Financial Markets are giving mainly three type of trades to Traders/Investors.
As the name suggest , traders need to take position on Trading day and must close on same day. Mean if They are in Buy mode, they must close his position by selling the trade otherwise broker system will close automatically their trade position. Just like local travelling, you must come home on same day. With profit or loss, that is calculated based on your BUY-SELL or SELL-BUY final actions.
This type of trading is for few days only. You take position on intraday basis; the trade can be converted to margin trading to take position for next days unless your analysis says to close this on same day or you put target along with trailing stop loss. The broker system will cut the position based on hitting either trailing SL or Target Profit. This is like medium level travelling, well planning of this type of trade will make you handsome profits based on technical analysis.
This type of trading is for long term positions. Your analysis is for long duration. This can be done based on technical analysis / fundamental analysis, as for long term each type of analysis lead to same results. Some time you carry positions for 3years, 5 years or 10 years or more. This is just like long journey, which you plan for 3-4-6 months basis. In between stay/stop of 1 day or 1 week won’t bother you as market always moves zig zag manner. Well planning of this type of trade will make you handsome profits.
Let us focus on Intraday Trading: Why it is complex
The main constraint is that you have got only one day trading window to execute the BUY/ SELL or SELL/ BUY. Time is main constraint for intraday trading. Some day market moves in original trend , but some day it moves opposite way or very narrow range. You can take position in either directions on intraday basis mean you can trade in direction of trend or against the trend.
Looking at the picture below for BANK NIFTY , there are always two type of candles only- RED or GREEN.( Super bearish, moderate bearish, moderate bullish, super bullish). Below are some conditions just for example.
-Gap up but red candle
-Gap down but green candle
-Small green candle
-Inside candle (in between high/low of previous candle)
-Red candle after green trending day candle
-Red trending day candle after rejection of sell on previous day
Above are the few examples where there is so much complexity in doing intraday, though it follows main trend majorly and speed in main trend direction is always more then in corrective direction. But taking confirmation and time constraint in like above cases makes decision difficult and complex.
What is the solution to deal with these.
People may say some news might come, good or bad, that’s way it moved against or rejection happened etc etc. But Its market behavior and there are events one or other will always keep coming, if you start follow news/events, you cannot follow market. During market hours, you need not to study the market, you should study market after market hours only. If you want to trade tomorrow, you need to study market closed previous day candle(today), you need to finish your study till market opens tomorrow. THERE SHOULD NOT BE ANY STUDY DURING MARKET HOURS. You can not decide where to go once you start travelling.
Just like local travel for next day, you study your next day plan today (after market close, its previous day) and based on conditions you studied, you execute your plan on the day of travelling. You just need 15M/1H confirmation to act.
Mean you studied previous day market based on its open, high, low and close conditions. Now you will make plan for trading so that based on same you can take action during the market hours. You can use any technical study which should be back tested by you already or based on your trade plan.
You will mark previous market day Open, High, Low and close price. So you got three zones for study. You will write all scenario along with major trend, stop loss and profit target. Just refer case 1,2,3 and 4 on chart. Generally first 15M/first Hour opening candle will make you follow one out of three listed plan.
Above previous day high. —you will write what is your plan to trade if market open above the previous day high. If open huge gap up (>2%), what will be plan. (already > 2% up leave less room upward so Target to SL ratio need to consider but depending on scenario in trade plan it may move up to 5% or upper circuit)
Below previous day low – you will write what is you plan to trade if market open below the previous day low. If open huge gap down (<2%), what will be plan.(already < 2% up leave less room downward so Target to SL ratio need to consider but depending on scenario in trade plan it may move down to 5% or lower circuit)
In between previous day range- if open in between range , what’s your strategy for that day, if its says in certain conditions per trade plan-avoid the trading. So follow to avoid.
You will write for BUY and SELL actions and need to execute only one side of trade on specific Stock mean either it is BUY-SELL or SELL-BUY for particular day. If you are doing both on same day, that mean there is terrible wrong with your study. You will also write your plan of action timing, if your study says that after opening in this zone and high/low break after certain time says after 2:30PM time, you will not take position as you will have very less time for trade.
If you have inside candle on the previous day, you should not take high/low of that candle as it is baby candle.
After analysis, when you execute the trade based on study. Always remember, “Trade what you see, not what you think” . Don’t think possibilities while doing trade as you already studied and follow the same.
Hope this will help you to make plan for intraday trading. Happy Trading 🙂