5 Intraday Trading Strategies You Should Know

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Before we delve into momentum trading, let us ask the question: "What is momentum in finance?" Momentum is something that drives a stock’s price in a particular direction. So, if a stock price is moving up or down over a certain period, the upward or downward momentum will continue pushing the stock price in the same direction.

A momentum trader identifies the price movement's direction and expects the movement to continue in the same direction. This is why he waits for a confirmation that the trend will continue before initiating a trade. As soon as the trader is confident about the price action, he enters a position. This means momentum trading is about the price movement's direction or speed.

Now, if a trader wants to make a profit, he obviously has to buy low and sell high. But a trader neither enters at the bottom of a trend nor exits at the top. His playground is the period in between. This is because a trend's exact starting and ending point is impossible to predict. Now, how do you identify potential entry and exit points for your trade? You need to use technical indicators such as moving averages, relative strength index, stochastic oscillator, and so on.

With the help of these tools, traders’ execute both short-term and long-term momentum trades. Short-term trades may use price volatility or shorter time frames. As the trader enters and exits the trade in a matter of minutes, hours, or days. Similarly, in long-term trades, traders use longer time frames and rely on daily, weekly, and monthly charts to filter out intraday noise. Further, one must remember that research is the backbone of a good trade.

What is Intra-day trading?

Intraday trading, is the act of buying and selling the stocks within the same day. Traders buy and sell stocks during regular market hours and close their open positions before the market closes.

How to pick stocks for Intra-day trading? (5 Simple Strategies)

1. Trade in liquid stocks

   Liquid stocks are traded in large volumes and allow you to enter and exit positions as needed.

2. Pick stocks with medium volatility

   Pick stocks with a reasonable amount of movement within a day but use the stoploss feature to minimise potential losses.

3. Buy stocks that you understand

   Trade in stocks that you have followed, tracked and know about. Avoid trade in stocks that you have no knowledge of; or which are manipulated or move based on rumours.

4. Avoid penny stocks

   Avoid trading in stocks which are available at very low prices i.e. in single digit prices.

5. Make focused investment based on research

   Don’t trade in too many stocks. Do your research and focus only on a few stocks that you can track and review easily.

Pre-requisites for intra-day trading

Have a trading or demat account and a bank account.