Intraday Trading Basics

What is Intraday Trading

Intraday trading (also known as day trading) is a form of short-term trading. Its distinctive feature is the opening, holding, and closing of transactions within one day without transferring them to the next day. Intraday trading thus reflects a time frame of transactions rather than a specific strategy. In this article, we will consider the basics of intraday trading, its advantages and disadvantages, the most commonly traded instruments, the skills a trader needs, and many other nuances.

Popular Intraday Trading Strategies and Timeframes

Many intraday trading methods are highlighted in trading theory, but the most popular are:

• Scalping strategies
• Trend following
• Trading against the trend
• Volume analysis
• News playing
• Breakout trading strategy
• Strategy based on technical analysis

The most common intraday trading timeframes are:

• 1 min timeframe (practiced by scalpers; requires many close stop orders)
• 15 min timeframe (also requires many close stop orders)
• 1-hour timeframe (for traders with average equity; both risks and profits are averaged)
• 4-hour timeframe (requires more capital and deeper technical analysis)

Pros and cons of intraday trading

There is no doubt that intraday trading carries both certain risks and advantages over short- and long-term trading. Before moving on to intraday trading, weigh all the pros and cons so that you wouldn’t lose everything due to inexperience or impatience.

So, what are the advantages of day trading?

• The most obvious advantage of intraday trading is the ability to see the results of your work in the shortest possible time. The profit from one transaction in itself cannot be significant, however, due to the relatively large number of transactions, the final result is often impressive. For one day a daytrader makes several or many more transactions (depending on time intervals).
• You can start with a small deposit, especially when trading currency pairs. Often day traders use margin trading to increase profits, and this really yields results, but the risk of losses also increases in this case.
• There are no intraday gaps and commission for transferring transactions to the next day.
• It’s easier to estimate the effectiveness of the applied strategy since all positions are closed by the end of the day and you can analyze and improve the strategy.
• As positions remain active for a short time and day trading involves closely spaced stop loss and take profit orders, the risk of serious account balance drawdowns is reduced.
• Easier to manage transaction volume and invested capital.
• Satisfies the trader’s excitement, which is also important.
• It is possible to trade almost every day with sufficient volatility and liquidity of the traded instrument.

Day trading is not without its drawbacks, many of which apply to all short-term trading strategies.

• Daytraders must keep abreast of the latest developments on the world market, constantly track the slightest fluctuations, monitor several charts simultaneously, so as not to miss a single detail. This leads to a lot of emotional stress.
• Often, the irrational use of leverage leads to disastrous results.
• Stock traders working for larger institutions and brokers have an advantage over individual traders due to access to the trading desk, very fast Internet connection, high awareness of market sentiment, extensive experience, as well as the availability of several monitors with the necessary information and charts.
• With the active advance of technology in the 21st century, it became quite difficult for non-professional traders to compete with high-frequency robots and algorithms that conduct transactions in milliseconds.
• Day trading involves the opening and closing of several or many more orders per day (depending on the chosen strategy), with attendant high commission costs.
• To remain competitive in the Forex market, day traders, who consider intraday trading as a method of stable earnings, often acquire expensive advisors and special software. In addition, a trader needs high-quality Internet connection and several monitors for faster response.

Popular Intraday Markets and Trading Instruments

One of the most important conditions when choosing a market for intraday trading is its high liquidity and volatility, but at the same time, more or less predictable. Therefore, day traders are especially active in the stock indices and currency pairs markets, since here the movements are more frequent and powerful, capable of forming clear and strong trends. Therefore, the instruments they trade are mainly currency pairs, stock index futures. Oil, gold markets, and, respectively, the instruments traded in them are also of great interest to traders. In the oil market, we often have high volatility, especially before the release of important economic and political news. Gold is regarded as a protective asset, and with high volatility in other markets, as well as in unstable situations and crises in the world (e.g., the coronavirus pandemic), the gold market is gaining great popularity, as it can generate good trends. There are traders who move from one market to another, depending on their movements and changes in dynamics, but there are those who adhere to trading within a particular market, which allows them to explore it far and wide.

Intraday Trading Guide for Beginners

Along with our experts, we have identified some rules and conditions stated below under which intraday trading will become more understandable and accessible, as well as before practice you will be able to understand whether such trading is suitable for you or it is worth trying something else. So,

• Literally constant monitoring of charts and a quick analysis of their movement, which requires in-depth research of both the traded instrument and the market, as well as knowledge of technical analysis and indicators.
• Proper placement of stop orders, so as not to go into the red.
• Ability to withstand minute impulses and NOT move stop orders, adhering to the initially set course and strategy.
• Ability to spend a minimum of a few hours a day on intraday trading.
• High psycho-emotional endurance.
• Necessity to follow the latest news (however, this is not so important for scalpers).
• The days of the week play an important role in trading: powerful movements are almost always formed at the end of the week, and often there are flat and large gaps on Mondays.
• Skillful risk and capital management is the key to profitable trading with minimal risk of losses. It is not recommended to allocate more than 10% of your capital to day trading; leverage above 1: 100 is also not advisable.
• It is good to take advantage of trading advisors if there is such an opportunity.
• Active use of the Technical Analysis is kind of a necessity. For example, within 14 days of free use of Autochartist, you can find out whether you need it or you can do without such an assistant.
• Set the maximum number of transactions per “working” day and the maximum number of trading hours per day. Also, set a loss limit for a week/month or a shorter period.
• After several unsuccessful deals in a row, it is better to suspend trading and make some adjustments to the strategy.
• Intraday trading can become simpler and less risky thanks to the Metatrader 5 hedging accounting system (hedging is always allowed on MetaTrader 4), which lets traders simultaneously hold orders in one instrument in different directions. For example, if an active order is about to be lost the trader can open another order in the opposite direction to minimize his loss or even profit from a new movement.