Intraday trading strategy - Guide for beginners

One of the most crucial aspects of your trading journey will be deciding how and when to trade. This may seem obvious, but it's more important than many people realise. Before you choose a system to follow or developing your own, you should first think about what kind of trader you want to be. This will allow you to answer one of the first questions: on what time horizon do you want to trade?

There is a significant difference between long-term trading in higher frames (investment) and intraday trading in lower frames (speculation). You must decide early on in your journey how you're going to approach the market. Both trading styles have advantages and disadvantages, and each has specific strategies that work best for it. In this article, we are going to focus on an intraday trading strategy.

So, first of all, why would you want to focus on an intraday trading strategy?

Advantages of intraday trading strategies

Faster results

There are various benefits that attract traders to an intraday strategy. One of the most common is that trading on lower time frames gives more immediate results. If a trader places a trade on the daily charts, it can take days or even weeks for a trade to develop. However, on the lower time frames, if a trader is trading on the 5-minute chart, for example, a trade can be completed in less than 30 minutes. For many traders, this is a big draw. Not only is this a more exciting and attractive way to trade, but it increases the number of opportunities a trader has in a day or week.

Cost reduction

Another key benefit of using intraday trading strategies is that traders avoid the costs associated with keeping a position open overnight. When trading overnight, you may incur an additional negative cost if there is a negative interest rate differential with the pair you're holding or you may incur a commission additional (in the case of futures). These negative costs are avoided when a trade is simply closed within the day it was opened.

Now that we've discussed some of the benefits and attractions of using an intraday trading strategy, let's look at a real-world strategy you can use in the markets.

Breakthrough Trading
One of the most common, simple and profitable intraday trading strategies is breakout trading. Breakout trading is a very safe intraday trading strategy and can be applied to all markets and instruments. The core of breakout trading is simply identifying market momentum and looking to capitalise on that momentum when the market expands.

Therefore, for a bullish breakout trade, you will seek to identify bullish momentum in the market (presence of an uptrend), and then place a trade when the price breaks above the recent high. With a bearish breakout trade, you'll do the exact opposite. In this scenario, you will look to identify the presence of bearish momentum (the presence of a downtrend) and then place a trade when the price breaks below the last low.

Example of trading a bullish breakout

In the chart above, we have a great example of a bullish breakout type intraday trading strategy. First, we see that the price is trading higher, which establishes our bullish momentum. The market then peaks and corrects slightly. However, buyers step in and push prices up. When the market crosses the first high, you can go ahead and place your buy trade. The market then extends higher as the upward momentum continues. The price then hits a new high before correcting slightly lower. However, once again buyers step in and push the price higher. You can make a second purchase when the price breaks above the last high.

As you can see, this is a very simple intraday trading strategy to follow and can also be one of the most profitable to use.