Did you know that a hummingbird has a speed of 200 wingbeats per second? A similar action could be seen in our stock markets, where scalpers take hundreds of trades within a day but not all of those trades are money-making. How to make it profitable? Well, for that you need to focus on the right intraday scalping strategy.
Best Intraday Scalping Strategy
This scalping strategy is most popular amongst day traders. Commonly, traders ask: Is intraday trading profitable? Yes! But it requires some assistance to be profitable using this strategy:
- Live feed
- Immense concentration power
- Strict exit policy
- DAT – Direct Access Trading
DAT enables the stock traders to trade with other traders or clients without any interference from Brokers.
Traders can enter into Long [ Buy side ] as well as Short [ Sell side ] positions in scalping.
Now the scalpers rely on the best indicator for intraday scalping. Also, they learn candlestick patterns to take long and short positions in the market in the 1-minute or 3-minute time frame.
So, let’s learn about the strategies that can be used to maximize the profit.
1-Minute Scalping Strategy
1 minute is the favorite chart frame of scalpers. So, many traders use the intraday scalping technique to earn profit. To trade in the 1-minute time frame, you can use the EMA crossover strategy.
In this, the EMA 50 and 100 are used to determine the trend and buy and sell signals in the market.
Now we have 2 positions to enter into :
- LONG POSITION: When 50 EMA crosses above 100 EMA, the market can give a small up move and we can place a scalp trade on the buying side. When the price is above both 50 and 100 EMA, it tells us that it is a short-term uptrend in the market.
- SHORT POSITION: when 50 EMA crosses below the 100 EMA, the market can give us a small down move and the trader can place a scalp trade on the sell side. The price is below the 50 and 100 EMA tells us that the market is experiencing a small downtrend
3-Minute Scalping Strategy
Another favored time frame for scalpers is the 3-minute time frame. We have 2 strategies for this time frame.
The pro-scalpers generally use two different intraday scalping strategies to maximize their trade profits.
1. Momentum Trading Strategy
Here two different indicators, 20-period EMA and MACD are used in combination. We can enter into LONG or SHORT positions based on certain circumstances described below.
- BUY SIDE: If a bullish candle closes above 20 EMA and MACD is in the positive zone or in the process of going from the negative to the positive zone. Here we can enter into a long position as the market can give an up move.
- SELL SIDE: If a bearish candle closes below 20 period EMA and MACD is in the negative zone or in the process of going from positive to negative zone.
2. Bollinger Bands Strategy
So, as you all know this indicator has 3 bands, the upper, middle and lower bands. Bands move along with the movement in the asset prices and tell us the volatility in the market. The wider the bands the more the volatility in the market.
Along with this, the price above the upper band and the lower band gives an indication of an overbought & oversold zone respectively which helps in determining the momentum too.
For this intraday scalping strategy, we first find a range-bound market and apply our Bollinger bands on the chart.
- We enter into a long position when the market touches the lower band as a short-up move can come.
- We enter into a short position when the market touches the upper band as from that point the market can give a down move.
For more accuracy, you can use Bollinger bands in conjunction with other types of technical indicators like Stochastic indicator or RSI.
NIFTY Scalping Strategy
NIFTY 50 is a popular index that attracts both scalpers and day traders. It is a very popular index among traders and budding traders learn NIFTY trading to make a profit using the NIFTY 50 index.
This index provides ample opportunities for scalp traders to profit from quick moves as it provides volatile but stable movement as compared to extremely volatile BANKNIFTY.
SMA [ Simple Moving Average ]
This is the most basic tool that a trader uses to form his/her scalping strategy. It gives the average price of a particular asset.
- Buy Call or Sell Put: One can buy a call or sell put when the price closes above the moving average.
- Buy Put or Sell Call: When the price closes below SMA, this gives an indication of a downtrend and one can make a profit either by buying put or selling the call.
A lot of traders wonder if MACD is a leading or lagging indicator. Well, it is a lagging one. This indicator shows the relationship between 2 moving averages, a 12-period EMA and 26 26-period EMA.
It tells the momentum of a trend as well as provides buy-sell signals. Here the blue line is MACD and the yellow line is a signal line for better confirmation.
- Buy Call or Sell Put: If MACD crosses above the signal line, the market gives us an up move and we can buy the asset.
- Buy Put or Sell Call: if the signal line cuts MACD from below to upside, then we can buy put or sell call option as the market will give a down-move.
Scalping Vs Intraday
Here are the differences between scalping and intraday that you need to know:
|BASIS OF DIFFERENCE
|TIME IN POSITION
NUMBER OF TRADES
RISK TO REWARD RATIO
|Entry and exit into position within 5 minutes or less than 5 minutes.
Trader takes 100’s of trades
The risk-to-reward ratio is high from 1:1 to 1:1.5.
Traders need not do Fundamental analysis.
Win to loss ratio is high.
The move completion is easy.
1 minute chart time frame is preferred.
Due to the multiplicity of trades, the trader has to bear large transaction costs in terms of taxes.
|Traders stay in the position for 15 minutes to 1 hour.
Traders take only a few trades in the day, 2-4.
The risk-to-reward ratio is low from 1:3 to 1:5.
Traders need to do fundamental analysis to get a hint of a broader trend of the day.
Win to loss ratio is low.
The move completion to take profit is hard as the market can take reversal.
5 to 15-minute time frame preferred.
Minimal transaction cost due to few trades done by the trader
Scalping in the stock market is like T20 cricket. You may hit a six or may get out or in the language of the stock market, you may hit take profit or stop loss.
The most important thing while using the intraday scalping strategy is to have a strict exit policy from each trade.
If your greed gets into your mind, you may lose all of your capital. So rookies should stay away from such strategies as it requires traders with years of experience and a strong psychological hold over their emotions.
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