How To Make Money in Intraday Trading

1. Master the 3Ms: Method, Money Management, and Mindset

Stock market success is all about the 3Ms, method, money management and mind-set.

The Trinity of Trading. Success in intraday trading hinges on a balanced approach encompassing a sound trading method, disciplined money management, and a resilient mindset. Neglecting any of these three pillars can lead to inconsistent results and potential losses. A robust method provides the framework for identifying trading opportunities, while effective money management protects capital and ensures long-term survival.

Method and Mechanics. A well-defined trading method involves understanding technical analysis, chart patterns, and indicators to identify potential entry and exit points. This includes mastering tools like moving averages, candlesticks, and pivots, which provide insights into market trends and potential reversals. The method should be easy to understand and implement, allowing for quick decision-making in the fast-paced intraday environment.

Mindset and Mental Fortitude. A winning mindset is crucial for navigating the emotional challenges of trading, including fear, greed, and overconfidence. This involves developing mental discipline, emotional control, and a positive attitude to handle both victories and defeats. A resilient mindset enables traders to learn from mistakes, adapt to changing market conditions, and maintain a long-term perspective.

2. Understand Market Basics: Trends, Ranges, and Participants

Markets are not random, and there is a pattern to their moves.

Trending vs. Ranging. Markets alternate between trending phases, characterized by sustained price movements in one direction, and ranging phases, where prices fluctuate within a defined range. Identifying the current market phase is crucial for selecting appropriate trading strategies. Trending markets offer opportunities to ride the momentum, while ranging markets require strategies for trading within boundaries.

Active vs. Reactive. Market participants can be broadly classified into active players, who drive trends with strong convictions, and reactive players, who trade within established ranges. Active players are willing to buy at higher prices or sell at lower prices, while reactive players seek to profit from price fluctuations around a perceived fair value. Understanding the behavior of these participants helps traders anticipate market movements.

Economic Cycles and Sector Rotation. Stock markets are influenced by economic cycles and sector rotation, as different industries perform well at various stages of the economic cycle. Interest rate-sensitive sectors like housing and auto tend to lead during economic expansion, while capital goods and commodities lag. Short-term traders should focus on sectoral rotations to identify hot and happening sectors for potential trades.

3. Harness the Power of Candlesticks: Simplify and Conquer

Just as a picture is worth a thousand words, a candle is worth many words, price quotes and interpretations.

Candlestick Anatomy. Candlesticks provide a visual representation of price movements during a specific period, displaying the opening, closing, high, and low prices. The body of the candle indicates the difference between the opening and closing prices, while the shadows or tails represent the highest and lowest prices reached during the period. The color of the candle indicates whether the closing price was higher (green) or lower (red) than the opening price.

Three Key Candle Types. Instead of focusing on numerous complex candlestick patterns, concentrate on three main types: Lilliput (small), Giant (large), and Rejection (long tails). Lilliput candles often signal consolidation before a breakout, Giant candles indicate strong momentum, and Rejection candles suggest potential reversals. Understanding the psychology behind these candle formations is crucial for accurate interpretation.

Accurate Candle Reading. Accurate candle reading involves considering several factors, including candle color, body size, tail length, and closing level. A small red candle with a long lower shadow can be more bullish than a small green candle with a long upper shadow. Always wait for a candle to fully form before making trading decisions, and consider the location of the candle within the overall chart pattern.

4. Navigate with Pivots: Identify Key Levels and Ranges

Pivot levels aid us in determining where the current level of bullishness or bearishness for the day is.

Floor Pivots. Floor pivots are calculated using the previous day's high, low, and closing prices to identify potential support and resistance levels for the current day. The central pivot point (PP) serves as a neutral zone, while three resistance levels (R1, R2, R3) and three support levels (S1, S2, S3) are plotted above and below the PP. These levels act as potential turning points for price movements.

Central Pivot Range (CPR). The CPR expands on the central pivot point by adding upper and lower boundary lines, creating a range that represents the expected trading zone for the day. The width of the CPR can provide clues about the potential volatility and trading opportunities for the day ahead. Narrow CPRs often precede breakouts, while wide CPRs suggest range-bound trading.

Interpreting Pivots. Price action above the central pivot point is generally considered bullish, while price action below is bearish. Broken support levels can act as resistance during retracements, and vice versa. Analyzing market opening in relation to pivot levels can provide insights into the day's potential direction.

5. Trade Trending Markets: Entry, Management, and Stop Losses

Staying with the stock till the time the stock stays with you. Dump it when it dumps you.

Time Frame Analysis. Effective trend trading involves analyzing charts across multiple time frames, starting with daily charts to identify the overall trend and then drilling down to hourly or 15-minute charts for precise entry points. Aligning trades with the trend across multiple time frames increases the probability of success.

Entry Tactics. Four common entry tactics for trending markets include entering on trend resumption after a correction, entering after a minor pullback, entering after a sideways move, and entering on trend resumption after a rejection candle. Each tactic involves specific criteria for identifying potential entry points and managing risk.

Stop Loss Strategies. Stop losses are essential for protecting capital in trending markets. Initial stop losses should be placed below the low of the entry candle in an uptrend or above the high of the entry candle in a downtrend. Trailing stop losses, such as the 8MA line, 20MA line, or the "two steps forward, one step back" method, can help maximize profits while limiting potential losses.

6. Swing Sideways: Profit in Ranging Markets

In ranging markets, levels such as the previous day’s high / low, morning range, previous close, previous week’s high / low, etc. are all very important.

Key Parameters. Trading in ranging markets requires a different approach than trending markets, with a focus on key levels such as the previous day's high and low, morning range, and previous close. Moving averages and the central pivot are less reliable in ranging markets, as prices tend to fluctuate around these levels.

Trading Strategies. In ranging markets, traders can profit from price fluctuations between the upper and lower boundaries of the range. This involves buying at the lower boundary with a target near the top or selling at the top with a target near the bottom. Strict stop losses are essential for managing risk in ranging markets, as breakouts can occur unexpectedly.

Identifying Traps. Ranging markets often involve false breakouts or breakdowns, where prices temporarily breach the boundaries of the range before reversing direction. These failed attempts can trap traders who enter positions based on the false signals. Successful traders can profit from these traps by anticipating the reversals and trading in the opposite direction.

7. Capitalize on Catalysts: Trade News and Events

Events create emotions. And a trader’s job is to encash these emotions — after he is done controlling his own.

News-Driven Opportunities. News events can act as powerful catalysts for stock price movements, creating opportunities for short-term traders. These events can include company-specific news, sector-wide developments, or macroeconomic announcements. Traders should monitor news sources and identify stocks that are likely to be impacted by these events.

Combining News and Technicals. Successful news-based trading involves combining fundamental analysis with technical analysis. Traders should verify the technical setup of a stock before entering a trade based on news, ensuring that the chart patterns and indicators align with the expected price movement.

Spill-Over Effects. News relating to a particular company can often have a spill-over effect on other stocks in the same industry or sector. Traders should be aware of these spill-over effects and consider trading related stocks that may benefit from the news event.

8. Profit from Traps: Identify and Exploit False Signals

Basically, a trap is a false signal that suggests that the market is moving in one direction when it is actually going to head in the other.

Ranging Market Traps. In ranging markets, false breakouts or breakdowns can trap traders who enter positions based on the initial move. When the price fails to sustain the breakout and reverses direction, traders can profit by anticipating the reversal and trading in the opposite direction.

Trend Resumption Traps. In trending markets, corrective moves can mislead traders into believing that the trend has reversed. When the trend resumes after the correction, traders can profit by identifying the false signal and entering positions in the direction of the original trend.

Trend Ending Traps. Trends that run too hard and too fast can end as a trap, with late entrants holding positions as the price reverses. Traders can profit by identifying the signs of an exhausted trend and anticipating the reversal.

9. Embrace Confluence: Synergize Tools for Maximum Impact

Looking at any single factor in isolation is short sightedness; an entire orchestra needs to be put together to create a symphony.

Combining Multiple Factors. Confluence occurs when multiple tools, time frames, or indicators align to suggest a similar trading opportunity. This can involve combining floor pivots, moving averages, swing pivots, news events, and candle patterns. The more factors that align, the stronger the signal and the higher the probability of success.

Prioritizing Location. When studying confluence, prioritize the location of the signal. Reversal patterns or candle formations that occur at important price levels, such as floor pivot levels or previous day's closing levels, are more reliable than those that occur elsewhere.

Filtering Noise. With so many factors to consider, it's important to filter out the noise and focus on the most significant signals. This involves developing a clear understanding of the market context and prioritizing the most reliable indicators.

10. Money Management: Protect Your Capital

This game is first about capital preservation, followed by capital growth.

The 2% Rule. Limit the total risk per trade to a maximum of 2% of your total trading capital. This rule helps protect your capital and ensures long-term survival in the market. In exceptional cases, when the market is clearly trending and the setup is highly favorable, you may increase the limit to 3%.

Deriving Stop Losses. Stop losses should be based on market technicals, such as the low of the entry candle or a nearby swing low, rather than arbitrary amounts or emotional considerations. This ensures that your stop losses are aligned with the market's price action.

Position Sizing. Position size is the amount of a particular asset you buy or sell in a single trade. It is calculated by dividing the permissible risk amount by the stop loss in points. This ensures that you never risk more than 2% of your total trading capital on any single trade.

11. Master Your Mind: Winning Beyond Technicals

It’s about victory over your mind before victory over markets.

Mental Hygiene. Cultivate a positive and disciplined mindset by accepting facts, focusing on what matters, and ditching the itch for constant action. Avoid fantasizing about easy profits and instead focus on developing a realistic understanding of the market.

Self-Focus. Focus on improving your own skills and strategies rather than obsessing over the actions of other traders. Seek inner peace and clarity through self-reflection and mindfulness.

Unlearning and Visualisation. Be willing to unlearn old habits and beliefs that no longer serve you. Use visualisation techniques to mentally rehearse successful trades and build confidence.

12. The Discipline of a Day Trader: Daily Preparation and Gut Feel

Short Term F&O Trading is Only for Full-timers.

Daily Preparation. Develop a consistent daily routine that includes pre-market analysis, creating a trade plan, and post-market analysis. This helps you stay organized, focused, and prepared for the day's trading activities.

Gut Feel. Develop a "gut feel" for the markets by observing price action, studying charts, and tracking news events. This intuition can help you make quick decisions and identify trading opportunities.

Hardware, Software, and Record Keeping. Invest in reliable hardware and software for trading, and maintain accurate records of your trades. This helps you track your performance, identify patterns, and improve your strategies.

Last updated: February 28, 2025