Intraday Trading is a highly attractive and influential thing to do but is it safe and profitable to continue with?
Yes, but it has to be scientific with proper indicators. How intraday trading is different from gambling. The whole idea of trading is motivated by profit where you are expecting a return on your investment.
Intraday Trading means trading done within a day. The purpose of trading is to make a profit with it so no matter what the profit is the aim and it has to complete within a day itself. The trading in the Indian Stock Market starts at 9.15 a.m. in the morning and is open till 3.30 p.m. from Monday to Friday. If you enter a trade in the morning you have to exit it before the market closes. If you fail to do so your broker will automatically let you exit but then you will be fined for this as the broker has to do it for you.
Understanding of Indicators for Intraday Trading
The very basic thing is to understand the trend. What is the overall trend of marketing whether it is positive or negative then coming to the individual chart of the particular security, you should be able to understand the trend? Sometimes, the market would be positive or negative and sometimes it would show a mixed reaction. But, the important thing is that it should be able to understand it and approach it accordingly.
Once you understand the trend of the chart, it is important to understand the momentum. How the trend is going to reverse or where it is going to reverse can be forecasted with an understanding of the momentum. Along with the momentum volatility and the volume are also key aspects to look at.
Indicators for Intraday Chart Analysis
1. Moving Averages
Moving Averages, popularly known as MA, are among the oldest and most used indicators for understanding any chart pattern. It is an average of the closing price but since it is moving it has to be specified with a period. The most popular Moving Averages are for 50 Days, 100 Days, and 200 Days.
VWAP is another most important and easiest indicator which considers the average and forecasts the chart patterns. It stands for Volume Weighted Average Price. So, it’s an average where volume is also included as the volume of trades happened to play a crucial role. VWAP is the ratio of the value of stock traded to the volume of stock traded.
3. Donchain Channel
Understanding the volatility of the stock is one of the crucial aspects to evaluate and the Donchain channel does it very well. Whether the volatility is high or low would increase the forecast accuracy. The Donchain Channel is constructed by taking the highest highs and lowest lows making it a range where the band is moving along with the prices. The narrowness and wilderness of the bands show the volatility is low or high respectively.
4. Stochastic Indicators
Stochastics have been quite popular and accurate for a long period of time when it comes to chart patterns. They forecast the momentum very accurately. A formula is there to calculate stochastically:
%K = (Current Close – Lowest Low)/(Highest High – Lowest Low) * 100
%D = 3-day SMA of %K
Lowest Low = lowest low for the look-back period
Highest High = highest high for the look-back period
Then there is divergence and convergence that has to be looked upon to understand the trend and momentum
RSI stands for Relative Strength Index which is a momentum indicator. It indicates the relative strength of the stock evaluating overbought or oversold conditions. It is displayed as an oscillator with a reading from 0 to 100. A value of RSI above 70 indicates the stock is in overbought territory and a value below 30 indicates oversold territory. The RSI line moving from one side to the other side indicates reversal and pullback.
Moving Averages Convergence Divergence is another technical indicator that predicts momentum. It shows the relationship between two moving averages of the stock. 26 Days Exponential Moving Average is subtracted from 12 Days Exponential Moving Average to calculate the MACD. This MACD line is compared against the 9 Days Exponential Moving Average which shows a crossover. A crossover from above and below indicates a sell or buy signal respectively.