Top 4 strategies for day trading in India

The best strategies for intraday trading in India are gap and go trading, momentum trading, reversal trading, and breakout trading. These strategies allow traders to take advantage of opportunities to realize gains throughout the day. 

Over the past three years, market analysts have observed that over 2 million Indians start investing and trading in the stock market every month. It is no wonder there has been a spike in interest in day trading since 2020.  

Gap and go trading

The first strategy to consider is Gap and Go trading. It is a relatively easy and effective day trading strategy.

This strategy requires a keen analysis of pre-market conditions. First scan for financial assets whose prices have changed during the after-market or pre-market sessions. 

Then analyze the potential reasons for the price variation. Earnings calls, analyst reports, purchases by institutional investors, or takeovers are some of the reasons why a gap could form. At this stage, prepare orders to either follow the gap or short it. 

Momentum based trading

The next strategy to consider is momentum trading. Experts in the field have dubbed it the bread-and-butter approach to day trading. 

It is a short-term trading strategy that involves looking at the trends in the market. A financial instrument that has been going up is likely to continue on the same trajectory. However, if the rate at which the price increases has been slowing down, it is expected that the uptick will reduce. 

A trader following this strategy would take advantage of these trends to buy or sell a position. In order to assess trends, one must consider the following factors:

1. First, look at the relative volume at which assets are being traded. This indicator gives an idea of the interest in the instrument. Also, look at the relative strength index to identify if a stock has been overbought or oversold.  
2. In addition, look at volatility. High volatility is great for momentum trading. 
3. The next factor to look at is the buzz around the stock. Sources like new reports, earnings calls, and negative PR play an important role in this evaluation. External factors like regulations and global events are also relevant. 

In India, over the past year, the NIFTY volatility index (INDIA_VIX) has fluctuated wildly between 9.02 and 33.97. The periods of high volatility have given momentum-based traders opportunities to make moves in the market.  

Reversal trading 

The next strategy to consider is reversal trading. Here, a trader looks at going against the trend. This strategy sounds exciting, but it has a high-risk profile. This strategy is viable with the right set of analyses and calculations. 

The roots of reversal trading can be traced back to research conducted by Richard Wycoff and Adam Grimes. Wycoff identified that markets go through 4 stages, i.e., accumulation, markup, distribution, and markdown. 

While analyzing the trend, the trader will be sitting on the sidelines, waiting for signs of a reduction in the momentum and a decrease in volumes. These indicators would show when the distribution stage has started. Accordingly, the conclusion of a trend can be quickly identified. An example would be spotting a sign of a potential sell-off during the course of a bull run.

In order to sense a change in the trends, the Aroon indicator is a great resource. This indicator identifies whether the market sentiment is trending or ranging. 

In case the Aroon indicator shows that market sentiment is trending, it is likely that the stock is going through the markup stage. When the indicator confirms that the market is in the ranging phase, it means that the distribution zone has been reached. Once these zones have been identified, a trader can forecast when a trend reversal will happen. 

Breakout trading

The last strategy to consider is the breakout trading strategy, which is all about taking advantage of abrupt shifts in market trends. These shifts tend to trigger volatility, and one can enter the market at this point. 

In order to execute a breakout trade, the first step is to identify a catalyst for a stock to move above its resistance level. This catalyst could be earnings calls, changes in regulations, or global market conditions. Then identify the correct entry and exit points by looking at the resistance and support levels. 

At this juncture, trades can be executed when a resistance level has been breached. In the alternative, when a support level has been surrendered, one can take advantage of the price reduction.  

Final thoughts

A few other viable intraday trading strategies include moving average crossover, scalping, and the CFD strategy. However, experts have identified that gap and go trading, momentum trading, reversal trading, and breakout trading are optimal for day trading in India. 

Intraday traders are generally active only during market hours. However, in order to successfully execute these trading strategies, a trader would have to get familiar with technical analysis indicators like price trends, oscillators, and support and resistance levels. In addition, it would help to get acquainted with macroeconomic factors like inflation and economic outputs and microeconomic factors like balance sheets, cash flows, and corporate governance. 

Traders generally experience a degree of difficulty in executing reversal trading since it involves making a call to go against a trend. In comparison, other strategies like momentum-based trading involve flowing with the established momentum. 

Given that these day trading strategies involve making forecasts based on fundamental and technical analysis, it is advisable to get some experience before starting a day trading operation. Before executing trades with personal funds, it is better to open a demo account at an online trading platform and practice with demo funds. Experts in day trading state that getting comfortable with trading strategies by repeatedly executing them goes a long way toward becoming proficient in day trading. 

Before starting to trade with personal funds, earmark a certain amount as the corpus for day trading activities. Be emotionally and mentally prepared to lose this entire amount since trading is a risky adventure. While trading, use no more than 1% of the capital per trade. In addition, don’t make emotional decisions and be realistic about profits.