What is Intraday Trading?

Intraday trading is a commonly used trading strategy that refers to selling and buying of financial instruments on the same trading day to draw profits from small swings in price movement. Intraday traders need to predict the market trend of the day and complete all the settlements before the market closes. 

The intraday trading strategy is widely used by traders in equities, foreign exchange, index and crypto markets. Unlike the equity and other traditional markets, the crypto market is open 24/7, which means it would be much more difficult to use the intraday trading strategy on the market. As the market always remain open, there are increasingly less predictable trading models. Therefore, compared with the traditional trades, finding the right time to enter crypto trades takes a longer time and analyzing the crypto market trends requires greater efforts. For instance, the opening and closing of the traditional markets serve as key benchmarks for traders’ reference when operating transactions, but it can’t be used to predict the crypto market trends.

 

Theory and Characteristics of Intraday Trading

Intraday trading is a short-term trading strategy with the aim of seeking the opportunity of quick profits. If there are no profits, intraday traders will exit trades in an instant. As they believe price movements are subject to multiple factors with great uncertainties and it’s very difficult to predict the market price and trend since prediction difficulty increases as cycles get longer. Within a short cycle, the prediction accuracy will be getting higher, as limited price volatility risks lead to fewer errors. In addition, short-term market price fluctuations are significantly affected by the speculations of traders, who have formed a group following specific trading behaviors, so they can be seen as predication reference for developing intraday trading strategies. 

Based on the holding period of intraday traders, intraday trading is generally divided into ultra-short-term trading (or scalping trading) and swing trading. The holding period of ultra-short-term trading, also known as scalping trading, is 1-2 minutes, with the minimum no more than 10 seconds. Swing trading is a trading approach built on an obvious swing range of a trading day (please refer to swing trading strategy). In essence, swing trading falls within the category of trend trading and it sees a significantly lower trading volume than scalping trading.

 

Commonly Seen Intraday Trading Strategies and Skills

Intraday traders generally resort to multiple intraday trading strategies and techniques to maximize their intraday trading profits. Please see below for the most commonly seen intraday trading strategies: 

1.     Range Trading

Range trading is also known as grid trading. Traders need to have a clear understanding of the recent price history of the trading target to identify its swing range by reading the highest and the lowest prices on the candlestick charts, and keep a close eye on the differences between the prices. When the price rises from the support level or falls below the resistance mark, traders will buy or sell a position based on their predictions on the market directions. The premise to execute the range trading strategy is that the market is volatile enough to lead to constantly changing prices while the overall change is within the range. 

2.     Scalping Trading

Scalping trading is also called ultra-short-term trading. The basic theory is the “small profits and quick returns”, i.e., profiting off of small price changes and making a fast profit off reselling. The holding period of the traders adopting the trading strategy, with some completing trades within seconds. Traders are required to execute the trading strategy in a rigid manner, so that they will not be greedy and seek more or be afraid of losing money. They need to trade in and out fast to achieve the goal that the total profits are greater than the total loss. The trading strategy has a demanding requirement for the trading literacy of traders. 

3.     Contrarian Investing

Contrarian investing is a trading strategy an investor uses to counter the prevailing market sentiment or trend by opening a counter position. The strategy is based on the theory that there are no assets that only rise and never fall, and vice versa. Contrarian investors believe that the market reversal is expected when the prices reach a certain level. For instance, traders should open long positions when the bearish market sentiment pulls the prices of an asset into an extremely low level compared to its intrinsic value. The strategy requires traders to be sensitive to the changes of market trends. 

4.     Trading the News

Trading the news is a trading strategy wherein traders predict the market trend by leveraging various market information or news fundamentals. It is one of the most traditional and major short-term trading strategies used by intraday traders. Traders believe news and information have significant impacts on the change of prices, which include international and domestic market dynamics, announcements on economic indicators, industry news, etc. However, the shortcoming of trading the news is that there are a few events capable of leading to a substantial price change. Generally, news’ impacts on market prices have been embodied by prices before the official release of the news.

 

Intraday Trading Principles for Beginners 

1.     Well Prepared before Trading

Traders need to make good research on the assets to be traded to acquire must-have knowledge about the assets. In addition to the basic trading strategies, skills and know-how, they also need to pay attention to the latest news updates and events that could possibly to affect the price change from a macro perspective to be in a position to predict the market trend, facilitating intraday trading. 

2.     Evaluate Risks + Set Aside Assets

Traders should evaluate the risks they are willing to assume for each trade and set a portion of their assets aside according to their financial situations as a way to deal with the risks. 

3.     Have Ample Time to Trade

Intraday trading is a trading strategy wherein investors profit off of frequent trades of small price changes, which means traders need to spend lots of time in looking for the best chance to sell or buy. For the traders without ample time to trade, intraday trading is not a good option.. 

4.     Stick to the Trading Strategy to Stop Loss

When adopting intraday trading strategies traders should not be too obsessive about the profits or losses of a trade, but stick to their own trading strategies to perform flexible and decisive operations by following the market trend instead, going short on the market when it falls and going long when it rallies.