What is the simplest Intraday trading strategy?
The simplest intraday strategy that I have come across is “Open Range Breakout”
Open Range Breakout or ORB is traded in different ways and in different time frames
While some prefer to deploy this strategy in stocks which have gap opened up/ down and some prefer to screen “top gainers/losers for the day” for the stock selection, I prefer to trade on 4 pre-determined stocks
How do I trade ORB?
I use 15 min candle setup. Mark the high and low of first 15-min candle - Place a Buy stop order at the high value and Sell stop at the low value of the candle.
If the BUY/SELL stop gets executed the counter order placed will act as a stop loss automatically
This strategy is very simple since it’s very easy to understand and execution is complex neither
Having learnt a simple strategy to implement, I should say “simple things often don’t deliver enormously good results (especially in markets )” else every other participants can use this simple strategy to mint money
The above statement shouldn’t be interpreted as that one’s strategy has to be complex in nature to thrive in markets - What I meant here is a simple strategy (like above) can be more productive provided we have ample of data n interpretation that gives us more productive insights & help us reward better
In the following section, I would like to show what i meant by the above statement of productive insights or pattern (as I would like to call) that has emerged based on study of loads of data - in other words, i am gonna reveal a SECRET that I found in Reliance Industries scrip
15-min charts of 08th December and 07th December
(Source : Kite)
On both the days, Sell order got triggered first
On 8th December, the strategy yielded a return of 0.89% for 1% risk taken whereas it has failed on 7th December yielding -1%
I traded on both the days yielding 0.89% n 8th Dec (today) but managed to exit the trade at the selling price thus avoiding a loss of -1%
Before I reveal why I held on to short position till 3:15 on 8th Dec and exited at zero loss on 7th Dec I want you to do some home work by visiting the 15-min chart of the following days
07-Dec
05-Dec
29-Nov
27-Nov
21-Nov
16-Nov
14-Nov
08-Nov
01-Nov
30-Oct
25-Oct
17-Oct
13-Oct
05-Oct
28-Sep
26-Sep
22-Sep
20-Sep
19-Sep
18-Sep
07-Sep
04-Sep
01-Sep
If you have traded on the above mentioned days net loss would be -5.5% which you could have avoided had you known the pattern the data elicits
Have you figured out the pattern by yourself? Congrats for those who did, if you couldn’t no problem - here’s the revelation
On all the above mentioned dates, though the stock prices have broken out of the ranges (either high or low) if failed to close above high/low in the respective candle
It doesn’t end up there - even the next candle that followed the breakout candle hadn’t closed above the high/low price which indicates the breakout is false or weak
Another interesting thing to watch out here is - 9 out of 10 times the stock comes back to buy/sell price later before hitting the stop loss or closing in negative - this explains why I exited at the sell price on 7th Dec rather than waiting for it to hit SL
This type of conclusion can be arrived if you can gather sufficient amount of data and apply lit bit of analytical skills to improvise the strategy at hand
The other stock which I trade is Infosys
Each of these stocks have their own characteristics and a pattern visible in one need not necessarily applicable in other stocks and so is the exit time & price
For example Infosys on 7th and 8th Dec
On 7th Dec, long position triggered and ended up in 0.55 points gain, whereas on 8th Dec there’s no trade at all
If i had gone with the original strategy, I would have ended up in loss on 8th Dec but my insights prevented me from initiating position today (as you can see from trade book)
Intra day trading can yield consistently handsome returns even with an investment of 10,000 bucks provided you are ready to apply little bit of analytics and more amount of discipline & money management which can’t be better explained by the article I’ve read recently
Risk Management
Suppose if you have Rs.1 lakh in your trading account and you want to risk Rs.1000/- per trade, for which the reward is double that of the amount which you have risked i.e Rs.2000/-.
If you follow the above mentioned trading rule you will make money even if you are 50% right in your direction. Here is simple math for you.
Right 5 out of 10 times: Profit 2000*5 = Rs.10000/-
Wrong 5 out of 10 times: Loss 1000*5 = Rs.5000/-
Profit = 10000-5000 = 5000 – brokerages and taxes – so still profit is more than Rs.4500/- (approx)
Risk management is VERY IMPORTANT in stock trading or investing. Those who do not follow the risk management are BIG LOSERS.
Controlling Emotions
Trading is an art not science. You should respect your strategy and leave everything up to the strategy & market to decide. You shouldn’t interfere with your knowledge that may be against your strategy (after all you should always remember you’ve not considered all these additional info like market depth, candle stick pattern when you’ve defined the strategy). This comes with experience. You have to be patient if the trade is going against you or more patience is required when it goes in favor.
Set Targets & Stop Loss and Forget
Once you have done your research and have selected the stock to trade, your targets and stop loss you have to set the targets and stop loss in the system and forget.
But once you have decided the target profit and stop loss position you SHOULD NOT change them once you have taken the trade.
The above needs lots of patience. Do not take a stop loss as soon as you see your position going into red, or do not take a profit as soon as you see your position going into green. Let the trade decide where it wants to go. If your research is good 70-80% of the times your target will be hit but there will be volatility. You needs patience to ride the volatility.
There can be only two outcomes – either loss or profit – DO NOT DISTURB THE TRADE IN BETWEEN. Micromanaging intra-day trades is best way to lose money trading. It gives stress and you either take an early profit or loss both are wrong.
Do Not Watch Single Tick
Watching every tick makes you emotional and it will force you to exit the trade before stop or target is reached. It’s much easier just to set price targets in the system and leave it. Some brokers give alerts. You can also use this alerts to know what is happening to your trades, but alerts should be near your targets or stop loss so that you get alert for next trade.
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Lastly I would like to end up this answer with a phrase which I keep saying to myself and to my friends whoever seek my guidance/advice
“You may end up in losses if you follow your strategy but you’ll definitely end up in losses if you don’t follow your strategy”
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