 15.
You notice buying interest picking up and considering that purchase 300 shares at Rs 15.50. The stock rebounds to Rs 17. Going with this strategy, you will sell your holdings to make a Rs 450 profit.
4. Scalping
Scalping is about making quick, small profits. If a stock moves up by a small amount, you might buy and sell quickly to capture a small profit, repeating this throughout the day.
For example, consider a stock priced at Rs 10. As a scalper trader, you might buy 50,000 shares when the price dips slightly to Rs 9.95 and sell them as soon as the price ticks up to Rs 10.05. This way, you can make a profit of Rs 0.10 per share.
5. Range Trading
This strategy allows you to capitalize on asset fluctuations within a predictable range. Range trading is based on a belief that prices often bounce between established highs (resistance) and lows (support), creating profit opportunities.
For example, suppose a stock fluctuates between Rs 50 (support) and Rs 60 (resistance). As a range trader, you may buy shares near the support level at Rs 50, anticipating the price will rise again towards the resistance.
Conversely, you can sell or short-sell at the resistance level, expecting the price to fall back to the support level.
Conclusion
Intraday trading requires a good understanding of market trends and the ability to make quick decisions. It is a strategy favored by traders who are comfortable with taking on higher risk levels and have the discipline to close out their positions before the market closes.
To have a seamless experience while trading, consider Dhan, one of the best share market apps.
