Best Intraday Strategy – Top 5 Day Trading Strategies [2023]

Finding the best intraday strategy is the first step in day trading for a living. In India, intraday trading is one of the most popular types of trading.

On an average day, Zerodha, the most popular trading platform, receives 10 to 12 million orders. 

Day trading is a type of trading in which investors or traders buy and sell stocks on the same trading day in order to profit from daily price fluctuations.

With such a short time frame for trading, one needs a better trading strategy and discipline with risk management. Day trading provides traders with leverage, but at the cost of increased risk, and traders should be fully aware of how much they are willing to lose on a daily basis before entering trades.

Table of Contents

• Intraday Trading: A Systematic Approach 
• Top 5 Intraday Trading Strategies
• 1. Momentum Trading Strategy
• 2. Gap Up & Gap Down Trading Strategy 
• 3. Moving Average Crossover strategy 
• 4. VWAP Trading Strategy 
• 5. Range Breakout Trading Strategy

Another factor to consider when day trading is the margin required and the leverage provided by the broker. For example, some brokers provide 2:1 leverage, while others may provide 3:1 intraday leverage.

Intraday Trading: A Systematic Approach

Finding the best intraday trading strategy is one aspect of profitable trading, as one famous trader once stated-

“The purpose of setting goals is to win the game. The purpose of building systems is to continue playing the game. True long-term thinking is goal-less thinking. It’s not about any single accomplishment. It is about the cycle of endless refinement and continuous improvement. Ultimately, it is your commitment to the process that will determine your progress.”

This type of goal-less thinking is difficult to develop, but with persistence and practice, you will eventually get there. Intraday trading requires patience and a systematic approach. 

To develop a systematic approach to day trading, you must experiment with your trading style. Finding a strategy is not difficult, but sticking to it during drawdowns is the real challenge.

While analyzing any trading strategy, you must find answers to the following questions:

1. How does the strategy give buy and sell signals ?
2. How does strategy decide position size?
3. How does the strategy get us out of a losing position?
4. What is the average win rate of the strategy?
5. How does the strategy get us out of a winning position?

Answers to these questions are of paramount importance before placing trades with an intraday trading strategy.

Top 5 Intraday Trading Strategies

Depending on your risk tolerance and trading style, there are numerous intraday trading strategies available. For some traders, taking trades and closing them within minutes (scalping) is preferable, while for others, using a standard 15-minute candlestick chart is comfortable.

You must experiment and test to develop your own style.

Technical analysis gives us the tools we need to develop strategies, and in this section, I’ll show you the best intraday strategy based on price action and technical indicators.

1. Momentum Trading Strategy

Momentum refers to price change with respect to time; with momentum trading, we want to trade stocks with a high velocity of price change.

The momentum calculation is as follows –

Momentum is important in intraday technical analysis, and the velocity of price movement is a leading indicator, particularly during intraday price swings during uptrends and downtrends.

Stocks showing higher momentum relative to other stocks can be identified and traded using any one of the following momentum indicators –

• Moving Average Convergence Divergence (MACD)
• Relative Strength Index (RSI)
• Average Directional Index (ADX)
• Rate-of-Change (ROC)

Volatility is an important factor to consider when implementing a momentum trading intraday trading strategy. Volatility helps with proper position sizing during day trades and also plays a key role in setting price stop losses.

2. Gap Up & Gap Down Trading Strategy

Trading gaps is a highly successful and one of the best intraday trading strategies. Gaps are common in stock markets; to profit from gap up and gap down openings, an intraday trader can place a position in the direction of the gap.

For example, if there is a gap up, a long intraday trade can be placed, and if there is a gap down, a short intraday trade can be placed.

 The advantage of the gap trading strategy is that it has a very tight stop loss and a very good risk to reward ratio. The stop loss is usually very close to the opening price, but for more conservative trades, the stop loss can also be placed around the gap’s median.

The following is an example of a gap up intraday trade: 

Gap down trades can be similarly placed for short trades.If your timeframe is 15 minutes or greater, you can place trades within 15 minutes of the market opening.

3. Moving Average Crossover strategy

MACD is a steady , reliable, and trend following oscillator known as “mac-dee” . This popular price momentum oscillator was developed by Gerald Appel.

MACD Indicator settings for intraday –

You can use default settings of (12,26,9) for intraday trading.

Buy Signal MACD line crosses above signal line

Sell Signal MACD line crosses below signal line

Histograms can be used as momentum indicators; long histogram bars above the zero line indicate strong bullish momentum, while long histogram bars below the zero line indicate strong bearish momentum.

The MACD indicator can also be used in conjunction with Fibonacci levels to create another intraday trading strategy known as the Fibonacci Macd strategy.

The MACD strategy’s only flaw is that it fails miserably during sideways or choppy price action.

Hence, only use this strategy on a strong trending day.

4. VWAP Trading Strategy

VWAP is an abbreviation for volume weighted average price. The VWAP intraday trading strategy is a simple yet powerful trading strategy for day traders that uses VWAP trading indicators to denote the average price of the stock during the day.

When prices move above the VWAP line, it indicates that buyers are in control and that bullish momentum is expected, whereas when prices move below the VWAP line, it indicates that sellers are in control and that bearish momentum is expected.

VWAP Formula

Where Average cumulative price = High price + Low Price + Closing Price / 3

The cumulative price is calculated since the trading session started. 

Buy Signal is triggered when a 5 min candlestick closes above the VWAP line.

Sell Signal is triggered when a 5 min candlestick closes below the VWAP line.

VWAP line also acts as a dynamic support and resistance level; combine VWAP line with price action for better intraday trading entries.

VWAP intraday trading strategy works best on trending days, and it is best to avoid trading during the first 30 minutes of market opening for the best results.

5. Range Breakout Trading Strategy

Range breakout trading is undisputedly one of the best intraday trading strategy in terms of hit rate and targets reached.

With a range breakout, you have an extra advantage to trade with momentum and get the best subsequent move in your favor.

There are a lot of ways in which range breakout trading can be implemented but the most effective way is to combine congestion chart patterns with volume breakout to get the best possible entries.

Price consolidates within a narrow range between two trend lines that may or may not be parallel, providing an opportunity to trade in the direction of the breakout.

Below continuation patterns can be used in small time frame like 10 min or 15 min to get the range breakout entry for intraday trading strategy- 

1. Flag Chart Pattern
2. Pennant Chart Pattern
3. Triangles Chart Patterns

Range Breakout trading works best for all types of instruments, including stocks, currencies, commodities, futures and options, and cryptocurrencies.

Important Things to Know About Intraday Trading

When I first started day trading, it was very exciting and exhilarating for me, but as with most things in life, there is a difference between speculating and experiencing something.

Day trading is a very different game altogether, and most of what you hear, read, or watch about it may differ from how it actually feels, and it will largely depend on what your perspective is about it, and let me also assure you that your opinion will change as per your experience if you have resilience and discipline intraday trading is like running a dream business

Pros of Intraday Trading

• Biggest benefit of day trading is not money but freedom to work from anywhere, home office, traveling. You have the freedom to work wherever and whenever you want.
• Intraday trading has higher leverage, which means you can make more money when you are correct. 
• You work as an independent contractor, so you don’t have to answer to anyone about your losses, and all profits minus taxes are yours to keep.
• Many traders are unaware that intraday trading can help you become a more calm and composed person as you learn to control your emotions and think rationally in difficult situations.
• Once you’ve found your edge and your intraday trading strategy, you can expand from there, and there’s a lot of upside potential in starting your own intraday trading business or working for larger hedge funds or trading desks.

Cons of Intraday Trading

• There is a reason why more than 80% of traders fail; many of them quit before they can learn from their mistakes and grow; this type of resilience is not for everyone.
• You may be doing everything correctly in terms of technical analysis, but a trade can still go wrong – acceptance of this reality takes time to develop within your psychological framework.
• Intraday trading involves leverage and thus risk; if you are unable to manage risk, you risk losing your trading account.
• If your decision-making ability is not adjusted to market swings and you are not comfortable making decisions in shorter time frames, you may find it difficult to stay in the game for a longer period of time, and thus you must determine your threshold.
• The most difficult aspect of intraday trading is deciding when not to trade; many traders still believe that day trading means trading every day for a living; however, this is not the case; there are times when there are no trading signals for several days; patience is required.

Conclusion

Finding the best intraday strategy for day trading is only half the battle; day trading necessitates quick decision making, especially in uncertain times.

You must have a mental framework, experience, and, most importantly, the psychology of a proactive learner.

When it comes to intraday trading, learning can be an expensive affair. Finding the best intraday trading strategy is one thing, but implementing it will cost you some money, and while doing practical trading with strategy, there will be lessons – some expensive, some affordable, you just have to remind yourself not to blow yourself during the learning phase and live to trade another day!