Day trading has long been seen as an attractive money-making opportunity among traders. However, a crucial question arises: do all traders actually make money in intraday trading? The answer is no.
Recent research by SEBI indicates that around 96% of traders lose money in day trading. So, how can one profit from intraday trading? Are there not successful intraday traders out there?
Indeed, many successful intraday traders achieve substantial profits within a short time frame. The secret lies in the best trading strategies they employ.
In this article, we will explore the most successful intraday trading strategies used by day traders.
What is Intraday or Day Trading?
The literal definition of Intraday Trading is the practice of buying and selling financial instruments within the same trading day.
Unlike traditional investing, where assets may be held for weeks, months, or even years, intraday traders aim to capitalize on short-term price fluctuations and market volatility. Intraday trading is often referred to as day trading.
Intraday traders’ typically open and close positions within the same day, often executing multiple trades throughout the day. They usually focus on highly liquid assets, such as stocks, forex, or commodities, to ensure quick execution of trades.
To be a successful intraday trader, one needs to be well disciplined, dedicated, and willing to learn. Whether you’re looking to supplement your income or explore trading as a full-time career, mastering the fundamentals of day trading can open up a wealth of opportunities.
Whether you’re a novice or an experienced trader looking to refine your approach, understanding and implementing effective strategies can significantly enhance your profitability.
Let’s see some of the most successful day trading strategies below.
1. Momentum Trading:
Momentum trading is a trading strategy in which traders buy stocks that are rising and sell the stocks that have taken a downtrend. High volatile stocks are preferred among day traders. Momentum trading capitalizes on the continuation of existing trends.
By capturing the minor short term trends, traders book reasonable profits. Momentum trading can be done in multiple timeframes.
Mechanism:
The first step in momentum trading is to identify the overall market trend. Moving averages (e.g., 50-day or 200-day) helps to determine the trend direction. The overall market trend can be identified with the help of major stock market index.
Say for example, we will take Nifty50 – major NSE index. If Nifty50 is positive means majority of stocks that are in the Nifty50 too will be positive. Then the trader will choose the best volatile stock among the Nifty50 index.
Then the support and resistance levels will be found out using the charting platform. Enter trades when the stock breaks through resistance levels with high volume.
Day traders choose 5 minutes to 15 minutes timeframes. Once the defined profit level is achieved, traders will close the position the same day.
Example:
Here we choose, ICICIBANK chart – 5 Minutes timeframe dated October 7, 2024. After touching the support level at 1236.2 the stock moved up to 1260. Momentum traders enter the stock at around 1240 and then book their profit @ 1257, when the stock took a reversal. The total points for the trade will be ₹17/- per share.
Look at the hourly chart of ICICIBANK. The stock is still in the downtrend. Long term traders would miss the short profits that can be obtained in the shorter time frames. But keep in mind that short term trading has higher risk compared to long term trading. Set stop-loss orders to minimize potential losses in momentum trading.
Some famous momentum indicators are MACD, RSI, and ADX etc.
2. Scalping:
Stocks always move up and down. Using the right opportunity in very short time from few seconds to a few minutes in trading is called Scalping. Scalping is a trading strategy which involves doing large number of traders even in minor price movements.
Traders utilize the very short term fluctuation in stocks and accumulate profits quickly. Traders who use this method, known as scalpers, typically hold positions for a very short time—sometimes just a few seconds to a few minutes.
Scalpers often rely on technical analysis, using charts and indicators to identify entry and exit points. They typically focus on highly liquid markets to ensure they can enter and exit trades rapidly without significant price impact. Since the profits per trade are small, scalpers need to execute many trades successfully to generate significant returns.
Scalpers choose stocks that have high trading volumes to ensure fast execution.
Example:
Look at the chart of Tata consumers dated October 7, 2024. Even though the stock is downtrend in 5 minutes timeframe, a scalper would take a trade around ₹1114, when there is a slight upward movement in the stock. The he will sell the stock around ₹1120. He will book a quick profit of around ₹6 per share. These type of strategy is called scalping strategy.
Keep in mind that scalping involves quick execution and higher risk. Scalping strategy is not for beginners.
3. Breakout Trading:
Stocks can be tracked using charts. The previous high, low, strong support and resistance levels can be found easily using technical analysis charts. Traders look for key price points that the assets has struggled to move beyond in the past.
Once the levels are identified traders enter the position when the stock price breaks above the resistance or below support level. In break out trading targets are set based on historical price movements and stop-loss orders are placed to limit potential losses in intraday trading.
Ensure that breakouts are supported by increased trading volume. Look for patterns like triangles, flags, and head-and-shoulders that indicate potential breakouts.
Sometimes there might be false break outs, which can cause big losses for the traders. To minimize the loss traders keep stop-loss orders.
Example:
Bullish Breakout:
This is a price level that an asset has struggled to surpass. Bullish breakout is usually accompanied by increased trading volume, which confirms the strength of the breakout. Higher volume suggests that more participants are buying into the asset, increasing confidence in the price move. Now the previous resistance becomes new support level.
Look at the chart of Sun Pharma dated October 7, 2024. The stock tested the support level two times and then the breakout happened at around ₹1906. This is a bullish breakout.
Bearish breakout:
This is a price level where an asset has historically had difficulty falling below. A bearish breakout is typically accompanied by increased trading volume, which confirms the strength of the price move. Higher volume during the breakout indicates that more participants are selling, adding to the momentum. Now the previous support level becomes new resistance for the stock.
Look for the chart of Coal India dated October 1, 2024. The stock break out at around ₹510. This is a bearish breakout.
4. Reversal Trading:
Reversal trading is a strategy that seeks to identify points where a stock is likely to change direction.
Instead of following the current trend (either bullish or bearish), reversal traders aim to identify points where the price is likely to change direction and trade accordingly.
Traders recognize over bought and over sold conditions for a stock using the strong support and resistance levels. Certain chart patterns also indicated a potential reversals. Be cautious of false reversals; always confirm with additional indicators.
For example,
- Head and shoulders indicates a bearish reversal.
- Inverted Head and Shoulders shows bullish reversal.
- Double Tops/Bottoms suggest trend reversals.
5. News-Based Trading:
Markets often react quickly to news. The stock prices will move rapidly in response to the news. This creates strong volatility in the stock movement.
News based traders use this opportunity to enter or exit positions. Time play a key role in news based trading. If there is an expected event to be occurred like an economic survey report or budget announcement, traders enter the positon before the news release.
Some of the key news that impact stock prices are,
- Economic reports: GDP growth rate, Unemployment rates, inflation data, RBI policies, repo rates etc.
- Corporate earnings: Earnings reports, company forecasts.
- Geopolitical events: International relations, Trade agreements, trade conflicts.
- Regulatory changes: Change in regulation or policies can impact the concerned companies that might affect their stock prices.
Example:
Look at the stock of India cement When UltraTech cement, an Aditya Birla Group flagship around June 2024 announced that it will acquire a 32.72% per cent stake in India cements for ₹3,942 crore from the company’s promoters and its associates, the stock hits 10% upper circuit in a single day.
India Cement was trading around ₹230 on June 25. When the news reached the public the stock peaked at around 305 in just two trading days. This type of trading is called news based trading.
How to choose the best Day Trading Strategies?
Before you delve in to day trading, there are several key factors that you should consider before taking trades. Some of the major key points to note down are given below.
- Understanding the market conditions:
Not all stocks trade in the same way. Some may be volatile while some stocks doesn’t move at all. Always look for stocks or assets with high volatility. These can provide more opportunities for profit. But keep in mind that volatile stocks are always more prone to risks.
Stocks with high trading volume also give big returns in small time. As there are more market players for the stocks, you can easily find the buyers and sellers for the liquid stocks. But keep in mind that volatile and liquid stocks some with higher risk.
- Don’t copy other trading styles:
Each and every person have their own financial goals and risk factors. Copying trading style from others who might be successful doesn’t suit your trading style. Research the strategy that you want to deploy for trading before going live. Analyze your financial goals, margin capability, risk tolerance levels. Emotional factors very well. These factors play a major role in successful day trading.
- Back testing and Paper trading:
An athlete who wants to win in any game, needs much practice before hitting the real stage. Likewise before you trade with your real money, do paper trade your strategy which you want to follow in real trading. Paper trading should be done for minimum 3 months and you can track the performance of your applied strategy and so corrections can be made to your strategy without losing real money.
There are plenty of back testing strategies out there in the market. With the back testing tool you can analyze the strategies performance over a period of time. The corrections in the strategy can be done effectively using the performance of the back test.
- Risk Management and emotional discipline:
Successes and failures are part of trading. The ultimate goal is to create a sustainable trading approach that calculate risk-taking along with emotional discipline.
Determine how much you can take risk on your capital for each trade. As a common rule do not put more than 1-2% of your capital in risk zone. Prevent capital erosion by taking preventive measures like stop-loss orders, trade diversification, determining risk to reward ratio and regularly assessing your trading strategies.
Emotion play a major role in trading. Always remember that losses are part of trading. After each trader analyze what went well and what didn’t. Don’t do revenge trading to overcome your losses in the previous trade. Try to stick to your trading rules that defined in your strategy. Discipline in following this plan can help curb impulsive decisions.
Conclusion:
In conclusion, successful day trading requires a blend of strategy, discipline, and continuous learning. By implementing proven strategies—such as technical analysis, risk management, and maintaining a disciplined trading plan—traders can optimize their potential for gains while minimizing losses.
It’s essential to stay informed about market trends and adapt to changing conditions. Remember, consistent practice and emotional control are key to long-term success in the fast-paced world of day trading. With dedication and the right approach, anyone can work towards maximizing their trading gains.
