Top Intraday Trading Strategies for Beginners (With Examples)

Intraday trading or day trading is a popular type of trading that involves buying and selling securities in a single day. It is a type of trade that requires a lot of knowledge, experience and discipline. As a day trader, you must have a well-planned strategy that helps you navigate the market and make profitable trades. Let’s explore some of the popular intraday trading strategies that can help you to improve your trading skills.

Content

• Scalping
• Momentum Trading
• Breakout Trade
• News Trading
• Range Trading
• Countertrend

Scalping 

Scalping is a popular intraday trading strategy involving small profits from small price movements. This strategy involves buying and selling securities quickly, often within seconds or minutes. The goal of scalping is to make a large number of trades and accumulate small profits that accumulate over time. Trading requires a lot of discipline and quick decision-making skills.

Example

Let us understand this through an example -

Let's say you are a day trader, and you notice that this company's stock typically experiences small price fluctuations throughout the trading day due to various factors like news, market sentiment, and order flow. Your scalping strategy would involve buying and selling this stock multiple times daily, aiming to profit from these small price movements.

Here's how it could work:

1. You start the trading day by analysing the stock's recent price patterns and identifying essential support and resistance levels.
2. You observe that the stock often bounces between these support and resistance levels, providing opportunities for quick trades.
3. You decide to buy the stock when it approaches the support level and sell it when it nears the resistance level.
4. You repeat this process several times throughout the trading day, each time making a small profit from these price movements.
5. Over time, these small profits accumulate, and by the end of the trading day, you've realised a profit from multiple scalping trades.

Momentum Trading

Momentum or impulse trading involves purchasing securities whose price is rising and selling those that are falling. This strategy is based on the belief that securities whose price is rising will continue to rise, and those whose price is falling will continue to fall. Impulse/momentum traders use technical analysis to identify trending stocks and place trades based on those trends.

Example

Imagine you are a momentum trader tracking the stock price of a leading IT company. Here's how your momentum trading strategy might play out:

• You identify a leading IT company with a solid upward stock price trend.
• You confirm the trend using technical analysis tools like moving averages and RSI.
• You decide to enter a long position by buying the stock.
• You will continuously monitor the stock's price movements and momentum indicators.
• You set predefined exit criteria for profit-taking or limiting losses.
• Repeat the process with other stocks showing strong momentum.
• Momentum trading is based on the belief that existing trends will persist.

Breakout Trade

Breakout trading involves buying securities when they break through a critical support or resistance level. This strategy is based on the idea that when security surpasses a fundamental level, it will continue to move in that direction. Breakout traders use technical analysis to identify critical support and resistance levels and place trades based on those levels.

Example

As a trader, you identify a stock that has been trading within a tight price range with clear support and resistance levels.

• You use technical analysis to pinpoint these key levels.
• When the stock's price breaks above the resistance level, you initiate a buy trade.
• You set a target price for profit-taking.
• You place a stop-loss order to limit potential losses.
• Breakout trading capitalises on the belief that a significant price movement will continue in the direction of the breakout.

News Trading

News trading is a trading strategy that involves buying or selling securities based on news events. This strategy is based on the belief that news, including economic data releases, company announcements, political developments, and even global catastrophes, can cause significant movements in security prices. News traders use fundamental analysis methodology to identify such news events and place trades based on those events.

Example

Here is a real-life example of news trading -

• An Indian pharmaceutical company announces positive results from a clinical trial for a new drug.
• News traders quickly buy the company's stock, anticipating a positive impact on its stock price.
• They closely monitor market reactions and the stock's movement after the news release.
• If the stock price rises as expected, news traders may sell their positions to lock in profits.
• They also have stop-loss orders in place to manage potential losses in case the market reacts differently.

News trading is based on the belief that significant news events can lead to substantial price movements in securities.

Range Trading

Range trading involves buying securities when they are at the bottom of a range and selling them when they are at the top of a range. Range trading strategy is based on the belief that stocks will continue to trade within a range until they break out. Range traders use technical analysis to identify critical support and resistance levels and place trades based on those levels.

Here is a real-life example of range trading -

• As a trader, you identify a stock that has been trading within a specific price range for an extended period.
• You use technical analysis to pinpoint key support and resistance levels defining the range.
• Then, you purchase the stock when it reaches the bottom of the range and sell it when it nears the top.
• Range trading assumes the stock will continue to move within this range until a breakout occurs.

Countertrend

Day trading against the trend is unarguably one of the worst strategies if you are inexperienced. This technique consists of anticipating a change in trend and taking advantage of the price movement to obtain profits. A countertrend trader should be able to identify temporary changes while predicting its strength accurately. Although it is not impossible, it requires a lot of experience and mastery of trading based on price action. It is mainly recommended for experienced traders.

To understand how countertrend works, here is an example -

• You are an experienced trader and observe a stock that has been in a strong downtrend for a while.
• Your experience says there will be a temporary reversal or "bounce" in the stock's price.
• You accurately identify the strength of this potential reversal and decide to buy the stock.
• Your trade aims to profit from the short-term price increase against the prevailing downtrend.

This countertrend strategy requires significant trading experience and mastery of price action analysis.

Conclusion 

When choosing an intraday trading strategy, there is no one-size-fits-all approach. Each strategy has strengths and weaknesses, and it's up to you to decide which works best for you. Some traders prefer scalping because it allows them to make many trades and accumulate small profits. Others prefer momentum trading because it allows them to exploit market trends. Ultimately, the best strategy is the one that suits your personality, trading style, and risk tolerance.

Day trading requires much knowledge, experience and discipline. The strategies discussed in this section are just a few of the many strategies day traders use to navigate the market and make profitable trades. With the right strategy, you can improve your day trading skills and become a successful trader.