Strategies for Intra-day Trading

In this article, we are going to discuss about some strategies that we can use in intra-day trading, be it normal cash trading (even options trading), or scalping.

Table of Contents

• Strategy 1: Triple Confirmation Strategy
• Strategy 2

Strategy 1: Triple Confirmation Strategy

Triple Confirmation Strategy can be used for normal cash trading, and options trading. In this strategy, we make use of three indicators.

• Super Trend: It indicates the oncoming trend of the market, i.e. whether the market is going to witness an uptrend or a downtrend. An upcoming uptrend is shown via a green up arrow. An upcoming downtrend is shown via a red down arrow. This provides our first confirmation to trade.
• Moving Average Convergence Divergence (MACD): If blue line crosses the red line from below, it is a buying signal. If blue line crosses the red line from above, it is a selling signal. This provides our second confirmation to trade.
• Volume-Weighted Average Price (VWAP): It tells us about the right entry point. Our aim should be to enter the trade when the price is close to the VWAP line or when it touches it. This allows to keep a small stop loss and aim for bigger targets. So, it improves our risk-reward ratio.

Note

VWAP indicator will only be available to you if you see the futures chart, not the chart of the underlying asset. For example, you will see it in NIFTY FUT, not in NIFTY.

So, let’s see how we will use this for buying during an uptrend:

• If Super Trend is showing that an uptrend is about to come, and MACD is also substantiating it, as you see that blue line is crossing the red line from below, it means that you can buy. But wait!
• Have a look at the VWAP too. You should enter only if the price is near the VWAP line. If the price is below the VWAP line then it’s even better – it means that price will touch the VWAP line and then rise above it (so even bigger profits). You can put the stop loss at the low of the preceding candle. But when to sell?
• You should sell when in MACD indicator, the blue line crosses the red line from above, as it indicates an upcoming downtrend.

So, let’s see how we will use this for buying during a downtrend (say in case of options):

• If Super Trend is showing that a downtrend is about to come, and MACD is also substantiating it, as you see that blue line is crossing the red line from above, it means that you can buy. But wait!
• Have a look at the VWAP too. You should enter only if the price is near the VWAP line. If the price is above the VWAP line then it’s even better – it means that price will touch the VWAP line and then go below it (so even bigger profits). You can put the stop loss at the high of the preceding candle. But when to sell?
• You should sell when in MACD indicator, the blue line crosses the red line from below, as it indicates an upcoming uptrend.

More information regarding this strategy:

• We can use this strategy not only for intra-day trading, but also for swing and positional trades. Moreover, this strategy works not only for stocks and indices, but also in forex and crypto markets.
• Risk-reward ratio of this strategy is pretty good. You can keep a small stop loss and yet earn huge profits.
• This strategy does not work that well in sideways market, as Super Trend is not that reliable in a sideways market – it changes quiet frequently.
• Super Trend works better if you are seeing candlesticks of longer time frames. So, it will work better in 15 minute candlesticks, while its accuracy is pretty shaky in 1 minute candlesticks.
• If you can further substantiate Super Trend and MACD indicators with Put-Call Ratio (PCR) data, it will further confirm the upcoming trend. All of them are used for gauging the trend of the market, but PCR data lets us know the overall mood of the market for that day, i.e. whether the overall sentiment of the market is bullish or bearish that day. If it’s bullish (PCR > 1.25), you should only trade in the upcoming uptrends. If it’s bearish (PCR < 0.75), you should only trade in the upcoming downtrends.

Strategy 2

This strategy can be used for scalping. Scalpers aim to make small and quick profits, say 20-30 points in 15-20 minutes (or even less). Scalpers in general do not hold their position for more than 20 minutes.

For this strategy we use two indicators:

• Volume-Weighted Average Price (VWAP)
• Exponential Moving Average: We will use period of 5 or 6, i.e. we will take average of 5 or 6 previous candlesticks. As we generally use 10-minute candlesticks, here we are working on moving average of around 1 hour (i.e. 60 minutes).

Note

There are three types of moving averages: Simple moving average, Exponential moving average, and Weighted moving average.

Now, to find and confirm the trend of the market we use 5-minute PCR data too.

In this strategy:

• We do not take any trade till VWAP and Exponential Moving Average lines are moving side by side. We will think about trading only when the Exponential Moving Average line crosses over or down the VWAP line in a clear way.
• If Exponential Moving Average is above the VWAP line, it’s a signal that market may go up. We will confirm it using the PCR data. If PCR > 1.25, it’s a confirmation that there’s an uptrend in the market.
• If Exponential Moving Average is below the VWAP line, it’s a signal that market may go down. We will confirm it using the PCR data. If PCR < 0.75, it’s a confirmation that there’s a downtrend in the market.

Now, we know the trend. But when to buy exactly?

Well, we will buy whenever the stock/index price comes near the 6-period Exponential Moving Average, but it faces a rejection (i.e. it fails to cross it).

• If the stock price is above the Exponential Moving Average, comes down to touch the Exponential Moving Average, but then suffers a rejection and moves up again, then it’s a buying signal. But make sure that the next candle breaks the high of the candle that touched the Exponential Moving Average and suffered the rejection. We will enter the trade at this next candle, and keep our stop loss at the low of the rejection candle. We will remain in trade just for 20 minutes, i.e. just for the next two candles. Though, if the 5-minute PCR data keeps on improving (i.e. keeps getting more and more above 1) we can stay in trade longer too.
• If the stock price is below the Exponential Moving Average, comes up to touch the Exponential Moving Average, but then suffers a rejection and moves down again, then it’s a buying signal (say for put options). But make sure that the next candle breaks the low of the candle that touched the Exponential Moving Average and suffered the rejection. We will enter the trade at this next candle, and keep our stop loss at the high of the rejection candle. We will remain in trade just for 20 minutes, i.e. just for the next two candles. Though, if the 5-minute PCR data keeps on degrading (i.e. keeps getting more and more below 1) we can stay in trade longer too.

More information regarding this strategy:

• For this strategy, 10-minute candlestick chart is more suited.
• If in Exponential Moving Average we use a period of more than 6, say if we use a period of 10, we often won’t get right entry into the trade. That’s because the stock price will tend not to touch the Exponential Moving Average line. This is just a thumb rule based on experience of traders.
• This strategy works better in Bank Nifty than in Nifty. That’s because Bank Nifty is more volatile as compared to Nifty. Also, as per some experts who have done back testing, this strategy has been found to be more accurate in Bank Nifty.
• You should start trading only after 11 AM, as the accuracy of various indicators used in this strategy is not that good till then. Also, the accuracy drops after 2:30 PM.
• As this strategy is based on price movement on the chart, we cannot use it for BTST (Buy Today Sell Tomorrow). That’s because when market closes, we cannot use the charts or PCR data.

We hope this article was helpful for you. At the end we just want to add that as an intraday trader, options trader, or as a scalper, you need to be very attentive and closely watch the market till you are in the trade. Buy and forget strategy may work to a certain extent in positional or swing trading, but not here. Trends and mood of the market may reverse pretty soon. So here the price of earning profits is eternal vigilance, well at least till you are in the game!