How to earn from Stock Market – Intraday Trading Strategy
Today, we will discuss Intraday Trading Technique to understand how people in Stock Market earn significantly within a day. However, before starting with this technique, I would like you to understand Stock Trading Basic Terms, Chart Types & Candlestick Patterns.
Though, we strongly suggest that one should read the Fundamentals of the stocks & invest for a long term or at-least go with Swing Trading (Keep stocks for more than 2 days) with Technical Analysis. However, if you want to earn from Stock Market within a day, you can read this article thoroughly and practice with dummy account before starting with real money.
For Intraday Trading, we require only 3 Technical Indicators as follows :
1. Volume Weighted Average Price
2. Moving Average
3. Relative Strength Index
Volume Weighted Average Price (VWAP)
This Technical Indicator shows the average price trend of the stock basis on the volume traded. Whenever price of the stock goes up or down with volume, this Indicator sends you the signal to buy or sell respectively. You can read about the VWAP in brief at Wikipedia.
As you can see in the above images, whenever volume is traded on 5 Min Chart of the Stock, Indicator gave us the signal either on the buy side or sell side.
Day Moving Average (DMA)
Moving Average Technical Indicator tells you the average price of the stock irrespective of the volume. So you should add 21 DMA for best results as it tells you the Average Price of 21 Sessions on the Stock Chart and go closely with the price trend. Adding this with VWAP, creates a great combination for finding the right opportunity on the 5 Minute Chart of the stock.
Buying with DMA
As you can see in the below image, price of the stock gets a support of 21 Day Moving Average below VWAP, it went up. When 21 Day Moving Average Crosses VWAP Line consider it as good signal to enter in the stock.
So if you see a stock price and 21 Day Moving Average Price of the Stock is moving below VWAP, mark the stock and wait for the right signal. When stock catches volume and Price of the Stock along with 21 Day Moving Average crosses VWAP Trend line, ride on the stock.
Selling with DMA
On the contrary side, when Stock price & 21 DMA is below VWAP, it is the time to get out of the stock. As you can see in the below image, Price of the stock is declining (Indicated by 1st down arrow). At the time of 2nd incident, when price tried to move up, “Shooting Star” pattern formed with low volume kept the VWAP straight and didn’t let the price go high. Again the price came below the VWAP giving the sell call for the entire day after that.
Relative Strength Index
You have entered into the stock. Want to get out of the Stock with profit but not sure WHEN ?
Marking the right exit from the stock is really very important. Else, your profit may wipe away and you may book loss because in Intraday Trading on 5 Minute Chart, Price Trend changes pretty often and frequently. So one should be aware and be ready to book profit at the target or get out at the stop loss.
Booking Profit at High Price
Relative Strength Index (RSI) is one of the Key Indicator which can tell you that you should book the profit now. As you can see in the below image, you should enter when 21 Day Moving Average Line is crossing VWAP Trend Line at the first Green Arrow. If you have missed this opportunity, you can enter in the stock at the second Green Arrow when stock price takes a support of VWAP Trend Line & 21 Day Moving Average. At this moment stock is moving at INR 775.
Now when stock is moving in Overbought Zone with RSI at 80, you should get out of the stock and this time, stock price is INR 790. So you made a good profit of INR 15 in single stock i.e. 2% gain within 2 Hrs.
Recovering Stocks at Lower Price
Vice-versa you if you have shorted the stocks (Sell first and Buy Second) you should Buy your stocks when RSI is moving near Oversold Zone or point 30. Like in the above image, as you can see, the stock left the support of VWAP & 21 Day Moving Average at INR 773.60 you should short the stocks. And when stock hits RSI at point 30, you should recover your stocks and get out from it at price INR 760. That is how you made a profit of INR 13 within few hours.
So as a Key Take Away from this article, one should look for :
1. Price should be near VWAP.
2. 21 DMA is crossing VWAP Line either upside or downside.
3. Book Profit with RSI at near 80 when you are going long.
3. Book Profit with RSI at near 30 when you are shorting.
4. Never chase the stock if the price is far away from VWAP.
I would really appreciate your comments or feedback with your experience in Intraday Trading Strategy. Do let me know if this strategy works well for you or if you face any challenge while understanding or following this.