Intraday trading is a technique that commands your attention, rewarding those who can swiftly analyse market data and act decisively. Armed with the right strategies, traders can make the most of market fluctuations within a single trading day. This article explores three successful intraday trading strategies: Breakout + 50% Retracement, RSI Trend Following, and HMA Crossover with VWAP. Read on to enhance your intraday trading toolkit.
Understanding Intraday Trading
Intraday trading entails buying and selling a given asset within a single trading day. The focus is on capitalising on short-term price movements. Unlike other trading styles, intraday trading techniques require quick decision-making, as positions are not held overnight. Two key factors are liquidity, allowing for easy entry and exit, and volatility, offering price movement opportunities. While the potential for quick gains is high, risks are equally elevated, emphasising the importance of sound strategies.
Breakout + 50% Retracement
The Breakout + 50% Retracement strategy combines the power of a price breakout with a midpoint entry, generally utilised in the context of an established trend. When a convincing breakout occurs, traders often look for entry points at the midpoint of the initial trading range. A convincing breakout is one that closes above or below the range's high or low, ideally with a large candle.
- Traders typically watch for a breakout to occur from a trading range.
- Entries are generally taken at the 50% retracement level of the trading range in the direction of the breakout.
- Stop losses are commonly positioned beyond the high or low of the initial trading range.
- Profit-taking usually happens at identifiable support or resistance levels, aligning with the trend direction.
This strategy capitalises on the momentum generated by a breakout. By entering at the midpoint of the trading range, traders can position themselves during the pullback while maintaining a decent risk/reward ratio. The use of stop losses beyond the trading range's high or low helps in mitigating risks and taking profits at support or resistance levels helps traders to maximise their returns before price potential reverses.
RSI Trend Following
The RSI Trend Following strategy fine-tunes the Relative Strength Index (RSI) to be more sensitive by using a 7-period setting instead of the traditional 14. In the context of a well-established trend, this strategy suggests waiting for a pullback and then entering a position as the RSI swings back into its normal range.
In the chart above, we’ve used Apple (AAPL), one of the best stocks for intraday trading due to its high liquidity. However, this strategy will work across all types of assets.
- Traders usually look for an established trend, marked by higher highs and higher lows for an uptrend or lower highs and lower lows for a downtrend.
- During a pullback, the RSI often crosses into overbought (above 70) or oversold (below 30) territory.
- Entries are typically made when the RSI crosses back into the normal range, confirming the trend's continuation.
- Stop losses are generally set above the most recent high in a downtrend or below the most recent low in an uptrend.
- Profits are often taken at pre-identified support or resistance levels in line with the ongoing trend.
The strategy aims to capitalise on the continuation of existing trends by making the RSI more sensitive. A 7-period RSI allows traders to react more quickly to short-term price changes. By setting stop losses around the most recent highs or lows and targeting support or resistance levels for profit-taking, traders aim to balance potential rewards with manageable risk.
HMA Crossover With VWAP
The HMA Crossover With VWAP strategy integrates the Volume Weighted Average Price (VWAP) with the Hull Moving Average (HMA) set at 21 (orange) and 50 (yellow) periods. It's grounded in the principles of mean reversion, using the VWAP as a reference point for buy or sell decisions.
It’s worth noting that the VWAP is one of the best indicators for intraday trading. It effectively balances price and volume throughout the day and gives intraday traders a clearer view of potential market direction.
- Traders generally observe the VWAP to determine the market bias; if the price is above the VWAP, the bias is to sell, and if it is below, to buy.
- An entry signal is typically considered when the 21-period HMA crosses over the 50-period HMA in the direction of the VWAP bias.
- Stop losses are usually placed above or below the nearest swing high or swing low.
- Profits are commonly taken when the price either touches the VWAP or when a reverse HMA crossover occurs.
This strategy leverages the mean-reverting nature of financial markets. By aligning the shorter-term 21-period HMA with the longer-term 50-period HMA and using the VWAP as a directional filter, traders aim for more precise entries. The HMA is a highly responsive moving average, making it ideal for intraday trading.
The Bottom Line
In summary, these three intraday trading strategies can provide traders with distinct approaches to capitalise on market volatility. Each has its own unique advantages and can be implemented using our robust TickTrader platform. However, it’s worth remembering they should be modified in accordance with your trading approach. To practise these strategies and more, consider opening an FXOpen account for a comprehensive trading experience tailored for traders with any level of experience.
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