Discussing Analysis Techniques and Strategies Employed by Day Traders

In this article, we will discuss

One of the very basic rules of day trading that every seasoned trader swears by is to first analyse the stock market. While a new trader may pick a stock and trade on it without any prior research about that stock and its price movement, experienced traders never do it. Their first step is to always analyse the movement of a stock before actually taking a position in the market.

In this article, we will discuss different types of trading analysis and day trading strategies that intraday traders can implement.

What Are the Different Types of Market Analysis?

There are primarily three types of analysis techniques that both investors and traders use to their advantage. They are:

  • Fundamental analysis

This is the analysis of the fundamentals of a company. It is usually employed by long-term investors who plan to remain invested in a stock for multiple years. They choose these stocks after analysing the values of a company, its key managerial persons, the founders, profit and loss statements of previous years, the products or services of that company, its goodwill and a lot more.

Analysing the core foundation of the company gives investors an idea of its longevity and its growth prospects in the future.

  • Technical Analysis

This analysis involves analysing price movement of a stock to formulate different day trading strategies. Since it focuses more on how a stock price is behaving, this is also the analysis technique used by most day traders. Some also combine it with fundamental analysis for more refined decision-making. It involves analysing different chart patterns, employing different ratios and formulas, market cycles and technical indicators, etc.

To be able to better analyse these factors, a day trader needs to have some prior knowledge of chart reading and technical terms to use the ratios and formulas. Hence, it can be slightly difficult for new traders to understand in the beginning.

  • Sentimental Analysis

Every movement in the market invokes a certain sentiment in the minds of the traders. Based on different activities, traders form different opinions, adjust their strategies accordingly, and thus take action based on it. This is what we call sentimental analysis, i.e. understanding the sentiment behind the movements in the market.

While it is a relevant factor, it can only affect the market if the viewpoint is of a large market player or a vast percentage of investors. Otherwise, the sentiment of just a bunch of retail investors doesn’t make much difference.

Strategies For Day Trading

While there are various strategies you can leverage to pick intraday stocks, we have covered some of the most widely used trading strategies every trader must know.

1. Momentum strategy

It is a trading strategy where traders aim to take advantage of a rising trend in the market. Investors look for intraday stocks that are in the early stage of gaining momentum and hold them till they show signs of reversal.

  • The target is to buy low and sell high by taking advantage of the market volatility in short-term positions.
  • The price of the stock usually keeps riding the momentum until enough sellers identify and enter the market. Once this happens, the price usually reverses.
  • The risk lies in identifying the correct entry and exit points.
  • It is still a comparatively easier trading strategy and is hence considered a beginner-friendly strategy.

2. Reversal trading strategy

In simple words, a reversal is the change in the price trend of a stock. By using reversal strategy in day trading, traders aim to get returns with trend reversal.

  • A reversal starts with a pullback, which is a small countermove against the ongoing trend. However, after a certain point, it establishes a new trend.
  • It can occur in different time frames, and depending upon your strategy, you can leverage a weekly, monthly or yearly reversal as well.
  • Since this is a strategy where a trader goes against the market, it is suitable only for experienced traders.

3. Scalping strategy

Scalp trades are different from other trades as they are held only just for a few minutes. Aim of a scalper is to close a trade as soon as the price goes above the breakeven point.

  • Scalpers take multiple such positions in a single day and aim to generate returns from each trade. So, towards the end of the day, they accumulate a substantial amount of return.
  • The idea behind this day trading strategy is to take advantage of the smaller price movements in the market, as they occur more frequently than bigger movements.

4. Gap and go strategy

Gaps are the spaces in the price movement when the price of a stock significantly moves up or down with very little or no trading in between.

  • When the stock price on the following day is higher, it is a gap up, and if it is lower, it is a gap down.
  • This gap generally occurs between the closing price of a stock on a day and its opening price the following day.
  • Traders often use pre-market scanners to find the right trading signals and identify stocks with volume.

5. Moving average crossover strategy

A moving average is a type of technical indicator that traders use to find the average price of a stock over a period of time. There can be three types of moving averages, i.e., simple moving average, exponential moving average and weighted moving average.

  • In this day trading strategy, traders leverage two or more moving averages to discover potential buying and selling points.
  • In this strategy, lines of two different moving averages crossover.

When one moving average crosses the other above or below the average line, it indicates a change in price momentum of that stock.

6. Breakout trading strategy

Traders who leverage this strategy aim to find stocks whose price goes beyond the levels of their own resistance and support.

  • The breakout traders wait for the stock price to ‘breakout’ of the range it has been trying to cross. Hence, they look for strong momentum in the stock price.
  • The price breakout is a signal for such traders to enter the market and make profits on their trade.
  • Since it is a very quick trading strategy and traders don’t wait for long, it is best to use stop loss in this trade.
  • A stop loss is usually set at the last support or resistance level.
  • If the price continues to rise after the breakout, you take a long position and buy stocks.
  • If the price after breakout continues to fall, you take a short position and sell that stock.

Basic Intraday Trading Rules For Every Trader

You can call the stock market a grey zone because it has no set boundaries for profits or losses. You can generate good returns with the right strategy, and you can also end up losing all your capital with one wrong move. Hence, it is very important for every trader to stick to some rules to make sure they don’t divert from their course.

Discussed below are some rules that do not guarantee returns from the stock market, but can surely help you avoid some unnecessary losses.

1. Trade according to the right time

While the market opens at 9:15 AM and closes at 3:30 PM, there are specific time frames to take positions in day trading. Traders often look for the right time to be able to catch the right momentum. This happens only during a certain time period, whereas the rest of the time, markets are either far too stagnant or very volatile.

Most traders usually recommend the best trading time to be from 9:30 AM to 11 AM and then 1 PM to 2:30 PM. It is better to avoid trading right when the market opens, as the stocks are usually very volatile for the first 15 minutes.

2. Don’t let emotions drive your trade

Seeing the price fluctuations in the market, it is common for traders to start panicking or get greedy. However, this can either force you to close your position at a loss or you may end up missing good profit-making opportunities. Hence, it is very important to think clearly while taking a trade and don’t let your emotions decide your next move.

3. Stick to your strategy

Most traders often let different factors cloud their judgement after entering a trade and thus change their trading strategy midway. While this may turn out to be a wise choice in some special circumstances, it is generally a bad idea otherwise.

Make sure to devise your trading strategy before entering the market and stick to it. Don’t let small momentary fluctuations change your decision.

4. Choose liquid stocks

Day trading simply means that you must close all your open positions before the market closes. Hence, if you choose a less liquid stock, you may be forced to continue holding your position over to the next day. This can significantly affect your profits.

By liquid stock, we mean stocks that are traded in high volumes. It is best to choose two or three stocks with high liquidity for trading. Large-cap stocks are often much more liquid than small-cap or mid-cap stocks.

5. Trade with money you can afford to lose

You might have often heard of the market crashing or soaring high after a news breakout. This indicates there are no guaranteed results in trading. Sometimes, despite your best efforts in research and analysis, the trade can still fail due to some unforeseen external factor. Hence, it is very important for your financial stability to only make intraday trades with money that you can afford to lose.


Day trading is often seen as a source of gambling by many people who do not understand how the markets work. Such people don’t use any analysis methods to identify the right stocks or entry and exit points. Instead, they just take trades on the whim and most often end up losing their money.

For proper risk management of your funds in the stock market, it is very important to first analyse them and stick to the rules of trading.

Frequently Asked Questions

Q1. What are the four types of gaps in the Gap and Go trading strategy?

Ans. The four types of gaps include breakaway gaps, common gaps, exhaustion gaps and continuation gaps.

Q2. What is stop-loss in the stock market?

Ans. A stop loss is an order you give to your broker to buy or sell a particular stock when it reaches a specified price. Investors and traders use it to limit their losses in the market if the price goes beyond a certain level.

Q3. What are support and resistance levels?

Ans. The support level is the floor that supports a price rise. In other words, it is the level where the price of a stock stops falling and starts rising back up. Resistance level, on the other hand, is the level that resists the rising price and forces it to go back downwards. You can identify these levels by taking a look at the price chart of a security.

Q4. What does it mean to go against the market?

Ans. Moving against the market means going against the reigning trend in the market. A trader moving against the market makes a profit when the price falls and vice versa.

Q5. What is the easiest trading strategy in the market?

Ans. Momentum trading strategy is considered to be the easiest of all trading strategies and a good starting point for beginners.

Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847

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