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Intraday Trading – Basics and Simple Strategies

What is Intraday Trading

Intraday trading (Day trading) is short-term transactions in the stock market. The very name of this strategy – Day Trading, or intraday trading – means that the strategy uses transactions carried out within one day without transferring transactions to the next day.

Intraday trading is the most sensitive to all market changes. The emergence of any significant news, statistics, or other information can be used immediately. This strategy allows you to save time and make a profit as soon as possible.

Traders, increasing the profitability of their transactions, use margin trading. But it is usually accompanied by an increased risk. For intraday traders, the emphasis is on technical analysis much more than on fundamental analysis of the stock market.

For individuals in the United States, intraday trading has been allowed since 1996. By 2000, on one of the most famous American stock exchanges, NASDAQ, intraday transactions of individuals were approaching 15% of all transactions. During this trade, over 70% of private day traders lost their investment. The research was conducted by the North American Securities Association at the turn of the century. Today, intraday trading is the backbone of the market and its engine.

The assets that day trading uses are not too different from other trading tactics. The main difference is the timing of transactions and highly liquid assets.

Short-term traders do not bring as much income as medium-term and long-term ones, so experienced traders rely on the number and speed of transactions.

Intraday trading strategies

The main thing in day trading is to close all positions by the end of the day. There are 2 main intraday trading strategies: scalping and intraday news trading.

Intraday trading strategies

Scalping is the simplest, but quite effective method. It consists of setting a certain threshold for closing a position. For example, if a trader sets a plan to close 5×5 positions, then when the trend position changes by 5 points in plus or minus, the trader will, in any case, close the position. In the first situation, he makes a profit, in the second, a loss.

To make the chances of making a profit outweigh the chances of the opposite result, the trader uses technical analysis methods. And placing Stop Loss on the position as close as possible to the price allows you to get the maximum possible profit. At the same time, it is important to observe the rule for losses – as soon as the trend moves 5 points, the position is closed. Each trader sets the threshold that the position must reach, based on his own experience.

When scalping, it is important to choose the right moment to enter the market. This is usually done when the trend is moving forward with confidence. In this case, the position quickly reaches the required profit level and closes, or the trader places a Stop Loss and monitors the further progress of the trend, moving the Stop Loss if necessary. As soon as the trend changes direction, the position is closed.

It must be said that assets in intraday trading should be highly liquid. If an investor can afford to invest in calm stocks with a 20% annual increase, then a Day trader must choose the most volatile assets or assets with bright trends in order to make the most of the fluctuations during the day. The higher the fluctuations, the higher the potential profit.

The second intraday trading strategy, which is no less common, is news trading. In this case, the trader must closely monitor all financial and economic news that may trigger a trend advance, especially a positive one. The trader is helped in this by a calendar of significant events in the stock market and a table of the impact of these events on currency rates.

Intraday trading allows you to use other strategies, but practice shows that they are less effective and are suitable only for experienced traders who have developed their own style of work.

Advantages and disadvantages of intraday trading

Intraday trading involves work at a high pace, often it is associated with nervous tension, therefore, requires high endurance and self-control. The main goal, like many other strategies, is to choose the right moment to enter a trade.

Like any other strategy, intraday trading has its pros and cons. The ability to avoid disadvantages and multiply the advantages of a strategy is what distinguishes a professional trader. The disadvantages are as follows:

• The more transactions you need to complete per day, the more energy goes to work. And you can get a decent profit only with a large number of transactions.
• Day trading requires constant concentration, a trader must “keep his finger on the pulse” of the market, react to the slightest changes, and there is not much time to analyze the situation and the trader in this situation.
• A large number of transactions often result in high commission costs.