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691 -702 Section A-Research paper Selective strategies for Intraday Trading -
An overview Eur

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DOI: 10.31838/ecb/2023.12.s2.092

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Selective strategies for Intraday Trading – An overview Section A-Research paper

SELECTIVE STRATEGIES FOR INTRADAY


TRADING – AN OVERVIEW

Dr. L Jalaja

Article History: Received: 12.12.2022 Revised: 29.01.2023 Accepted: 15.03.2023

Abstract:

Intraday trading, also called day trading, is the buying and selling of stocks and other financial instruments
within the same day. In other words, intraday trading means all positions are squared-off before the market
closes and there is no change in ownership of shares as a result of the trades. The usefulness of intraday trades
lie in the fact that one can also short sell the instruments aiming to square it off by the end of the day if they
anticipate that the price of the instrument will go down. This is not possible in positional trading. Many people
are by and for moving to the intraday trading mode from positional mode, as they get to see the money at the
end of the day. Until recently, people perceived day trading to be the domain of financial firms and professional
traders. But this has changed today, thanks to the popularity of electronic trading and margin trading. While
there are numerous strategies adopted by various individuals and firms to increase their profitability in day
trading this study aims to analyze and present three such effective strategies that can be used for intraday
trading in primarily stocks, futures and options. It aims to suggest the entry and exit points for the traders with a
good risk to reward ratio

Keywords: Intraday trading, Short sell, Strategies, Stocks, Futures and Options, Margin, Risk to reward ratio.

M.Com, M.Phil, Ph.D College of Science and Humanities SRM Institute of Science and Technology (SRMIST)
Kattankulathur Chennai – 603 203

Email: jalajal@srmist.edu.in

DOI: 10.31838/ecb/2023.12.s2.092

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 691


Selective strategies for Intraday Trading – An overview Section A-Research paper

1. Introduction Practices in India, International Journal of


Marketing, Financial Services and Management
Intraday trading means buying and selling stocks Research." NSE has implemented online trading of
on the same trading day. Intraday trading is also securities in accordance with SEBI regulations. In
known as Day Trading. Share prices keep his research, he also included the advantages of
fluctuating throughout the day, and intraday traders investing in stocks or equity-oriented mutual funds
try to draw profits from these price movements by over a longer period of time.
buying and selling shares during the same trading In his research paper "Benefits and Drawbacks Of
day. The stock prices keep fluctuating in the stock Online Trading," Petric Loana Ancuta (2015)3
market, creating several trading opportunities explains that the investment and financial services
throughout the day. These price movements reflect companies should use other factors that influence
shifting investors’ sentiments towards the company the decision to switch from traditional to online
stocks. During the day, stock prices fluctuate trading to guide their marketing campaign to attract
depending on demand and supply parameters more investors for online platforms. Additionally,
changes. In simple words, when demand exceeds he asserts that when investors have extensive stock
the supply volume of the scrip, its price rises and a market expertise, greater education, and computer
more drastic demand-supply gap results in a higher savvy, they will convert to online trading.
price. Intraday trading involves buying and selling In his work "Impact of Internet Growth on the
stocks within the same trading day. Here stocks are Online Stock Trading in India," Dr. Sarika
purchased, not to invest, but to earn profits by Srivastava (2016) notes that the internet has
harnessing the movement of stock and indices. reduced geographical boundaries for customers and
Thus, the fluctuations in the prices of the shares are increased their knowledge of financial products and
monitored to earn profits from the trading of services. This research paper's main goal is to
stocks. examine how the expansion of the internet has
The success of intraday trading depends on affected stock market trades. The current condition
correctly timing the day, meaning entering and of internet trading in India, in particular the size of
exiting at the right time. It requires a great deal of the online trading market there, is also covered in
understanding of the intraday trading time frame to the study.
place trades. This is where adopting a right strategy
comes into play. With the help of a set strategy a Professor Aadil Bade has examined about Demat
trader can end up making decent profits on his account and online trading in his essay "Analysis-
capital. However it is also wrought with inherent Demat account and online trading," which was
risks of uncertainty of the stock market which is published in the Scholarly Research Journal for
where the stop loss point also plays a critical role. Interdisciplinary Studies in 2017. He claimed that
As they say, you cannot time the markets and you online trading is still in its infancy in India.
cannot predict them either, these strategies aim at The literature on tick size tends to focus on the
improving the success ratio in comparison to the impact on market liquidity (see, for example, Ahn
blind game or tips based approach which few et al. (1996), Bacidore (1997), Bessembinder
traders adopt. (2000), Goldstein and Kavajecz (2000), and Chung
et al. (2004)). • The first prediction is by Harris
1.1 Trading Strategy (1994) who expects that bidask spreads should
A trading strategy is a systematic methodology narrow following reductions in tick size. • The
used for buying and selling in the securities general consensus in the literature is that a larger
markets. A trading strategy is based on predefined tick size is indeed associated with wider bid-ask
rules and criteria used when making trading spread, while the evidence on trading volume is
decisions. mixed.
There are thousands of equities to choose from, A related strand of research focuses on price
and day traders can pick virtually any stocks they clusters. • Many studies have found that the stock
want. So, the first step for a day trader is to figure prices tend to cluster around particular numbers
out what to trade. Once a trading opportunity has (e.g. Harris (1991), Aitken et al. (1996), Brown et
been the next step is coming up with some ways to al. (2002), Chung et al. (2002), Chung et al. (2004),
profit from them. Ahn et al. (2005), Chung et al. (2005), Ohta (2006),
Day traders who execute intraday strategies and Chiao and Wang (2009). • Even with
attempt to profit off of price changes for a given decimalization of stock quotes, Ikenberry and
asset using a wide variety of techniques. Weston (2008) show that in the U.S., trade prices
tend to cluster around integers, half-dollars and
2. Review of Literature quarters
Abdul Rahim (2013)2 explained the relationship Round numbers have also been linked to cognitive
between SEBI and NSE in his research paper, limitations and investors’ tendency to use
"Problems and Prospects of Online Share Trading “shortcuts” in their investment decisions. • Brown

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 692


Selective strategies for Intraday Trading – An overview Section A-Research paper

and Yang (2016) analyze horse race betting data 2. If VWAP is falling it shows sellers in control
and find greater propensity to quote odds at round 3. If VWAP is flat then it indicates no one is
numbers, which they suggest is reflective of controlling the market, the price is in a trading
cognitive limitations of the agent who proposes the range
price. • Kuo et al. (2015) find that investors who
disproportionately submit more orders at round Current strategy which has been described
numbers (they classify this group as investors with under is ideal for trading index futures and
limited cognitive abilities) tend to suffer greater options where one can expect atleast a 1:1 on
investment losses. risk reward ratio if not more in a trending
market. To better the risk reward ratio one can
3. Objectives take multiple lots and square off 50% on 1:1
 To study the VWAP strategy, its applications ratio while holding the other 50% with a
with entry and exit points revised stop loss at buying price.
 To study the Fibonacci strategy
 To study the strategies that can be applied in Strategy
huge gap up and gap down markets 1. Charts to use : Normal candlestick in 5 min
 To study the risk reward ratio behind each time frame
strategy 2. Applicable essentially to index futures and
options
2. Research Methodology 3. The trader has to Choose any index future
The statistical data is collected completely from chart ( nifty or bank nifty ) which is traded
secondary sources such as backdated charts and actively
indicators. 4. 5 min timeframe with normal candle stick
patterns has to be opted for
3. Results and Discussions 5. Vwap line has to be activated on the chart.
Many brokerage houses give this facility on
5.1 VWAP Strategy (Volume Weighted Average their charts
Price) 6. The close of the first five minute candle has to
Definition of VWAP : In finance, volume-weighted be taken into consideration irrespective of
average price (VWAP) is the ratio of the value of a being red or green. The close of the candle has
security or financial asset traded to the total volume to be observed if it is above or below the vwap
of transactions during a trading session. It is a line.
measure of the average trading price for the period. 7. The trader needs to wait for a first set of
candles ( two candles either consecutive or
VWAP is the average price a security has traded at alternate of after few candles ) to close in the
throughout the day, based on both volume and same direction either above or below the vwap
price and is important because it provides traders line. It could be the first and second candle or
with insight into both the trend and value of a second and fourth candle or second and sixth
security. candle.
The VWAP calculation is performed by charting 8. If the above selected candle set has closed
software and displays an overlay on the chart above VWAP, then the trader has to bet
representing the calculations. This display takes prepared to take an entry at the break of the
the form of a line, similar to other moving high of the highest value of the two candles
averages. with a stop loss at either VWAP line or the low
of the lowest value of the two candles.
9. Alternatively if the First candle set closes
VWAP shows who is in control below VWAP, then the plan is to take a short
VWAP is an indicator, it indicates who is in control entry at the break of the low of the lowest
of the price (the buyers or the sellers). When a value of the two candles with a stop loss at
stock is traded above the VWAP, it means that the either the VWAP line or the high of the highest
buyers are in overall control of the price and there value of the two candles.
is a buying demand for the stock. When a stock 10. Target could be marked with 1:1 precision. But
price breaks and close below the VWAP, it is safe huge trending market could give an enormous
to assume that the sellers are gaining control over returns of 1:5 or even 1:6 in some cases
the price. 11. This strategy has been observed to give an average
7 wins out of 10 which is a good strike percentage
1. If VWAP is rising then it shows buyers in
control

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 693


Selective strategies for Intraday Trading – An overview Section A-Research paper

Risk to Reward 1:2 with Maximum of 1:5

Bank Nifty Chart on 30th August 2022 gains. The 1:1 was easily achieved while holding
We can see that after the first two closings above on to the futures or trailing the stop loss could have
VWAP and crossing of the high of the second given gains as easily as 1:5 or 1:6
close, the index ( futures ) rallied towards bigger

Entry 38890
Stop Loss 38829
First Exit 39060
Second Exit 39403

SL % 0.2%
Profit % 0.4%
Risk To Reward 1:2
Risk to Reward 2nd Exit 1:6

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 694


Selective strategies for Intraday Trading – An overview Section A-Research paper

Nifty futures Chart on 23rd August 2022 while there was a downward break of VWAP line
at 10:35 followed by another low at 10:40.
Here it can be seen that the opportunity to trade However the low of the second break at 10:40 was
was provided twice. Once in the morning with a not breached and hence no trade was initiated. This
risk reward of 1:2 and again in the afternoon with a clearly shows that following the rules of the
risk reward of 1:2. Also it can be observed that strategy is as important as the strategy itself.

Entry 17460
Stop Loss 17407
Final Exit 17566

SL % 0.3%
Profit % 0.6%
Risk To Reward 1:2

5.2 Fibonacci Strategy The Fibonacci retracements utilised in trading draw


their numbers not from the Fibonacci sequence but
Whenever a stock moves either upward or rather from mathematical correlations between the
downward sharply, it tends to retrace its path numbers in the sequence. Dividing a number in the
before the next move. Fibonacci series by the number after it yields the
The Fibonacci sequence is a series of numbers, "golden" Fibonacci ratio of 61.8%.
where a number is found by adding up two For instance, 89/144 equals 0.6180. Divide a
numbers before it. Starting with 0 and 1, the Fibonacci number by the number two places to the
sequence goes 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, and so right, and the result is the 38.2% ratio. For instance,
on and so forth till infinity. If we divide any of the 89/233 equals 0.3819. The Fibonacci sequence
number in the series by the previous number; the number is divided by the number three places to the
ratio is always approximately 1.618. right to arrive at the 23.6% ratio. 89/377, for
The ratio of one number divided by the next settles instance, equals 0.2360.
at .618, which is known as the golden ratio. In By identifying the key at the high and low points
nature, this is the proportion of a perfect spiral, like on a chart, Fibonacci retracement levels are
that found in a pinecone and a pineapple. This ratio displayed.
has in turn been correlated to stock price action and Typically, the grid of Fibonacci levels that can be
enacts retracements and target levels periodically,” constructed using charting software includes the
50% retracement level.

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 695


Selective strategies for Intraday Trading – An overview Section A-Research paper

It's common practise to incorporate Fibonacci with the 0, 0.382, 0.5, 1, 1.382, 1.618, 2.618,
retracements into trend-trading strategies. Traders 3.618 and 4.618 points
attempt to create low-risk entries in the direction of 7. The trader has to wait for any candle to break
the initial trend utilising Fibonacci levels in this and go above the 1.618 line on the Fibonacci
scenario as they see a retracement occurring within lines drawn for the stock with a volume which
a trend. Traders that employ this approach believe is higher than the 20 period moving average
there is a good chance that a price will revert to the volume.
initial trend after rebounding off the Fibonacci 8. The trader can take a long entry at the close of
levels. such candle and place his stop loss at the value
being shown on the 1.382 line ( or slightly
Now let us understand how to use the Fibonacci as below ) in the Fibonacci drawing.
a tool for trading and generating profits. 9. For the short entry, the candle has to break and
The underlying statement here is that this tool can go below the 1.618 line on the downside with a
be used for trading in futures and stocks as value of volume which is higher than the 20 period
options necessarily depend on volatility, demand moving average volume. Stop loss remains the
and supply and hence cannot be applied to option same at 1.382 line ( or slightly above ) on the
values directly downside
The strategy: 10. The trader can set his first profit target at 2.618
1. Charts to use: Normal candle stick in 5 minute levels on either side depending on the type of
time frame with volume chart at the base. entry taken and then keep trailing his stop loss.
2. Applicable to Index Futures, Stock Spot price 11. Extremely trending days have been observed
and Stock Futures. to take the value of the stock on either side
3. This strategy combines two tools. One is the beyond the 3.618 line however, it is always
Fibonacci series tool and the other is the advisable to trail stoploss once the value hits
volume chart for the stock or the derivative ( the 2.618 line.
Futures ) 12. This strategy also facilitates contra trading
4. The trader has to observe the first five minute when you observe that the value of the stock or
candle for the day which we can call as the the derivative ( futures ) is retracing from
opening range candle in general terms for this either 0.5 or 1 value or from 1.618 or 2.618 or
strategy so on. The opposite side entry can be taken by
5. Mark the high and the low of the candle after the trader depending on the risk profile
close. 13. This strategy has a good risk to reward ratio in
6. Taking high and low as the base points, using comparison to the other strategies and also
the tools ( as provided by various broker gives the trader an idea of the levels to which
charting softwares ), a Fibonacci extensions the stock or the derivative can travel and plan
have to be drawn above and below the candles his profit taking accordingly.
14.

Opportunity for contra trade

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 696


Selective strategies for Intraday Trading – An overview Section A-Research paper

Reliance industries Chart on 22nd August 2022. downside and reverses. Also observe the volume
We can observe an opportunity for contra trade which is lower than the 20 period moving average
when the price touches the 1.618 line on the
.

Breaks 1.618 but volume below 20 period MA. So No entry


Breaks again but this time with volume above MA. Possible Long Entry

Reliance industries Chart on 23rd August 2022. on this break would have hit a stoploss. But again
We can observe that an attempt was made at at 11:45 am the 1.618 level was breached with
10:00am in the morning to break the 1.618 level volume above the 20 period moving average
but the volume was not supporting. Hence it volume and the stock zoomed to 4.618 levels
retraced back to 1.382. Had anybody gone long on Below table summarises the risk to reward
this break would have hit a stoploss. But again at
11:45 am the 1.618 level was brea

Entry Long ( Buy ) 2620


Stop Loss 2612
Final exit ( Sell ) 2660

SL % 0.3%
Profit % 1.5%

Risk to Reward 1:5

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 697


Selective strategies for Intraday Trading – An overview Section A-Research paper

Break down with huge volume above MA

Bank Nifty Futures Chart on 19th August 2022. opportunity for short selling the futures which
It is clear from the above chart that once the 1.618 would have given phenomenal profits.
level was breached on the downside, it was a good

Below is the summary of Risk to Reward


Entry ( Short Sell ) 39441
Stop Loss 39617
Final exit ( Buy & Squareoff) 38980

SL % 0.4%
Profit % 1.2%

Risk to Reward 1:3

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 698


Selective strategies for Intraday Trading – An overview Section A-Research paper

Reversal from 1.382..Possible contra trade opportunity

Bank Nifty Futures Chart on 25th August 2022. markets open at a significantly higher or lower
levels than the previous day’s close, it is called a
Gap up or Gap Down Opening respectively. The
As one can see from the above chart that the market percentage varies depending on the security or the
started reversing from 1.382 levels thereby derivative. Especially for Nifty Index, a variation
providing an opportunity for placing contra trades ( of over 100 points is a Gap on either side and
short sell trades in this context since market was similarly for Bank Nifty a variation of over 250-
going up ) 300 points is a Gap.
However it may also be noted that RR ratio does The strategy we are about to discuss can be applied
not apply to contra trades as these are just on the index futures and options with a very good
opportunity trades taken in respect to the prevailing risk to reward ratio on Gap Up or Gap Down days.
market condition. Hence it is advised that a strict
stop loss and trailing of the same may be applied Strategy :
while taking contra trades. Chart to Use: Candle Stick 1 Min Timeframe
Condition1 : Gap Down
GAP Up or GAP Down Strategy : 1. Look for the first green bullish candle which
Gap-up / Gap Down Defined : When the price of should be well within the first five minutes.
a financial instrument opens higher than the 2. Entry to be taken when the high of the candle
previous day's price, it is gap-up. Gap-down: is breached ( not later than next two to three
When the price of a financial instrument opens minutes )
lower than the previous trading day it is gap-down. 3. Stop loss to be placed at the low of the green
Gap-downs occur when there is a change in candle
investor sentiments. 4. Target a risk to reward of 1:2
Markets are very volatile and can never be Condition : Gap Up
predicted. One day the market could rally over 1. It is reverse of the Gap Down strategy
1000 points while the very next day could open 2. Look for the first red bearish candle which
lower than the previous day close. When the should be well within the first five minutes

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 699


Selective strategies for Intraday Trading – An overview Section A-Research paper

3. Short entry to be taken when the low of the gap down big institutional players run to book
candle is breached ( not later than next two to profits or cover their stop loss resulting in the
three minutes) market retracing fast in the reverse direction atleast
4. Stop loss to be placed at the high of the red for a small amount of time. It is this momentum
candle that the retail traders can cash upon by using this
5. Targe a risk to reward of 1:2 strategy. A quick short trade would result in a
sizeable profit.
This strategy essentially aims at extracting profit by
riding the wave. When the markets open gap up or

Approx

700 Pts
First Green Candle
Gap Down

Bank Nifty 1st Sep 2022 Chart:


Markets rallied for over 1200 points on 30 th August which was the last working day prior to opening a gap down
of over 700 points on 1st Sep. The entry at the high of the first green candle shows a clear 1:2 risk to reward in
such a scenario
Entry 39053
Stop Loss 38808
Final Exit 39543

SL % 0.6%
Profit % 1.3%
Risk To Reward 1:2

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 700


Selective strategies for Intraday Trading – An overview Section A-Research paper

First Swing break strategy:

Bank Nifty 29th July :


Market opened with a big gap of above 400 points. Then the first red candle strategy if it would have been
applied would have given substantial returns as per the above chart

Entry 37676
Stop Loss 37738
First Exit 37529
Second Exit 37317

SL % 0.2%
Profit % 0.4%
Risk To Reward 1:2
Risk to Reward 2nd Exit 1:5

4. Suggestions and Conclusion: support and resistance play a crucial role in


deciding the further direction of the instrument.
Stocks do not move up or down in a straight line. While the strategies can be a basis for entries and
They travel up for a period of time, then they exits in the markets, these are also bound by the
retrace, again move up, retrace again and then psychology and the emotions of the retail trader.
move up. This goes on till there is demand for the Because of the swings as discussed above which is
security and once it reaches the peak, the an inherent quality of any financial instrument
retracement turns into a downside move in the traded, the price fluctuates and fluctuations can be
same style. Moves down for a certain period, then extreme at times. This is where the stop loss comes
retraces upwards, then continues its downward in handy. However many a times retail trader gets
journey again. This pattern can be attributed to the scared of the loss on the screen even before the stop
supply and demand zones created by sellers and loss is effected and exits the trade prematurely in
buyers at various levels. loss only to notice that the the stock or the futures
These abovesaid levels form the resistance on the has rallied in his expected direction after the trade.
upperside and support on the lowerside So to ensure success in any strategy, the retail
respectively. Hence understanding of the trader should ensure that he follows that strategy
resistance and support levels are also crucial for day in day out without deviations from its rules and
application of any strategy in the market because then sticks to the stop loss factor.
no matter whatever is the strategy applied, the The success or wholesome profitability of the retail
trader is dependent on the strategy that he uses, the

Eur. Chem. Bull. 2023, 12 (S2), 691 – 702 701


Selective strategies for Intraday Trading – An overview Section A-Research paper

discipline ( defined by his ability to avoid trading


prematurely ) and the psychology of the trader.
The strategies discussed here are few of the widely
available number of strategies and each of them
have their own risk to reward profile. As such no
strategy can assure a 100% success rate as markets
can never be predicted. Hence stop loss plays a
crucial role in ensuring the profitability of the
trader.
The goal of a successful trader is to make the
best trades. – Alexander Elder

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