Keeping trades overnight is a challenge because of several reasons. First, the stock market is highly volatile. Thus, you should know how to measure stop-loss and take-profit levels accurately. Second, and maybe the most important pitfall, is emotions. If you don’t have significant funds and don’t know how to stay calm, there are high risks you will close the trade with losses.
Therefore, it’s better to use intraday strategies. These strategies allow you to open and close trades within one trading day. Below, you will find the best trading strategies for the Indian stock market.
Traders should be very careful, as the stock market is affected by various factors. A study showed that the Nifty index was flat the day after India won a cricket match. But a loss led the index to fall by around 0.231%. When Sachin Tendulkar, one of the leading Indian cricket players, loses, the loss on the stock market is around 20%.
1. Gap and go
Traders apply this strategy when there is a gap between the opening price and the closing price of the previous day. If the asset opens higher than on the previous day, it’s a gap up. Vice versa, if the opening price is below the closing rate of the previous day, it’s a gap down.
Usually, gaps occur due to the news events that happen when the market is closed. Therefore, the next morning, there is a gap, as investors start to react to the event. Intraday traders believe the gap will be filled by the end of the day and open a trade in the direction of the closing price.
The breakout strategy is a technique that allows you to open a trade when the price goes beyond either support or resistance level. A breakout trader should find a stock that has been trading within a narrow channel for a period. As the trade is expected to be done within one day, you should consider price movements on short-term timeframes.
The idea of this strategy is to open a trade in the direction of the breakthrough. You should use indicators that reflect the size of price volume and the strength of the trend. When a breakout happens, indicators are supposed to reflect increased volumes and a strong trend.
There is a high risk of a fakeout, a false breakout. Therefore, you should use indicators and patterns that reflect the trend reversal. If the price is traded within a horizontal channel, an up or down movement will reflect the trend change.
3. Moving averages
You can also use the moving average indicator to determine entry and exit points for day trades. For this strategy, investors usually apply an exponential moving average, as it’s much faster than a simple MA.
When the price rises above the moving average, it’s a signal to open a buy position. Conversely, when the price breaks below the MA, you can sell.
You can use another strategy that also relates to moving averages. Implement two MAs with different periods on the price chart and open trades depending on their crossovers.
When the shorter-term moving average (fast MA) breaks above the MA with a bigger period (slow MA), it’s a buy signal. This pattern is called the golden cross. Vice versa, when the fast MA falls below the slow MA, a trader can sell the stock. This pattern is called the death cross.
As this strategy is used for intraday trades, you should use short periods, including 9, 12, and 21.
Tips for stock market traders
The tips below can be applied to any trading strategy listed above. They will help you to use trading strategies more effectively.
- Use short-term timeframes if you’re trading within one trading day and close the trade before the market closes. Day traders mostly use the daily chart to determine short-term stock price movements and trends.
- As you won’t keep the trade overnight, you need to choose stocks that provide high liquidity within the trading day. It’s recommended to avoid small- and medium-cap stocks, as they may suffer low liquidity. Only shares with high liquidity will allow you to trade intraday.
- Always diversify your portfolio; don’t put all your funds in one stock even if you don’t see other trading opportunities within a day. It’s better to wait and open trades the next day.
- Always determine entry and exit points in advance. Above, you see the best trading strategies for the Indian stock market. However, they can predict entry and exit points in advance. These levels are your responsibility. You need to consider the funds you operate with, the potential rewards you expect to receive from a single trade, and the possible losses you can bear for one trade. Remember that your potential rewards should be at least twice as big as losses.
- Keep in mind fundamental analysis. You can’t successfully trade on the stock market if you avoid a company’s earnings reports, mergers and acquisitions, and internal news. Track all important events that can affect the value of the stocks you trade. Avoid trading ahead of the news if you aren’t sure about its outcome.
- It’s recommended to avoid trading within the first hour after the market opens. You may hurry to open trades quickly since you will trade within the day. However, a rush may lead to significant losses. Most investors prefer opening positions between noon and 1 pm.
When you enter the share market, you should consider many things, including internal company events and overall economic and political conditions. Therefore, it’s recommended to use particular trading strategies that will help to structure your trades.
Disclaimer: No strategy can guarantee a 100% correct outcome of the trade.