Intraday Trading Made Simple

Intra Day (or within one day) Trading is a popular Forex trading style or strategy.

The phrase refers to the practise of opening and closing positions on a single business day, rather than carrying them over to next. The idea being to avoid overnight risk and to treat each day as a new opportunity. There is some debate about closing positions, based purely on a time restraint, regardless of their profitability.

But fans of Intraday Trading comment that the opportunity cost of closing out these positions is outweighed by the avoidance of overnight or over weekend risk. It is certainly true that prices can and do move sharply both out of hours or at the start of a session. And it’s not uncommon to see overnight gaps in the price charts of stock indices, for example. Critics would argue that experienced traders can take advantage of these opportunities through the correct interpretation of market related data and charts. In the end it’s probably a matter of individual preference and attitude to risk. Though some traders sleep better at night without worrying about what’s happening to market in a time zone on the other side of the world.

The rise of Intraday Trading

Though not a new discipline( as it always been possible in the markets to go home flat or without a position) Intraday Trading gained popularity and rose to prominence as part of the internet or  .Com boom of the late 1990s and early 2000s. When a massive increase in the number of people, who could regularly and easily access the internet, was matched by equally sharp growth in the number of services and businesses that became available on line. The emergence of search engines, chat rooms & bulletin boards helped bring these two groups together. One of the opportunities that this new internet generation embraced and  took advantage of was direct access to the Financial Markets. Intraday Trading was their chosen method of operation. Whilst the number of Intraday Traders initially peaked with the “.Com bust” there were fresh waves of growth as the emerging economies of Asia expanded rapidly. At the same time as their market access was liberalised. A new generation of brokers, of whom Blackwell Global was one, were founded to service this increasing Investor demand.

Intraday Trading strategies

By definition any Intraday Trading strategy must be short term in nature and therefore Scalping and shorter term Swing Trading styles are amongst the most popular approaches. After all if you are Intraday Trading there is no point in taking a three month view (a Positional Trading view) on the price of Oil. As you will be closing your positions at the end of each day. That said knowing what the longer term trends in a market are can be helpful if you are conducting Intraday Trading around that trend.

Let’s look at an example of of a how following a shorter term trend could form part of a Intraday Trading strategy.

The chart below is an hourly plot of spot Gold, which clearly shows resistance defined by a down trend line, drawn in red. The spot Gold price has touched this line and sold off on three separate occasions – those failures could well provide sell signals for an Intraday Trading Strategy.

Indicators in Intraday Trading

Traders can use indicators or other tools to aide their Intraday Trading. Indicators such as  Moving Averages, Bollinger Bands and Relative Strength or RSI  could each be incorporated into an Intraday Trading approach. These tools could potentially be used in combination with each other as well. As in the example chart below.

The chart shows a 5 minute candle plot of USD JPY (Dollar Yen) drawn with Bollinger Bands and the RSI 14 indicator. The RSI indicator suggests that Dollar Yen is looking oversold as it is testing below a reading of 30. However the uncharacteristic break of the Lower Bollinger Band might be interpreted as indicating that the price could head lower still. RSI readings can and do extend beyond 30 and 70 (the respective oversold and overbought boundaries).

In the end Dollar Yen moved back above the lower Bollinger Band and RSI ticked back above 30. Interpreting what a chart or other data is telling you about the market and the future direction that prices will follow is key to successful Intraday Trading.

Benefits of intraday Trading

As we have already noted one of the benefits associated with Intraday Trading is the absence  of overnight or weekend risk, traders sleep easier and know exactly what their P&L (Profit and Loss ) is at the end of each day. There will be no overnight variation of course  as the Intraday Trader has no overnight positions. Each trading day can be treated separately if you are Trading Intraday. At the end of each day, traders have a natural opportunity to update their trading journal or diary and review their performance to identify what worked for them and what didn’t. They can then compare their performance with the that seen on previous days. This type of activity is much easier to do when you don’t have to give half  your attention to the trading screen and your positions.  Intraday Traders can also use the end of their business day to catch up on reading and research and prepare themselves for the next trading day.

Another benefit associated with Intraday Trading is the absence of overnight interest charges or rollover swaps as they are known. These charges occur as a result of the use of leverage or gearing, within margin trading of Forex, Precious Metals and CFDs. In margin trading a broker leverages or gears up the funds in a trader’s account. Allowing them to control larger positions in the market than they otherwise could afford.The broker charges the trader for the use of this facility as they have effectively leant them money. However these charges are only incurred if the trader holds open positions overnight.

Note though that it is always worth checking exactly what constitutes an overnight position with your broker.

Summary

As with most things associated with the financial markets, Intraday Trading will take some time to master. However it’s possible to get as much practice as you need with a Blackwell Global demo trading account. You can then download the Blackwell Trader MT4 platform for desktop Pcs and or mobile devices and trade in a highly realistic simulation of the live market without risking any real money. This is the perfect way for you to get familiar with Intraday Trading, its disciplines and the strategies it involves. When you are familiar you may wish to open a live trading account and start Intraday Trading for real.