If a trader is interested in making money quickly, intraday trading may seem alluring to him. The popularity of intraday trading is constantly increasing in India because who wouldn’t want to make some money in a matter of minutes or hours. As the name suggests, intraday trading is the process of buying and selling shares in the stock market with the same trading day. In this kind of trading, the goal is to make money by achieving your target price, if not, you stand to make a loss. Unfortunately, a lot of people treat intraday trading like a lottery. But the truth is far from it.
Intraday trading is a high risk process that involves a lot of research and training. A day trader is someone who studies the trend carefully before making any decisions. A lot of efforts go into intraday trading. In fact, there are various intraday trading formulae or techniques to help the traders in making the right decision. The stock market keeps fluctuating all day and a trader should always be ready to face the challenge. The intraday trading formula helps maximize a trader’s daily earned profit. In this article, we will talk about the intraday trading formula that is widely used by traders.
Candlestick know-how:
The candlestick chart technique originated in Japan in the early 1700s. It is an efficient way of viewing price changes in stock. There are four pieces in a candle, open, high, low, close. If Open to close is high it is a green candle. If open to close Below it is a Red candle. Candlesticks are popular because of their better graphic charm when paralleled to bar or line charts. Each candle characterizes the passage of a certain amount of time or the completion of a certain number of trades. You can select the time frame or the number of trades in the settings for your chart provider.
Pivot Point Theory
This is maybe the most used and very effective intraday trading formula. It predicts the fluctuation of a stock based on its performance on the earlier day. A rundown of previous day’s trading data of a stock will give us inputs like intraday high (H), intraday low (L), and closing price (C).
We need to add them up:
H + L + C = X
Now, the resulting value needs to be divided by 3:
X/3 = P (which is called the pivot point)
Then, multiply P by 2:
X/3 X 2 = Y
It is expected that a stock moving beyond the pivot point is probable to carry on its journey until the first resistance level. In some scenarios, it will move on to the next resistance level.
Similarly, a stock trading under the pivot point is likely to go lower to the first support level and continue to the second support level.
First resistance level (R1) = Y – L
Second resistance level (R2) = P + (H – L)
Likewise, we can also calculate the support levels as:
First support level (S1) = Y – H
Second support level (S2) = P – (H – L)
Fraction Theory
Just like in the case of the pivot point theory, the fraction theory is also a popular intraday trading formula that depends on feedbacks gathered from the previous trading day. The previous day’s high (H), low (L), and closing (C) need to be added up and then multiplied by 0.67:
(H + L + C) x 0.67 = Y
The resistance and support are calculated just like it was in the pivot point theory. Check out the procedure above.
The stock’s possible buy (PB) is calculated as Y – C.
You can pick up the stock above PB and look for its resistance level.
There are two intraday trading formulae that can be used to determine the course of your trade. There are many more formulae like these. Be sure to research them before you begin trading.