A Simple Strategy for Consistent Intra Day Trading

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There are a lot of ways to do intra-day trading of stocks. The beauty of intra-day trading is that it makes you feel like you are doing a full time job out of trading shares. Even with a single strategy you can keep trading all through the day. There is a simple strategy that I want to share today. This is really the simplest one as it does not take much effort on our part to find stocks and execute the trades. But it does have considerable risk and accordingly higher chances and potentially higher rate of returns.

Intra-Day Trading Needs Persistence

When day trading shares, most important thing to consider is to note the boundaries of the time that is fixed within that day. This is what makes the intra-day trading to be difficult, if not encouraging, for most traders. Even if you learn to accustom to this time boundaries still to persist all through the day is challenging. What if I tell that by sticking to one simple strategy you can persist all through the day?

That is what I am going to share now. When trading shares intraday consistently trade after trade, we need to make the task easier. Each trade consists of several activities within the same day. You need to find stocks, you need to look at their charts, order books, second order and if possible third order quotes as well, before deciding to make an entry. After making an entry, you should place it on auto-pilot with a trailing stop order and move on to other trades.

Trading Only Stocks at Their Highest or Lowest Levels

Now to make these tasks easier we can choose to trade those stocks that are closer to their intra-day highs or lows. Plan to go long on stocks that are trading near their intra-day highs and go short on stocks that are trading near their intra-day lows. As long and short trading share similar principles but in the opposite direction, it suffices to explain one direction.

Let us take the case of stocks to go long. It does not matter what time it is during the day. You can always find some stocks that are just closer to their highest value of the day. To find such stocks you should not just look at the list of top gainers, losers etc, though these also give the stocks list with least effort on our part. If these lists are exhausted meaning you took advantage of them already and they are still gainers of the day but not at their highest points of the day, then you need to go deeper in search.

Finding Stocks

Fortunately it is pretty easier to find such stocks by going to nseindia.com and keeping a list of stocks that show open, high, low and close prices at any point of time during the day. If your brokerage account’s terminal can show the same list as a table in one window that will be even better because they show real time quotes as close as less than a second. NSE India site shows with a delay of 15 seconds. It can be considerable time lag when trading volatile stocks with this technique.

Once you find a stock that is moving near its high of the day, place an order to buy just a little above high price. Now you need to place a buy stop order and not an ordinary limit order as beginning traders do. Because the trade gets executed immediately after placing an order to buy above the current market price.

This is not the way to trade with this strategy. We need to get in only if the stock were to breakout once again and make a new high higher than the present high price. This ensures that we will be in the trade only if the stock were to continue the uptrend that it started. If not our stop order will make sure that we never enter that stock. Don’t try to reverse the order thinking the stock might fall. Sometimes stocks just don’t move anywhere all through the day.

Placing Orders for Entry

In your entry order, you should place stop price just a little above the high price of the stock at that time. How much is the ‘little above’ depends on the volatility of the stock? I prefer to consider +0.15% for the stop price for highly volatile stocks. For non-volatile stocks this strategy is not very useful but if tried it is good to try with a +0.1%. Don’t increase this further as the brokerages in Indian markets charge 0.3% as typical rate.

The Limit price in your order should be again 0.1%-0.15% above the stop price. All in all you are betting on the stock making a move higher than a total of 0.6% from current high price to make sure the trade is atleast even. But note that often if the stocks breakout you could be in a ride as long as 10% of the stock.

The reason why we trade stocks at the highest point when common sense tells that we are paying higher price is because the probability of the stock going higher is high when it is trading at its highest point of the day. Otherwise tell me how can stocks move higher? One is by opening with gaps. But we are talking about trading through the day and not overnight. Expecting a gap up at tomorrow opening and buying shares at today’s close is a completely different strategy and is more riskier than the one I am talking about now.

If you want to take advantage of a sudden and surefire movement of the stock then go long on the stocks at intra-day highs and vice versa for going short. You can take any intra-day chart. If you generalize different charts of the same stock on different days or different stocks and different days, the chances of a stock making a sudden up move are higher than the chances of trend reversal when the stocks are at their intra-day highs.

Placing Orders for Exit

Putting the fear to rest, one important thing to mention is the exit strategy. As these stocks make rapid moves once they break out of the high price, they are likely to retrace of their move in the same pace. If you want to move onto another stock that you just found it is good to guess an exit point say 1% or 1.5% above the high price and place a limit order.

If you are a multi-tasker who can switch between observing charts, order books of multiple stocks that you have entered, then instead of placing limit orders try trailing stop orders. As the stock price moves upwards it will keep on making pull backs of small magnitude. Whenever a pull back appear to be larger than a pull back on both sides, take the lowest point in that pull back as the stop price for your trailing stop order.

If the stock were to continue the trend, the trailing stop price too should keep going up. When you change it continuously the profit will be locked when the stock makes a bigger pullback for the day or the hour.

Word of Caution

This strategy entails risk. So it is not a one time thing you should do. If it turned out that the first attempt of the day went bad, then it is natural feeling to not try again. To avoid great risks, use stop loss order compulsorily at just below the high price of the day after making entry into the stock. When a stock makes a high, breaks it and couldn’t find a support at this high, it is likely that it will break down further. Don’t worry too much about closing with a loss including brokerage costs for the potential profit can be much better with this strategy.

All of the time you should note that in intra-day trading all percentages, price differences would be very small. Don’t try this if you cannot digest these small numbers as big for the time during the trade.

Easy to Persist

It is easier to persist with this method in intra-day trading because the sudden move in the stock immediately after entry will get you excited. As much as the excitement if you also close the trade even with little profits and maintain stop loss order just after entry very close to the entry price, you are likely to persist with this strategy.

Another important thing to note is that finding the stocks not very hard. For any given day you can prepare the list of stocks the day before that by finding all stocks that made a white candlestick. In other words on the previous day the stock should have made a close higher than the open. The chances of a bigger move are high if there are atleast two white candlesticks after few black candlesticks till previous day.

You can also sort out stocks that just made 1%-5% gain within the half-an-hour. You can place alerts in your brokerage terminal (if they allow) or write a script to do that on your computer which suddenly pops up a window to tell that a stock just reached close its intra-day high. The ideas to find the candidate stocks are only limited by your imagination.

After some time, I realized that this one is similar to Opening range breakout day trading strategy. In short form, it is written as ORB. ORB strategy is different from this in that we pick stocks to trade from ORB based on range established in the first hour of the day.

The one I am talking about can follow along the line of hourly gainers strategy. One can look for stocks breaking the high made in the previous hour at any time of the day. Though both can be good day trading strategies. For novices, it is better to start with something that is simple to practice to get confidence and understand risk management practically. Then try more strategies.

One can play with options as well with this idea. As options anyway give leverage and increased price swing, start with large caps that do not swing wildly. Instead of the stock buy the option. Then one can play with call or put option depending on which side the price is breaking out.

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Why You Should Sit Tight to Make Big Money from Your Bets?

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Many successful traders or investors in history have done this. Many traders still continue to sit tight and make big money from their bets. Sitting tight is the single most important thing that can make or break a stock trader’s portfolio in the long run. But it is more dependent on the type of strategies a trader uses than on any trader in general.

What Does Sitting Tight Mean?

Sitting tight is a term most popularly used in stock trading by successful traders. Because you can be certain to become successful if you employ sitting tight principle in your own trading! It refers to holding the stock patiently no matter how violent the stock may be moving till it makes the anticipated move in the desired direction.

It is much like its literal meaning. Let us say you are sitting in a vehicle and the vehicle is moving on a rough terrain. Then whether you sit tight or not determines how your experience of the journey will be. Those who sit tight will stay there till they reach their destination without leaving the vehicle or getting hurt. Same is true in stock trading. Just sit tight when your stocks are making you feel uncomfortable.

Any Trader can Sit Tight

Sitting tight can be applied for any time frame. It applies to short term traders, intra day traders and long term traders as well. It does not matter what amount of time you should sit tight, there is always a situation when the stock behaves unexpectedly but you are expected to sit tight.

Importance of Sitting Tight on Your Trades

Sitting tight can make a big difference on the long run. This is because often the biggest gains in stocks can be made by sitting tight on your bets. Immediately after you buy a stock it may either, just fall below your buy price prompting you to sell with stop loss or sell because it is just waiting above the stop loss and wasting time, or it might have moved up sharply and down violently though it shows good profit from buy price. In all these situations, there is an opportunity in sitting tight.

It may not necessarily be true all of the time. But often the stocks tend to move in trends, that is, they continue with the same trend and repeat the moves that they did earlier. For this reason sitting tight makes the big difference between a successful trader and a trader who just makes it above the break-even barrier.

Sometimes institutional investors or some smart high networth investors try to play games with the retail investors. It is easy to for them to play for a while because they have huge money to play with. They can risk a little for game play while testing your trading attitude. Recently Sebi announced plans to allow Indian Brokerage firms to use their software based trading. This was despised by these institutional investors as they can't know now whether it is a retail trader or a software that they are competing with on the other side.

Successful stock traders like Jesse Livermore have explained the importance of sitting tight in trading stocks. Even after knowing its importance we tend to forget it or violate it for some reason. But focusing on its long term importance one can make a habit of sitting tight on the right bets and make the best out of a trade.

Don’t Be Mislead into Holding Stock as Sitting Tight!

There is a difference between sitting tight and holding the stock. Sitting tight does not just refer to the act of holding a stock without selling it. Sitting applies to only situations where you should hold your breath and do not sell immediately till the stock makes anticipated move. So there is a plan in your trade and an expected result when sitting tight. You will hold the stock till it does what you expect it to do.

In holding a stock there may not be a plan. You may be just holding it for no reason other than hope. Most of the times the average stock trader decides to hold a stock only when it falls below their buy price. He/she does not get the courage to book the loss, when it is small, and expects it to turn around and close it without loss. It may or may not happen. Most of the times the stocks move in the same trend. Hence as the stock falls further and further, these traders hold it for eternity making the loss bigger and bigger!

But sitting tight in no way comes close to this act of drowning in a falling stock. In fact holding the stock in a falling market is opposite of sitting tight. Relatively we can view it like this: not waiting till the stock makes its bottom is sitting tight on you cash in a bear market trend. We should clearly distinguish before trading stocks as well as even while trading stocks. Most importantly you should be able to clearly assess the type of situation you are in and if you are already in loss cut short with stop loss, close the trade, or plan for second stop loss there is still an opportunity for the stock to make a move. Never take a third chance.

As the stocks continue in a trend, you will also need to sit tight for long term trading beyond one cycle. Long term stocks move ahead in jumps. It gives a big return if more than one jump is captured in a single trade. This is where you need to sit tight. It enables you to get an extra margin over trading expenses and also increases the profitability per trade. This ensures long term success of stock trader as only few such trades are needed which compound that return into massive gains over a period of time.

Depends on Your Trading Strategy

Sitting tight is not just for any stock trader. It has to be applied to certain types of strategies. Knowing them well makes a big difference too. For certain types of strategies there may not be a need to sit tight.

Some traders’ strategy is to trade that part of the stocks’ movement that is certain when applied a particular rule of entry or exit. This can be for short selling or buying stocks. They exit quickly after the stock makes that certain move upon entering. In fact here if you keep watching the stock, the stock will hit the high and wipe out the gains quickly. There the stock will sit tight before making another move up or down. As the margins of profit per trade are low for these traders, they do not waste time sitting tight.

Hence the profit potential per trade must be considered strictly when deciding to sit tight on a bet. The trade should generally be of a long swing type be it short term or long term. The expected price range potential should be very high. Even in day trading, stocks can make moves successively again and again on certain days. These days are not very rare for particular stocks. But on average they are rare. Hence a stock, that makes such moves on some day, may make only part of such move on normal days. Here it becomes difficult to separate it. So you will have to check the pattern, assess it and decide to sit tight within the day or over a few days.

Generally Good on Long Term Trades

Sometimes in day trading, immediately after you make an entry the stock might just become range bound into a tiny range. The volume may dry down. But you should weigh the trade-off between the value of your trading time and the odds of the stock moving right. Then only sitting tight here can make a difference. Of course profit potential over expenses must make it worth sitting tight. Unless otherwise you should restrict this habit to the long term trading only.

Sitting Tight can Change Your Portfolio Forever

Note the strategy you are trading with, the situation at hand when you are in a stock, and decide whether it is right to sit tight. When done properly sitting tight can grab all the opportunity that you have ever wanted to capture in a stock. It results in a long lasting satisfaction and experiences to share as you sat tight when the stock moved violently!

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