Intraday trading is the investment in the financial markets within a day, also termed day trading. Traders invest in the market for a trade to earn profits quickly with short term market positions. The trade begins with the opening of the market and closes with it, in the time period traders invest, holding single or multiple trade positions.
The purpose of earning in a day is buying and selling securities and trading on the price movements. Traders look for opportunities to invest and quickly earn; for this, traders require funds available for investments. There are several trades in a day that need funds, and a trader has to be ready for an adverse situation as well.
In a day, there occur many incidents or events that impact the trade and to overcome these; traders use strategies and indicators. These help traders know the market possibilities and invest.
However, intraday breakout trading strategy is not that easy traders have to be professionals for earning through this strategy of the financial market. The expertise and knowledge of traders help them analyse the market quickly and take action.
Intraday Trading Indicators
Trading in volatile markets requires practice and good market understanding; for this, traders research, study and analyse the markets. Intraday trading is a trade strategy that is used by the experts of the market and therefore requires trade to be quick and analyse the movements.
There are several events cropping up in the market and to know everything is not possible. For this, they require the trade indicators and strategies that help them reach the goals set. Here are some of the best trading indicators that day traders can use:
A technique or indicator that is preferred by most active traders, it helps traders analyse the price movements in the market for the security traded. These are studied on the charts, visualised through lines on the charts. The lines show the movement of the market security for a specific period of time. Moreover, traders can see the opening and closing prices of the security in the market.
The chart of moving average shows the minimum average line that indicates the closing average rate of the traded security for a particular period. Thus, helping traders understand the price flow and market ups and downs.
Relative Strength Index (RSI)
The relative strength index is the technical indicator that helps traders analyse the price movements. It is an indexed form of trading that takes place in the market for a particular time period. Traders check the RSI through the charts provided online by brokers such as PrimeFIn. The brokers have trading platforms that have 30 in built indicators and several other services helping traders analyse the market properly.
The RSI provides traders with a range from zero to a hundred that is used to track the price movement and the market situation. When the graph or chart shows the range on 30 or below, it is termed as an oversold condition, whereas when the range is at 70 or above, traders term it as the overbought condition.
Thus, RSI helps traders know the market overbought and oversold to enter and exit the trade.
Bollinger bands is a famous trading indicator that shows the bands with a standard deviation of the security. The indicator has three lines to help traders understand the price movements, including the moving average, the upper limit and the lower limit are the lines shown in the indicator. These lines help traders locate the price fluctuations and invest accordingly.
Thus, traders can place their trade around the profitable price movements and observe the market through the indicator.
The financial markets are highly volatile, and traders need to study the market situation before investing. When traders want to analyse the market on the basis of their price changes, they can use the momentum oscillators.
These are visible on the range of numbers from zero to hundred, helping traders know whether security will increase or decrease its price. Thus, traders can decide when to buy and sell the security, helping traders not to miss an opportunity.
Key Points of Intraday Trading
Intraday trading as we know by now is difficult to trade without market expertise. Traders therefore, follow certain key points to have successful trade, below mentioned are some rules that traders should follow while using intraday trading strategy.
Intraday trading is a trading strategy that helps traders know when they can buy and sell the securities within a day. In this, traders take advantage of the market movements in the prices and place their trade. For example, a trader finds after market analyses that the price value of XYZ security is going to increase, so the first thing that trader will do is purchase the security in bulk.
After, this trader will find the correct opportunity and sell all these to earn double the investment. Traders can even short sell in the market when they find an adverse situation. In short-sell, traders borrow the security and sell in the market.
Traders should also be aware of the fact that intraday trading is full of risks due to market uncertainty. In short term trades, traders face risks as the markets are highly volatile, with market fluctuations at every minute. Therefore, traders should use risk management.
The traders are experts but can go wrong, so; the investment should be analysed one.
Price is the essential factor of the trade that involves so many investors to put their hard earned money. The market, its factors, risks, opportunities, technical and fundamental factors affect the trade. Which is why traders have to invest with proper knowledge and confidence.
Without earning from the investments, it’s a total failure for the trader or investor. Traders should consider the technical analysis and have accurate investments to earn and not lose money.
Breakout Trading Strategy
Breakout is a situation in the market where the price of the security traded moves away from the defined support and resistance level with high trade volume. Traders study the market and analyse them to understand the market situation. This helps them plan their move.
For example, when a trader is investing in the market after the security price breaks at a point above the resistance level, the trader will consider a long market position suitable for the trade. Similarly, when the opposite happens, the price breaks below the support level, then the trader will go for a short market position.
Breakdown in the trade is a condition where the price of a security moves below the support level with big selling candles.
Traders have to recognise the market movements and place their investments accordingly to have high profits. A trader has to be careful with the trade as there may be false breakouts as well that could be challenging.
A false breakout is a condition where the price of a security moves in support and resistance level with no momentum in it. This leads to trading of the security without any identified direction. In such situations, traders close their positions due to failure of loss. This is also called a failed break.
Breakout Trading involves a lot of factors to impact it; we have read about breakout, breakdown and false breakout. But what does breakout trading mean? So, to understand this, we have discussed breakout trading.
Breakout trading strategy is used by investors to trade, where the price of the security moves outside a defined range; that is, in the resistance trend line, it is called breakout, and in the support trend line, it is referred to as breakdown.
It is a technical trading strategy with three main concepts, drawing trend lines, differentiating between real and false breakout and trade execution process flow. These help traders identify the real and false breakouts in the market.
How to draw trendlines?
The charts help traders draw the trendlines, which are then drawn by connecting two or more prices. It is a straight line revealing the trend, support and resistance levels and helping traders find the right market opportunities.
For drawing the trendline, traders should be careful with the following points:
- Traders should not draw trend lines on charts when the prices are not proper and with gaps.
- There should be two to three peaks for drawing trendlines
- When the trend line connects more peaks, it is a strong trendline
- The trendline with high slopes are a signal of an unhealthy trend in the market
- The price of the security should always be in respect of the trendline
Identifying Real and False Breakout
A trader has to be clear with the real and false breakout as these could lead to high profits or losses. For differentiating between the two traders should have an understanding of the following four points:
- Quick time
- Breakout candle
- Absence of selling
- Good volume
In the quick time, the price of the security should not move in small candles once the breakout occurs.
The above four points are displayed in the charts while studying the breakout conditions. Traders should understand and analyse them correctly on graphs and make decisions. In addition, traders can also use other candlestick chart patterns to analyse the breakout.
Trade Execution Process
A trading plan is the first requirement for any investment; traders should consider the following areas before executing their trade. The questions help traders pan their trade, execute it properly and enjoy the market benefits.
- Where is the market entry point?
- In case of wrong predictions, where should be the stop-loss placed?
- Where is the exit point of the trader?
- What amount of risk is involved in the trade?
- What amount of investment does a trader put into the investment?
All these areas should be pre-defined by the trader after market analysis. These help them know the market and the profit ratio in advance; moreover, traders are able to manage the risks of the market.
Breakout Trading strategy vs Pullback
Many investors get confused between the two terms, breakout and pullback. The two are not different, but a pullback is an extension of the breakout condition. In the pullback market situation, the traders monitor the trade and wait for the price to take support of the previous breakout to make an entry again into the trade.
In contrast, in the breakout situation, traders immediately enter the market.
However, pullbacks may involve risks in certain market trading. Traders need to be careful while investing their funds in the trade.
Advantages and Disadvantages of Breakout Trading Strategy
Traders of the financial market using intraday breakout trading strategy can have advantages and disadvantages both. A trader has to be ready while investing in such market conditions. Traders of breakout trading strategy enjoy the following benefits:
- Quick potential gains from the trade
- Traders can easily identify breakouts if they understand the market well.
- The online brokers provide trading platforms and tools that help traders identify the breakouts and predict the market movements before investing.
- If the direction of price movement after breakout moves in the direction or trend analysed by the trader, they can have high profits.
With the market being uncertain, traders may face breakout disadvantages such as:
- Volume after breakout trading
- Traders need to be experts and professionals to identify breakout
- Requires disciplined trading
- Quick and informed decisions
- Intraday breakouts are few, and some breakouts may take overnight to take place or return
Breakout trading strategy in intraday is difficult as traders have to identify market conditions, which is possible only after expertise and practice. A beginner cannot handle such market trading. The intraday trade and breakout both require quick actions from the traders, which is not a cup of tea for everyone.
The practice and professional trade without the involvement of emotions helps traders earn good profits from breakout. It is profitable when the trend after breakout moves in the same direction though the traders, and if this does not happen, traders may face high losses. So, a trader should invest accordingly with full market research and analysis.