Archive for February 2020
Have you wondered how intraday traders earn profits? If you have some experience with
intraday trading, you know that booking profits is not easy. To do well, one must understand the
deeper nuances of stock market movements. That is why non-professionals end up struggling,
especially when starting out. Fortunately, there are many intraday tips that could come in handy.
Intraday trading rules
If you want to increase your bottom-line, start with the basics.
Choose liquid stocks. Since demand is higher, these are easier to trade when you need to
close your intraday position.
Specify entry and exit points. It will help you keep away from irrational decisions.
Research your stock wish-list. Know their fundamentals and technical aspects, and stay
updated on the news.
Move with the market. Resist the urge to go against the trend.
Always close positions. Otherwise, the trading system closes them for you automatically,
and the terms may not be favourable.
Strategies for improving profits
Have the basics down? Now try implementing these tried-and-tested strategies to boost your
earnings:
- Opening range breakout
The high and low recorded in the first hour or half-hour after the markets open represent the
opening range. Since this period is the most volatile, it can set the tone for the day’s price
movements. Once the opening range becomes clear, wait for the price to break out this range.
Try to place your first trade within three hours of market opening. - Resistance and support
The opening range highlights the day’s resistance and support levels. Traders usually buy a stock
when it moves beyond the support price and sell it when it nears the resistance level. Reviewing
the resistance and support of the previous day and week should give you an additional sense of
future price patterns. - Demand–supply imbalance
Stock prices rise when demand is high and supply is low. They fall when demand dips and
supply increases. By studying historical price charts, you can assess whether a demand–supply
imbalance is likely. Quality stocks, for instance, climb more than they fall, because buyers are
keen to grab them at the slightest price dip. But weak stocks climb only briefly; the price comes
down again once sellers get rid of their holdings.
- Risk–reward ratio
While a 1:1.5 risk–reward ratio is acceptable, it may not be very profitable. Instead, look for
trades with a 1:3 risk–reward ratio to increase your profits. If the trade does not work out, your
loss will be low. But if it does well, you could earn a nifty sum. - RSI and ADX
The relative strength index (RSI) helps determine which stocks have been over-bought or over-
sold. The average directional index (ADX) signals if strong price trends are in play. A high ADX
suggests that a strong trend is developing. Club this with a high RSI, and it could mean that the
stock has been overtraded and a correction is expected. An RSI score under 30 is usually a buy
signal, while a score above 70 suggests it is time to sell.
The bottom-line
Experiment with these intraday trading techniques for a few days. It may help to record your
trades daily for later review and see which ones fetch the best results. If you need more support,
open an account with a broker like Kotak Securities that provides intraday tips and research
reports.