Intraday trading is a method that consists of taking positions over a single session. There are several potential strategies.
Intraday trading, or day trading, is a very common short-term investment strategy that consists of the trader taking positions in the financial markets and closing them the same trading day. Thus, each open position is closed before the end of the session, and new positions are taken the next day. Requiring time and strong technical analysis skills, intraday trading can be broken down into several major strategies.
Here is a comprehensive summary of what you need to know to choose the most effective intraday trading strategy to best suit your investor profile.
Although swing trading can be used over longer time frames (days or even weeks), it is also part of an intraday strategy. Swing trading is about taking advantage of price movements in a financial instrument.
The trader performs a technical analysis on an asset's price in order to anticipate the direction of its next movement, whether it is up or down, in the underlying trend or not. More specifically in day trading, swing trading is based on the idea that the price of an asset never goes in a single direction, within a general trend.
Scalping is a very short-term intraday strategy. It consists of placing a large number of orders over very short time units (a few minutes or even seconds). The aim is to make small, numerous gains with a high success rate, rather than larger gains that are rare and spread out over time. Scalpers therefore focus on volatile assets, whose prices constantly fluctuate in the very short term. This strategy fits perfectly with intraday trading, as it would be far too risky for the trader to let positions run overnight; brokerage fees and price fluctuations would ruin profitability.
Based on technical analysis, trend monitoring is one of the most popular strategies because of its safety. It involves analyzing the price of a financial asset to determine the underlying trend and then taking a position in the direction of the trend.
Thus, if a trader determines - with the help of technical indicators and charts - that the price of an asset is in an upward trend, they take a long position to buy. Conversely, if they see that the instrument is in a downtrend, they will take a short position. Generally, a trader practicing trend monitoring does not close their position until the trend has reversed.
However, in intraday trading, they always close their positions at the end of the day.
A strategy that is only applicable in intraday trading, micro trading consists of taking advantage of the first moments of the stock market day, and therefore of the first quotes of the session. Indeed, the latter are characterized by their high volatility, and consequently make it possible to make significant capital gains.
Suited to experienced investors, this strategy requires mastery of certain technical indicators, particularly stochastics, and complete availability during market opening hours. It consists of identifying overbought or oversold assets; in the first case, the trader positions themself to sell, and in the second, they position themself to buy. They thus anticipate the coming reversal, following excessive market trends.
Typically used for longer-term purposes, the Momentum strategy can also be suitable for intraday trading. It exploits the anomaly in the equity market whereby an asset tends to follow its recent past performance. For example, a stock that has risen sharply in recent periods will usually see its price continue to rise. Similarly, a stock that has underperformed recently will see its performance weaken further in subsequent sessions. The Momentum strategy is to buy the former and sell the latter.
There are many successful intraday trading strategies. Their widespread use by many investors testifies to their effectiveness. Although they are all based on intraday trading, they are nonetheless very diverse: they do not require the same time units or the same analysis tools, and are suitable for a variety of trader profiles.