Though intra-day trading is not that easy, however would be able to help you with some insights on this technique :
Intra-day Trading is an alluring idea for traders to make quick money in stock markets. After all, who would not be interested in making some quick bucks in a matter of minutes or hours. That is the reason of its popularity in a section of traders.
Intraday Trading Formula
Intra-day trading or day trading, as the name is explanatory, is the process of taking long or short position in markets and squaring off (exiting) that position before the close of the market on the same day. Intra-day traders take the advantage of the movement in the price of the stock or the index during the trading session. Movement can be small or significant. Trade can be for minutes or hours.
Intra-day traders have to take position in large quantities of a stock so that a small movement in the stock provides big gains. Consequently, the risk is also equally big in the event of adverse movement.
Taking position in large quantity of a stock and squaring off the position immediately after the stock takes a small move in the favorable direction, is called Scalping. Scalpers take several trades during the day so that at the end of the day, the profits are significant. Online share trading has made Intra-day Trading easy for day traders.
Now, what is the formula or technique for Intra-day Trading?
Of course, there are some formulas which are popular among the intra-day traders like Pivot Point Formula or Fraction Theory. But intra-day trading is not all about using formulas. When you are there in the middle, it is a totally different ball game altogether.
We shall explain here the above said formulas but the other things which are very important and need to be taken care of are –
- Having a proper Mind-set and Psychology – Share Trading for fun or hobby can be dangerous. Your approach should be very professional. You should be aware that you are risking your hard earned money and the risk starts the moment you enter the trade. Take trading as a business.
- Control over the Emotions – Emotions like Greed and Fear are the biggest enemies of a trader. Markets don’t stand at a place. They keep on moving, up or down. So, don’t let the fear take you for ride if markets move in the opposite direction of what you were anticipating. You should be aware of your exit point in such case. On the other hand, if trade starts turning profitable, exit the trade at your target price level. Stick to Stop loss and Targets to avoid Emotions in trading.
- Having a Plan – Having a proper trading plan is an important part of trading in stock markets. You should be clear of the entry level, target level and stop loss of the particular stock which you are trading in. These levels are determined on the basis of Technical Analysis and the formulas. You need to stick to your plan to be a successful trader. Writing the plan on a paper is a good idea so that you stick to your Plan and don’t get swayed away by the market moves when you are in. Without any of these, it is going to be very tough.
Intraday Trading Formula
Before going for Intraday Trading Formula, you should be aware of a real fact that more than 80% of the people lose money in trading. It means that no formula is perfect, otherwise that figure would had been other way around.
It is advisable to use these formula after testing by paper trading or virtual trading to see which formula is best for you. Personally, I prefer Pivot Points as it gives best result when applied after identifying the trend in a stock.
Pivot Point Theory: - Taking previous day’s trading prices of a stock, we can calculate the support and resistance levels for that stock for the next day. Support and Resistance terms are self-explanatory. A stock which is moving higher, may stop at resistance level and come back. Similarly, a stock moving lower, may stop at support level and reverse its move. After crossing first support or resistance level, stock is expected to move to next support or resistance level.
Coming to the Pivot Point Formula, we select a stock for Intraday Trading. For that stock, we need its previous day trading data- Intraday high price it touched (H), intraday low price it touched (L) and the previous day closing price (C) for that stock.
Add theses three values- H+L+C=X.
Divide the total value by 3 (P) = X/3.
Multiply it by 2: - X/3*2=Y
This value P is called the Pivot Point. Stock sustaining above Pivot Point is likely to move higher towards first resistance level and above that towards second resistance level. If stock continues to trade below the Pivot Point, it is likely to drift lower towards first support level and after that towards second support level.
Let’s calculate resistance and support levels.
First resistance level (R1) = It is the difference between the {Pivot Point X 2} or Y and the Intraday Low price.
R1= Y-L
R2=P+(H-L)
First support level (S1) = it is the difference between Y and the Intraday High price.
S1= Y-H
S2= P-(H-L).
Fraction Theory: - This theory is also based on previous day price movements of a stock.
Add up high (H), low(L) and closing (C) price of previous day of the stock and multiply it by 0.67 (ratio of 2:3 as in pivot theory and it is constant)
(H+L+C) * 0.67=Y
Resistance (R1) = Y-L
Support (S1) = Y-H
Possible Buy (P.B.) = Y-C
Above possible buy (P.B.), buy the stock for resistance levels.