Intraday trading, appositely, refers to a short-term stock trade activity that encapsulates all actions of buying and selling stocks on the same day in order to make financial gains.
To be precise, the sole objective of intra-day traders is to square off their positions before the market closes to earn a profit. Hence, intra-day trading has, for ages, lured whooping masses in India, due to its lucrative nature, which allows individuals to make quick money, and generate a wholesome income, every single day. Nevertheless, it possesses a higher risk in comparison to regular equity investments, owing to higher volatility.
Because of the riskier nature of intraday trading, much more vigilance is expected from an intraday trader than traders operating in longer time frames in terms of risk management.
Moreover, volatility and volume tend to increase in the last hours of the day, as the common intraday stock market patterns depict all of the sharp reversals and big moves to occur in the last hour, especially in the last several minutes of trading.
Hence, it becomes imperative for one to execute a smart, and judicious last-hour intra-day trading strategy, in order to accomplish his financial goals as intraday trading, can be quite rewarding, if risk management skills are mastered.
Top Last Hour Intraday Trading Strategies
Mentioned below are some top last hour intra-day trading strategies that may be utilized by individuals to make handsome financial gains, via intra-day trading:
1. Momentum strategy
The fundamental cornerstone of this strategy for intraday trading is to extract the most from the momentum in the market, as may be inferred from its name. This requires the identification and selection of apt stocks before a significant change in the market trend eventuates. On the basis of such change, traders buy or sell securities.
On each of the trading days, certain stocks, most of the time belonging to the small-cap and mid-cap territories seize significant market attention. Such stocks grab attention based on news events earning seasons, merger announcements, or any sector-related reforms as such. A lot of the time the reason is hard to identify.
Such strategies demand a requisite skill to choose such stocks at the right moments. Usually, opening hours and closing hours are most suitable for selection because of the higher volatility, during these hours.
2. Breakout strategy
Timing is the most crucial factor that influences buying and selling securities on the same day.
Breakout strategy, the most widely used intra-day trading strategy practiced by beginners, is based on the principle that a slight movement of stock above and below certain levels causes significant price movement in that direction.
It is characterized by allocating the stocks which have broken out of their usual territory of trade.
Alternatively, a trader may identify stocks that are anticipated to be traded in an unprecedented price range.
In common parlance, traders are required to spot threshold points at which share prices increase or decrease. In case, there is a rise in the stock prices above the threshold point, intraday traders prefer entering long positions and buying shares.
On the other hand, when stock prices dive below the threshold point, it is a signal for individuals to contemplate short positions or sell shares.
The underlying proposition backing up this strategy depicts a scenario wherein when share prices cross the threshold point, the trend continues, and volatility increases simultaneously.
3. Reversal strategy
Reversal Strategy, as the name suggests, calls for making investment decisions that are opposite to the market trend, based on deep and pervasive analysis as well as calculations.
As compared to contemporary methods, this intraday trading strategy is more tedious as higher proportions of risk are involved herein.
For this reason, extensive knowledge regarding the market is imperative in order for intraday traders to adopt this strategy.
These include pinpointing the pullbacks, pivot points, harmonic trading strategies, etc. accurately which might turn out to be quite formidable.
4. Scalping strategy
Scalping is a trading strategy that allows the traders to make financial gains off small price changes and earn a fast profit off reselling.
This strategy mandates a trader to adopt a strict exit plan because one large loss might obliterate many small gains the trader strived to gather. Thus, the right tools—such as a live feed, a direct-access broker, are crucial, along with the endurance to place many trades, for this strategy to be profitable.
Nonetheless, price action is more significant in this strategy. While selecting stocks, individuals choosing this intraday trading strategy must verify that the shares selected by them are liquid as well as volatile.
Furthermore, a stop loss ought to be put for all orders, while implementing this strategy.
5. Moving average crossover strategy
The Moving Average Crossover Strategy involves the use of a moving average (MA) which is a simple technical analysis tool for carving out price data by forming or calculating an average price, which is regularly updated.
A specific period of time, like 10 days, 20 minutes, 30 weeks, or any time period may be chosen by the trader for calculation of the average.
While prices of stocks or any other financial instrument fluctuate above/below the moving average, it may be inferred from the indication that there is a change in momentum.
It is called an uptrend when the stock prices soar above the moving average whereas when stock prices surge lower than the moving average, it is referred to as a downtrend. In the situation of an uptrend, it is recommended to enter long positions or buy stocks. On the other hand, when there’s a downtrend, entry into short positions or selling of the shares is anticipated.
6. Gap Trading Strategies
The working hours of a stock market constitute only about 6 hours a day. However, during 18 other hours in a day, significant activity may be witnessed. Gap trading strategies capitalize on off-market speculation.
The difference between the previous day’s close and the current day’s open may be referred to as the opening gap. An opening gap is positive in nature whereas a gap down is negative in nature.
Gap trading strategies may either be in the direction of the gap or opposite to the direction of the gap with the stock facing the perplexity of whether to fill or not to fill the gap.
Analysis of the price movement at the end of a particular trading day and news developments is necessary to trade the gap made by the stock the next day.
In intraday trading, a variety of methods is available for individuals to opt for to earn returns.
Hence, understanding what intraday trade means contributes more to success in this form of trading than knowing a particular method in this trading.
This includes knowing who you are and what suits you best.
For some, intraday will be more suitable, and for some, holding positions over two to four days would be more suitable.
Too many traders directly want to jump into trading strategies without understanding the science behind intraday trading, and in this blog, this is what is explained.
Moreover, traders ought to stay updated with the latest stock market news and follow the market trend to make the right decisions at the right time.