Intraday traders always face inherent risks that exist in the stock markets. Price volatility and fluctuating daily volume are a couple of factors that affect the stocks picked for daily trading. Ideally, Traders should not risk over two per cent of their total trading capital on a single trade to ensure the right risk management. However, the desire to earn higher profits often compels traders to risk more. In order to balance the risk taken, while achieving higher returns, here are some tips to follow:
How to Make Profits in Intraday Trading
In order to earn profits, here are some of the proven intraday trading strategies:
- Opening Range Breakout (ORB)
- Mapping Resistance and Support
- Demand-Supply Imbalances
- Opt for 3:1 Risk-Reward Ratio
- Relative Strength Index (RSI) and Average Directional Index (ADX)
Opening Range Breakout (ORB):
This intraday trading strategy is widely used by professional traders as well as amateurs. To maximize the potential of this strategy, combining it with the optimum use of indicators, accurate assessment of market sentiment and stringent rules are recommended. ORB has numerous variations; some traders may opt for trade on large breakouts from the opening range and others choose to place their trades on the opening range breakout. The time window for the trades ranges between 30 minutes and three hours.
Mapping Resistance and Support:
Every stock price fluctuates within a range from the initial 30 minutes of the start of the trading session, which is known as the opening range. The highest and lowest prices during this period are assumed as the resistance and support levels. It is advisable to buy when the share price moves beyond the opening range high and sell if the price falls below the opening range low.
An important intraday trading tip for beginners is to look for stocks where drastic demand-supply imbalances exist and opt for these as entry points. The financial markets follow the normal demand and supply rules—price reduces when there is no demand for higher supplies and vice versa. Users must learn to identify such points on the price chart through research and studying the historical movements.
Opt for 3:1 Risk-Reward Ratio:
Traders, especially beginners, must understand the appropriate risk-reward ratio. Initially, finding stocks that provide a potential risk-reward ratio of at least 3:1 will be beneficial in earning profits in share market investment. This strategy will allow them to lose small while giving them the opportunity to earn big even if they have losses on most of their trades.
Relative Strength Index (RSI) and Average Directional Index (ADX):
Combining these two intraday trading strategies to find buy and sell opportunities can help traders earn profits. The RSI is a technical momentum indicator comparing recent losses and gains to determine over purchased and oversold stocks. The ADX is beneficial and used to determine when the prices are showing strong trends. In most scenarios, if the RSI crosses the upper limit, it is indicative of a sell trade and vice versa. However, when you combine the RSI and ADX, intraday traders buy when the RSI crosses the upper limit and vice versa. The ADX is used as the trend identifier to help users take their buy or sell decisions.
Intraday trading involves same-day trade settlements. Most traders try to achieve smaller profits through their trades. The golden intraday tip is to ride with the market trend to help make profits.
Angel Broking’s Angel Eye has charts and portfolio watch tools that helps in identifying trends, and thus helping traders to make better decisions. This will help traders to earn profits from Intraday Trading.