At the outset, let’s state it clearly: intraday trading is more risky than swing or position trading, especially for beginner traders who have not understood the different types of trends and how they work in intraday trading. It is, therefore, advisable that you trade only with the amount you can afford to lose.
Having said that, intraday trading requires a deep understanding of the different types of trends — long-term, medium-term, and short-term — to know the most relevant ones to focus on at every stage. It requires a mastery of intraday charts, candlestick patterns, technical indicators, and price levels, as well as keeping an eye on fundamental news releases.
To develop an effective and consistent intraday trading strategy, you need in-depth technical analysis skills necessary for using chart patterns, indicators, and other technical tools to predict the direction of price movement, while keeping an eye on fundamental news schedule to avoid surprises.
Before we discuss the various strategies you can use, let’s find out what intraday trading is.
What is intraday trading?
Intraday trading is the act of opening and closing a trade on the same day or even multiple times over the course of the trading day.
It involves making short-term trades that last less than a day and trying to benefit from the daily price swings on the lower timeframes.
Two types of traders fall under this category — day traders and scalpers. The former makes a few trades a day, trying to capture the main price move for the day, while the latter is known for high-frequency trading, as they try to benefit from every small price movement.
Day traders mostly make use of anything between the hourly and 5-minute timeframes; they tend to trade the trend on the H1 timeframe while stepping down to the 15-minute or 5-minute timeframes to find better entry levels.
Scalpers, on the other hand, mostly make use of the 5-minute and 1-minute timeframes and even the tick chart.
While intraday trading can be used in most financial markets, it is mostly seen in forex and CFD trading, as well as among some stock traders.
The style is more suited for highly liquid markets with adequate volatility. The high liquidity makes it possible for the traders to easily get in and out of a trade, while good volatility ensures that there are significant price swings to profit from.
If you intend to go the way of intraday trading, there is one thing you should know: the intraday trading environment is fast-paced.
Since you will be dealing with the lower timeframes (that print price bars much more frequently), you will be performing more frequent analysis to find trading opportunities and monitoring already-placed trades.
It requires you to practically watch your screen all day and make quick decisions at the right moments.
Things you must know to succeed in intraday trading
As we said earlier, intraday trading is a more difficult approach to trading, and it is not for everyone.
It involves working under pressure, trying to make the best decision for each moment in a quickly changing market condition.
The professional traders that succeed with intraday trading have a lot of things they get right, and if you can do so, you can as well succeed with intraday trading. Thus, you must take care of the following:
Money management is key
After all said and done, one of the key determinants of long-term success in the financial trading world is money management — but most traders only pay lip service to it.
Money management is basically about how you manage your trading capital. It means how much of your trading capital you are willing to risk in each trade, which, in turn, determines the size of your stop loss, your position sizing, and the use of leverage.
I can only assure of one thing in this game: you must have a losing trade, and on some occasions, a losing streak.
So, the thing is, how do you manage your trading capital such that if you have a streak of five or seven consecutive losses, for example, you can still be in the game.
See the table below on how a trading account would look like after 7 consecutive losses using different risk parameters.
Account balance after 7 consecutive losses for 1% and 10% account risk per trade (starting with $1,000)
As you can see from the table, while someone risking 1% per trade would barely lose about 7% of his capital after seven consecutive losses and would require only a 7.5% gain to restore original account balance, the person risking 10% would have lost over 52% of his trading capital and would need more than 108% gain to restore original account balance.
Thus, it is necessary you risk only 1-2% of your account per trade. With the account risk per trade (amount at risk) and the size of your stop loss, you can calculate your ideal position size, to ensure that you are not using too much leverage, using this formula:
Ideal lot size = Amount at risk / (Pip value x pips at risk)
Where the pip value for EUR/USD = $10 for the standard lot, $1 for a mini lot, and $0.1 for a micro lot.
Say your account balance is $1,000 and you want to risk 1%, your amount at risk is $10. Now, if the place you want to place your stop loss will require 20 pips, then your ideal lot size will be
Lot size (in micro lots) = $10 / ($0.1 x 20) = 5 micro lots.
In this case, you are using a 5x leverage, which is not too much. But if your trade requires a bigger stop loss, you will have to trade a smaller lot size and use less leverage.
Understand the type of market you are trading
All markets are not the same. Some tend to trend in one direction for a long time, while others tend to mean-revert more often.
It is, therefore, very necessary that you understand the tendencies of any market you intend to trade so that you can use the appropriate strategy for that market.
Some markets like to trend more often than range. In such markets, using a trend following strategy can make you money.
Some examples of the markets that usually trend, include the US500, US30, US100, EUR/USD, GBP/USD, USD/JPY, XAU/USD, and many others.
In the chart below, notice the gradually ascending moving average line, indicating an uptrend.
Some instruments rarely stay in a trend for long. Such markets tend to follow a mean-reverting pattern — not necessarily in a range because they are not restricted within an established upper and lower boundary.
They move in one direction for a while and then turn to the other direction — the perfect definition of a random walk.
Examples of markets that tend to follow this type of movement include EUR/GBP, EUR/CHF, AUD/CAD, AUD/NZD, and others.
For this type of market, you use mean-reverting strategies and look for reversals at important price levels.
In the chart below, you can see that the moving average is flat, with the price crisscrossing it frequently.
Know the market session you are trading
If you are using an intraday trading strategy, you need to know the market session that suits your trading style and your location.
The forex market generally consists of three overlapping sessions — the Asian session (Sydney and Tokyo markets), the European session (Frankfurt and London markets), and the North American session (New York and Toronto markets).
The European and North American sessions tend to overlap by up to four hours, and that period seems to have the best price movements for most intraday trading strategies.
But if you are living in Tokyo or Sydney, for example, that would be your bedtime. In that case, you can either find a strategy that makes you a few pips during the Asian Session with low volatility or stay awake to trade the European and North American sessions.
Identify important price levels
Most times, intraday trading strategies are all about key price levels — it’s either you are looking for a breakout of an important level or chart pattern in a trending market, or you are looking to trade a reversal from a key level in a mean-reverting market.
Whatever the market condition and the strategy you are trading, you need to identify the key price levels first.
One important price level you must take note of is the previous week’s high/low. They are major price reversal levels that could become resistance or support levels in the future.
It is necessary to use a horizontal line to mark the levels and watch what happens when the price gets to any them.
In a trending market, the price will likely break out of the level, converting it to a bounce off point for subsequent pullbacks — a broken resistance level becomes a support level and vice versa.
For a mean-reverting market, the price will likely reverse around those levels, as you can see in the chart below.
Aside from the weekly highs and lows, which you can automatically attach in TradingView by searching the “Weekly OHLC” in the indicators and strategies tab, another price level to consider is the previous day’s high/low.
Be mindful of the volatility changes
Market volatility is always changing, from a period of lower volatility to a period of higher volatility and back to a period of lower volatility.
So, if the market has been less volatile in the last few days, expect the market to be more volatile soon.
What this means is that you have to be careful when the market is in a tight range, especially when it is prolonged.
When a breakout occurs, the price movement is always fast and big. It is either you position to trade the breakout or avoid the market entirely — don’t ever trade against a breakout from a prolonged tight range.
One way to position yourself for such breakouts is to have a stop order in the direction of the trend.
Another method is to sit astride the range with stop orders on both sides and go with the one that gets triggered.
In this chart below, you can see a period of low volatility followed by a period of high volatility. The price broke out in the direction of the trend.
Keep an eye on the economic calendar
Even with the best trading strategy and money management, one thing that can ruin an intraday trader is ignoring the release of high impact economic data and political news.
And here is why: Generally, intraday traders are chasing a few tens of pips (mostly 30 to 60 pips) in each trade, so their stop loss is mostly in the region of 20 to 30 pips.
High-impact news is usually associated with increased market volatility, and the broker may even widen their spread because of the volatility.
Both situations increase the chances of being stopped out. So, if you are to succeed as an intraday trader, you must keep an eye on the economic calendar and note the timetable for high-impact data, such as interest rates, the minutes of Central Bank meetings, commodity Price Index (CPI), Producer Price Index (PPI), Unemployment Rate, Wages Increase, Non-Farm Employment Change, and others.
As an intraday trader, it is advisable to stay out of the market during such news releases, even though the news might favor your trade in some cases.
If you must stay in the market, widen your stop loss to reduce the chances of being knocked out of your position, but if you do get knocked out after that, you will lose more than you planned.
Control your emotions
Intraday trading is a fast-paced and high-pressure environment. It is very easy for emotions to run high, but that is exactly what you don’t want in such a situation. To be able to execute your trading strategy correctly and promptly, you must put your emotions under check.
Admittedly, your emotions are part of who you are, but they can sabotage your efforts if you carry them into your trading room.
While it may not be possible to lock them up all day, you shouldn’t allow them to determine what you do in front of the screen.
Trading is all about implementing your strategy and executing your trade management plan.
So, it is fine to feel afraid, excited, greedy, or angry, but don’t let it affect the next action you have to take in the market.
Some intraday trading strategies that work
Now that you know how to approach intraday trading the right way, let’s take a look at some of the strategies traders use when trading intraday. The strategies we will discuss here fall under two broad categories:
Fundamental analysis strategy
As odd as it sounds, some people trade only new releases, and they have mastered the act of grabbing some quick pips during those periods.
While it is a very risky strategy, especially for an intraday trader, some traders actually make money from it.
In fact, some specialize in trading specific economic data, such as interest rate-related reports and Non-Farm Employment Change.
Generally, the periods of economic data releases are associated with increased price movement, but while your economic calendar will tell you the kind of impact — positive or negative — the released data can have on a currency pair, the price movement doesn’t always correspond with the expected impact.
Your calendar may show you a positive impact, while the price heads the opposite direction. Or the market may just get very choppy.
However, intraday fundamental traders have the necessary skills to interpret the potential impact of any economic data beyond the report on an economic calendar.
They can predict how the price will move in response to the data and other statements and expectations that follow the data.
As we stated earlier, this strategy is very risky and is better left to the specialists. If you are not one of those, look for another strategy.
Technical analysis strategies
The great majority of intraday traders make use of one technical analysis strategy or another. There are many strategies you can use, but here, we will only discuss a few of them.
Chart pattern breakouts
For markets that tend to trend most of the time, chart pattern (especially continuation chart pattern) breakouts are among the easiest strategies you can trade intraday.
They are easy to trade because you know where to enter a trade, where to keep your stop loss, and where to place your profit target.
Some of the continuation chart patterns you can trade include the various triangles, the wedges, the flags, and the pennants.
You may also trade the head and shoulder pattern and the double top/ bottom pattern when they are occurring in line with the higher timeframe trend.
For example, a head and shoulder pattern in the H1 timeframe occurring around a resistance level in the H4 or D1 timeframe that is in a downtrend is a perfect reversal pattern for the continuation of the H4 or D1 downtrend.
The USDJPY chart below shows a downtrend and a triangle pattern formation. A downward breakout of the chart pattern resumed the downtrend.
Note the position of the stop loss and the profit target, which is estimated from the base of the triangle.
In the GBPUSD chart below, you can see a bullish flag. Note the position of the stop loss and the profit target, which is usually estimated from the size of the price swing preceding the flag formation (lower cyan arrow).
Trading pullbacks to a higher timeframe support/resistance level
Key price levels are very important even in a trending market. When the price pulls back to such levels, they are likely to reverse and continue in the trend direction.
As previous price reversal levels, support and resistance levels are good places to look for trading opportunities.
While the ones in the lower timeframes you are trading can serve, the higher timeframe’s resistance and support levels are more significant because more traders are monitoring them.
Here is what to do:
When the price is trending upwards, look for a buy setup when the price pulls back to a higher timeframe support level and bounces off.
You may have to wait for a breakout of a nearby resistance level in the lower timeframe you are trading before going long or look for a bullish reversal candlestick pattern in the higher timeframe.
The charts below are those of GBPUSD. In the H4 chart, you can see a pullback to a previous resistance level that has become a support level.
Stepping down to the M30 timeframe to pick a better entry, you see a small consolidation. The price closing above that consolidation was an indication to go long.
For a down-trending market, look for a sell setup when the price pulls back to a higher timeframe resistance level and forms a bearish reversal candlestick pattern on the higher timeframe.
It is better to wait for the price to break below a nearby support level in the lower timeframe before going short.
In the EURUSD charts below, the price pulled back to an H4 support level that has become a resistance level, forming a bearish engulfing pattern.
When you move down to the M30 timeframe, you notice a mini head and shoulder pattern. A breakout below the neckline was a good shorting signal.
Here, you want to trade in the direction of a higher timeframe momentum when your intraday timeframe is showing momentum in that direction.
For example, if, in the D1 or H4 chart, the MACD line is above the signal line and rising, you can look to go long in your H1 or M30 timeframe when there is an upward momentum in the stochastic.
The inverse can be used to find a shorting opportunity — the MACD heading downwards in the higher and the stochastic descending from the overbought region in the lower timeframe.
The charts below are those of the EURUSD. You can see upward momentum in the D1, as indicated by the rising MACD line.
So, any upward momentum in the M30 — the stochastic rising from the oversold region — was an indication to enter a long position, until the D1 upward momentum ends.
In the AUDUSD charts below, you could see a bearish momentum in the DI timeframe. So, any overbought signal in the M30 timeframe was a shorting opportunity until the D1 downward momentum dies out
When you are trading a market that is historically known to be mean-reverting, such as EUR/GBP, EUR/CHF, AUD/CAD, AUD/NZD, you have to use a mean-reverting strategy.
One of the easiest one to use is to highlight the previous weeks high and low levels and watch what happens when the price gets to those levels.
There is a chance that the price will reverse around such levels. So, when the price is around the previous weeks high or low, look for signs of weakness and possible reversals — check for reversal chart patterns and candlestick patterns.
In this EURGBP chart below, you could see the weekly highs (green lines) and lows (red lines). Notice how the price reverses around those levels. Can you see the reversal candlestick patterns?
Intraday trading is fast-paced and requires constant monitoring of the market, frequent analysis of the market, and quick decision making.
Before you take up intraday trading, make sure you are ready for it and know the necessary precautions.
One thing you must take care of is your money and risk management. We have provided a few intraday trading strategies here; study them to know the ones that suit you.