The total volume of futures and options traded in India in 2023-2024 was an astounding ₹7.99 crore. Even more impressive, the first two months of 2024 alone saw a volume of ₹1.45 crore. To put this into perspective, India's capital market turnover, where stocks are bought and sold, stands at ₹2.01 crore. This means the volume in futures and options trading is nearly 400 times that of the capital market turnover.
Given these figures, it's clear that trading is a significant part of the financial landscape in India. Many people, including you, might be thinking about or already engaging in trading. However, being profitable in trading is another aspect altogether. This blog aims to help you understand how to achieve profitability through effective intraday trading strategies.
Momentum trading involves buying stocks that are trending upwards and selling those that are trending downwards.
For example, if Infosys announces excellent quarterly earnings, its stock might surge. As a momentum trader, you could buy Infosys shares at ₹1,500, riding the upward trend. If the stock reaches ₹1,700, you sell, locking in profits. This strategy benefits from strong trends but requires constant monitoring and quick decision-making. To manage risks, set stop-loss orders and use technical indicators like Moving Averages and RSI to confirm trends. Staying updated with market news is crucial to making timely decisions.
Price action analysis focuses on historical price movements to predict future trends.
For instance, if a stock like TCS forms a series of higher highs and higher lows, it indicates an upward trend. A trader might buy TCS futures when the price breaks above a previous high, expecting the trend to continue. This strategy avoids relying on lagging indicators, offering more immediate insights. Key patterns to watch include candlestick formations and support and resistance levels. However, this requires a keen understanding of market movements and the ability to interpret charts accurately.
Outer range breakouts involve trading stocks that move beyond established high or low price ranges.
Suppose Reliance Industries has been trading between ₹2,000 and ₹2,100. If the price breaks above ₹2,100 with strong volume, a trader might buy expecting further gains. Conversely, a break below ₹2,000 could signal a selling opportunity. This strategy captures significant price movements but requires confirmation to avoid false breakouts. Traders should use volume analysis and other indicators to validate the breakout, ensuring the move is supported by sufficient market interest.
Also Read:Intraday vs Delivery Trading: Which One is Right for You?
Volume Profile and Open Interest (OI) analysis helps traders understand market sentiment and potential price movements.
For example, suppose ICICI Bank’s options show increasing OI and high volume at a particular strike price. In that case, it indicates strong market interest and potential price action around that level. A trader might buy call options if the price nears the strike price with increasing OI, anticipating upward movement. This strategy provides insights into where big players are positioning themselves. Still, it requires understanding how to interpret volume and OI data accurately.
GAP theory involves trading based on price gaps when a stock opens significantly higher or lower than its previous close.
For instance, if HDFC Bank’s stock gaps go up from ₹1,500 to ₹1,550 due to positive news, a trader might buy, expecting the price to continue rising. This strategy relies on market psychology, as gaps often indicate strong sentiment. However, gaps can also fill quickly, reversing the initial move. Traders should set tight stop-losses and monitor the stock’s behaviour post-gap to manage risks effectively.
Base violation trading identifies when a stock breaks through a solid support or resistance level.
Suppose Infosys has strong support at ₹1,400. If the stock breaks below this base with high volume, it indicates potential further downside. A trader might short-sell the stock, anticipating a continued decline. This strategy captures significant price movements but requires confirmation of the break. Using indicators like volume and price action can help validate the break, ensuring it’s not a false signal.
Gap and Go trading focuses on stocks that gap up or down at the open and continue moving in that direction.
For instance, if Tata Motors gaps up from ₹300 to ₹320 due to a favourable earnings report, a trader might buy at the open, expecting further upward movement. The strategy relies on strong market sentiment and momentum. To execute, enter trades soon after the market opens and set tight stop-losses to protect against quick reversals. Monitoring pre-market news and volume can provide additional insights.
Breakout trades involve entering positions when a stock breaks through established support or resistance levels.
For example, if Infosys has been trading between ₹1,000 and ₹1,100, a breakout above ₹1,100 could signal a buying opportunity. Traders expect significant price movement following a breakout. To execute, use technical indicators like Bollinger Bands or Moving Averages to confirm the breakout. Additionally, look for increased volume to validate the move, ensuring it’s not a false breakout.
Reversal trading aims to identify when a stock is about to change direction.
For instance, if HDFC Bank has been declining but shows signs of bottoming out near ₹1,200, a trader might buy expecting a reversal. Buying when a stock shows signs of reversing from a downtrend, anticipating a turnaround, is a common approach in reversal trading.Key indicators include RSI or MACD, which signal overbought or oversold conditions. This strategy captures gains from trend changes but requires precise timing and confirmation. Use multiple indicators to validate reversal signals and set stop-losses to protect against continued movement in the original direction.
The Moving Average Crossover strategy uses two moving averages (e.g., a 50-day and a 200-day MA) to identify potential buy or sell signals. When the shorter MA crosses above the longer MA, it signals a buy. Conversely, a cross below signals a sell.
For example, if TCS’s 50-day MA exceeds its 200-day MA, a trader might buy the stock, anticipating an upward trend. This strategy is simple and effective in trending markets but can generate false signals in choppy markets. Combine with other indicators to improve accuracy and set stop-losses to manage risk.
Intraday trading can yield significant returns, ranging from 1% to 3% per trade. This can accumulate monthly returns of 10% to 15% on your capital. However, it requires discipline, quick decision-making, and effective risk management. Always stay informed, use a well-planned strategy, and set strict stop-losses to maximise profits and minimise risks. Consistent application of these principles is crucial for long-term success in the volatile world of intraday trading.
Mastering intraday trading involves understanding and effectively implementing various strategies. Each strategy has its nuances, requiring precise execution and risk management.
Those looking to leverage these strategies with competitive brokerage rates should consider opening a futures and options trading account with Sharekhan. With equity options at just ₹20 per lot and equity intraday trading at 0.02% on the market rate, you benefit from straightforward brokerage rates. Enjoy zero AMC for the first year, directional buy-side recommendations at zero cost, and multi-leg options strategies at zero cost. Join the 29 lakh+ investors and traders who trust Sharekhan.
Also, visit the Sharekhan Knowledge Centre for more insights and in-depth resources. Equip yourself with the right knowledge to excel in your trading journey.
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