5 Top-Performing Intraday Trading Strategies

Intraday trading involves purchasing and selling stocks within a single trading day. This method is geared towards short-term investments, capitalizing on small price fluctuations in the market. Although it can be a lucrative way of trading stocks, it is imperative that traders maintain a well-thought-out trading plan and minimize risks by choosing the right strategy. To this end, here is an overview of five major intraday trading strategies that can be employed to achieve optimal trading outcomes.

Momentum Trading

Momentum trading is based on buying assets that have been showing strong price increases and selling assets that have been showing strong price decreases. The idea here is that price trends tend to continue, so if an asset is already moving in a certain direction, it is likely to continue moving in that direction for a while. 

For instance, if a certain asset’s price is going up, investors buy and hold it until the momentum begins to diminish. The primary objective is to seize maximum price growth opportunities before the trend turns negative.

Risks

One of the biggest risks of momentum trading is that the trend can reverse quickly. If a momentum trader buys an asset that is showing strong momentum, and then the trend reverses, the trader could lose a lot of money.

Reversal Trading

Reversal trading implies catching assets whose price trends are about to do a 180 turn and capitalizing on the opportunity. The core concept behind this strategy is that if an asset is in a downtrend, it is likely to go up at some point, and vice versa.

For example, once a reversal trader has identified an asset that is about to reverse, they will typically buy the asset and hold it until the reversal is confirmed. The goal of reversal trading is to capture as much of the price increase as possible after the trend has reversed.

Risks

If a reversal trader buys an asset that is not about to reverse, the trader could lose a lot of money. Another risk is that if a reversal trader buys an asset too early, they may miss out on most of the price surge.

Breakout Trading 

Breakout trading is a way to buy and sell assets that have been trading in a narrow range for a period of time. Breakout traders believe that once an asset breaks out of this range, it is likely to continue moving in the same direction.

For example, let's say an asset has been trading between $100 and $110 for the past few weeks. A breakout trader might buy the asset if it breaks above $110, because they believe that the asset is likely to continue to go up.

Risks

One of the biggest risks related to this kind of trading is that the breakout may not be sustained. If the asset breaks out of the range and then falls back down, the trader could lose money.

Gap and Go Trading Strategy

In trading, a gap refers to a spot on the chart where a stock rises or falls during a period with no activity. Gaps can be caused by news or earnings reports. The gap and go trading strategy takes advantage of this trend as it involves buying stocks with such major price changes with the assumption that the existing momentum will be sustained.

For instance, if a certain stock opens at $900 per share with a gap up of 10% from its previous close of $819, traders will consider it as a potential option for conducting a gap and go trade. They will place a buy order at the opening price of the stock, while setting a stop-loss order below the low of the gap bar, in case the trend reverses.

Risks

It is always important to remember that gaps can be unpredictable and can sometimes close quickly. Therefore, it is vital to use a stop-loss order to protect profits in case the stock does reverse course.

Moving Average Crossover Strategy

Moving average crossover is a trading strategy that uses two moving averages to decide when to buy and sell stocks. A moving average is a line that shows the average price of a stock over a certain period of time. The two moving averages can be of any type, but they are typically simple moving averages (SMAs) or exponential moving averages (EMAs). Traders use moving averages of different lengths. The shorter moving average is typically used as the trigger for buy and sell signals, while the longer moving average is used as a confirmation signal.

For example, traders often use a 50-day SMA as the shorter moving average and a 200-day SMA as the longer moving average. If the 50-day SMA crosses above the 200-day SMA, it is considered a buy signal. This means that the shorter moving average is now moving in an uptrend, which indicates that the stock price is likely to continue to rise.

Risks

Moving average crossover signals are not always reliable. It is possible for the shorter moving average to cross above the longer moving average, but the stock price could still fall. This is why using additional technical indicators such as a relative strength index (RSI) or a stochastic oscillator is crucial.

Conclusion

Intraday trading can be challenging, but also rewarding if done correctly. These top-performing intraday trading strategies are just a few examples of the many techniques that traders can use to achieve their financial goals. Remember to always do your research, stay disciplined, and never let emotions dictate your trades.

Igor Shafran Voronkovski is a highly experienced trader with 15 years of expertise in the field.