Intraday trading can be lucrative with the correct strategies. Day trading decisions are based on several technical analysis. Such analysis helps traders to set different trading strategies. It is impossible to entirely avoid losses in day trading, but traders can minimize the losses by implementing the right techniques. Time analysis is one of those technical analyses for day traders. Let us first understand intraday trading rules.
Intraday Trading Meaning
Intraday trading can be defined as the act of buying and selling stocks and other financial securities within the same trading session before closing the markets. Day trading is the most active form of trading in the stock market.
Day traders can place multiple high volume trades within a few minutes and trade numerous times within the same trading session. They need to utilise small price movements in the best possible way that remains for a short period only.
It is mandatory for intraday traders to square off all their positions before the closing hour of the market. Failing to do so can lead to huge losses because of price gaps in the opening and closing of the position.
Time Frame in the Day Trading
A time frame can be defined as the amount of time for which a trend lasts in a market. A time frame can range from a few seconds to weeks, or even longer, that become trading trends.
To make profits in the stock markets, you need to identify and follow the market trends in different time frames consistently. Day traders analyse current trends and strategise trades based on minutes and hourly charts. It helps you know when to take a position or exit from it.
- Time frames can be used to identify intermediate, short-term and primary trends. Experienced day traders can respond to primary trends immediately as they are more interested in them. On the other hand, it is very easy to skip or overlook a powerful primary trend due to lacked market knowledge.
- It is possible that one can find several market trends simultaneously within a particular time frame. You can see that a stock is rising in a primary trend and declining in intermediate or short-term trends in different time frames.
Let us find out which time frames and trends can result in profitable trading the most and what is the correct timeframe for intraday traders.
Time Frames to Track
A longer time frame is a more reliable trend that can lead to the best trades. Long-term time frames allow traders to review their beliefs. Traders have to deal with more congested charts as they go deeper in time frames.
Traders prefer primary trends, but they need to know the importance of an ideal narrow time frame. Short-term time frames are helpful to improvise a day trader’s entry and exit strategies. However, such preferences differ for different types of traders. Let us see how.
- In the case of day traders, they prefer hourly price movement charts. Also, they use a five-minute chart frequently to determine the most efficient entries and exits. They define the primary trend for the short-term trade orders.
- If you are a swing trader, you may prefer to use daily and weekly charts to determine the primary trend.
- On the contrary, a long-term position trader may look at the monthly charts to determine the primary trend.
Traders can use the combination of multiple time frames for more confident trades.
To Sum Up
It is a known fact that profitability odds for day traders mainly depend on how well they adapt to the basic rules and understand the time analysis of the stock market. Developing the skills of analysing time frames may take time. Once developed, traders can witness an increased number of successful trades. While opening your demat account along with trading account, decide what type of trader you want to be. A day trader may require more technical trading services.
Day traders sell stocks that they do not even hold but promise to deliver them soon. A trader needs to buy back the stock to close the short-selling position and return them to the broker. No matter whether the stock price favours the trader or opposes, it is necessary to buy back the stock.