05/01/2024

Intraday Trading

This article is about intraday trading. It will help beginners grasp the fundamental concepts and strategies, and demonstrate how to enhance the effectiveness of intraday trading with the ATAS platform.

What is Intraday Trading?
Pros and Cons
Strategies for Intraday Trading
FAQ
Advantages of Using ATAS for Intraday Trading

The article includes chart examples using advanced indicators from the ATAS platform and includes links to more detailed guides.

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What is Intraday Trading?

The term intraday trading speaks for itself. Trading within a day is characterized by holding a position for a short period, limited to a single trading session.

For example:

you did your analysis in the morning, opened a position, and closed it by evening;
you opened a position right before some big news hit and closed it right after;
scalping on breakout levels: 10 trades, each lasting 5-20 seconds;
bouncing off high-volume levels: 2 trades with durations ranging from 3 to 30 minutes.

These are all examples of intraday trading, where a trader does not carry a position overnight. The workday is over, all positions are closed, orders are canceled, and the trading terminal is turned off until the beginning of the next working day.

Intraday Trading: Pros and Cons

Pros of Intraday Trading

Quick earning potential. Day trading offers traders the opportunity to make profits in a short span, using leverage. You can profit even from small price fluctuations, which are in abundance on 5-minute charts.
Low entry barrier. Getting into intraday trading does not require big capital investments. For instance, when day trading futures, broker margin requirements to secure a position are significantly lower compared to positions carried overnight (or over the weekend).
Risk management. Traders can effectively control their risks by setting stop-loss and take-profit orders. In comparison, in positional trading, a stop-loss might result in a loss much higher than planned due to a gap at the session’s opening.

Cons of Intraday Trading

High complexity. Intraday trading demands a high level of skill and experience to swiftly consider all factors and make trading decisions in conditions of uncertainty.
High Level of “Noise”. The 1-minute and 5-minute charts are filled with random fluctuations, causing intraday traders to close a trade with a loss.
Overtrading. The risk associated with the high workload on analytical and emotional activities can lead to stress, errors in decision-making, and burnout. For more details on the downsides of excessive trading and how to avoid it, check out the article Overtrading for Beginners and Experienced Traders.

Not everyone can be an intraday trader — this is influenced by both personal qualities and circumstances.

To figure out which trading style suits you best, read the article About the Advantages and Disadvantages of 6 Types of Trading.

Intraday Trading Strategies

Developing an intraday trading strategy involves searching for patterns, implementing a trading edge and disciplined risk management, and adapting to the trader’s unique market vision that has already been formed.

The examples on the charts below can inspire you to create your own unique intraday strategy.

Intraday Futures Trading Strategy

The core idea is the price rebound from nodes of significant volume, noticeable on the market profile. In other words, this strategy involves a rebound or a test from the Point of Control (POC) level.

High volume at the POC level indicates increased interest in this level, implying a significant number of trades executed at this price. When the price returns to this level, it triggers market participant activity — they may be closing or increasing positions according to their strategies. Usually, though not always, this leads to a rebound from the significant volume level, which can serve as the basis for creating an intraday trading strategy.

Example 1

E-mini S&P-500 futures One-Minute Chart with TPO Market Profile Indicator.

Before the European session started, the market was in a flat state. Then, a bullish impulse followed (arrow 1).

A pullback to the significant volume level (arrow 2), noticeable on the profile, provided an opportunity to enter a long intraday position.

Example 2

E-mini S&P-500 Futures but on a 15-minute chart with a 6-hour profile indicator.

The example above covers events from two days:

November 20, when there was a sharp rise culminating above 4570;
November 21, when the sentiment was bearish.

Number 1 indicates a test below the significant volume level during the intraday bearish trend. This test provided an opportunity to enter a short intraday position during the European session.

Number 2 indicates the significant volume level formed on November 20. When the price reached it the next day, bears found support, and the intraday downtrend paused for a while. Perhaps, long positions opened on the bounce from level 2 could have been closed at breakeven.

Number 3 indicates another significant volume level formed on November 20. However, a strong bounce occurred from it the next day, providing an opportunity for traders to profit during the American trading session.

Example 3

A 15-minute chart to which a 6-hour profile indicator has been added. This time it is gold futures.

Once again, events from two days, November 21 and 22.

Number 1 indicates a large volume level formed on November 21. During the Asian session the next day, it served as support (with a slight “undershoot”) and the foundation for an intraday uptrend.

Number 2 indicates the culmination of this intraday uptrend during the European session, specifically at the significant volume level (with a slight “overshoot”) formed the day before.

Example 4

An hourly chart to which a daily profile indicator has been added. Euro futures.

Arrows indicate tests of significant volume levels:

Volume levels formed several days earlier but not tested can act as support levels.
After a breakout, a significant volume level can function as resistance.

Tips for implementing the intraday trading strategy:

Choose the timeframe and instrument that align with your perspective and personal circumstances.
Always employ risk management measures. For example, set stop-loss orders beyond areas of significant volume, as it is never certain that a rebound will occur.
Switch to lower timeframes and/or use cluster charts to obtain indications confirming a potential rebound.
Explore historical data. Practice intraday trading using Market Replay.

False Breakout Strategy

As we know, the market is always in one of two states:

Flat. When supply and demand balance each other. The market profile shows a growing “convexity,” indicating a consensus between buyers and sellers regarding the fair price of the traded commodity.
Trend. When the market is no longer balanced due to external factors, such as the release of important news. One of the forces—either demand or supply—outweighs the other.

The exit from the flat zone is marked by:

encouraging traders to enter new positions in the potential direction of the trend;
traders facing psychological pressure if the price moves against them. They are forced to reduce or close existing positions manually or automatically through a stop-loss order.

These actions serve as potential “liquidity traps” by market participants, especially those who specialize in trading false breakouts. It is worth noting that these participants may actively contribute to the occurrence of these false breakouts.

Example 1

This is the future of the British pound. The upper 30-minute chart shows a false breakout of the minimum formed two days earlier. The lower 10-minute cluster chart with an added delta indicator illustrates what happened in detail.

On the lower chart, the following can be observed:

Clusters with a negative delta of significant volume and closing prices above these clusters. This indicates the triggering of stop-losses and selling by weak players. A major professional player may use these sells to establish a long position.
The culmination of the downward movement, possibly resulting from the news release at 15:30. The delta indicator shows a spike in negative values. However, active buyers appear on the next candle, preventing the price from falling. This is almost a classic bullish engulfing pattern. It may not be the perfect example in terms of technical analysis, but viewed through a footprint lens, it illustrates how buyers absorbed the entire selling pressure. The following candles demonstrate a period of consolidation, suggesting an equilibrium between supply and demand forces.
A spike in positive delta values indicates that active buyers appear on the 16:50 candle. The price closes near its highs, initiating an upward movement and completing the process of forming a false breakout.

Example 2

Bitcoin futures, data from the Binance exchange. The upper 30-minute chart displays a false breakout near the 37780 level. The lower chart, in minute cluster format, provides detailed insights into this false breakout.

On the lower chart, you can see that when the price surpasses the 37780 level (a breakout of the high that was 2 days ago), bright green clusters appear, indicating market buys. These could be:

buyers employing a “breakout” strategy;
short positions being closed through stops set above the notable high.

The price formed high A and retraced to the trendline.

The chart reveals an attempt to resume the trend, but it failed as the formation of high B represents a false breakout of high A. A bright green cluster at high B, with a closing price below it, confirms this.

Later, the price attempted to bounce off the support level, but those were dead cat bounces, foreshadowing a decline — a logical development after a series of false breakouts of the highs.

Example 3

Nasdaq futures. The upper 30-minute chart shows a false breakout of the lows around the 18200 level.

Arrow A indicates a strong bullish impulse that occurred after the release of positive news.
High B is the maximum formed during the continuation of the impulse on the next day. After the formation of high B, a retracement (correction) began.
The support line is drawn from the local minimum on the day of a strong bullish impulse held once. Thus, we observe a false breakout of two local lows at once.

Searching for a long entry point, anticipating the end of the correction amid a strong bullish impulse, is rational logic. The lower chart in 5-minute cluster format provides more details of the false breakout.

Intraday trading strategy A false breakout. Example 3

Numbers indicate:

Sellers becoming more active below local lows.
Sellers becoming more active below the round psychological level of 18,000.
Appearance of buyers on the rise above the broken levels as the conclusion of the false breakout pattern.

The idea for Using a False Breakout Trading Strategy

Intraday trading always involves the question: where to set stop loss and take profit?

False breakout strategy suggests a compelling idea for a mathematical calculation of stop and take.

Let’s imagine that we trade cotton futures. A somewhat exotic choice, but why not use it to illustrate the logic in various markets?

The price forms local extremes 1 and 2, noticeable on the upper 30-minute chart. The next day, there is an attempt (3) at a bullish breakout of the high (1). To better assess whether this breakout is real or false, we switch to a 5-minute cluster chart (below).

The cluster chart shows:

a spike in positive delta on candle A. However, the next candle forms a bearish engulfing pattern. Then, something similar to what you have already seen in the Bitcoin futures chart happens.
The price starts to rise almost inertially along an invisible trendline, and on candle B, it forms a false breakout of the high A. It triggers a sudden surge in sellers’ activity.

We have enough confirmation that the forming breakout of the high (1) is false. Let’s assume we enter a short position at a price of 81.80. Where should we place the stop and take profit?

Let’s start with the take profit. Since we are trading false breakouts, let’s set the take profit below the previous low, specifically, below low (2). Let’s say 80.20. The potential = 81.80 – 80.20 = 1.60. For the cotton futures market, this is equivalent to 160 ticks, with the cost of 1 tick being $5. So, trading with one contract could potentially yield a profit of 5 * 160 = $800.

Where to place the stop? Let the acceptable loss be four times less than the potential gain. 800 / 4 = $200, and 200 / 5 = 40 ticks. Therefore, the stop-loss level would be 81.80 + 0.40 = 82.20.

Of course, there are circumstances related to overnight positions, but to illustrate the idea of stop and take profit calculation, let’s not consider them.

Additional Information on Intraday Trading Strategies

Do you need more examples with charts and descriptions? Use the list of articles from our blog below to gather valuable information on day trading strategies:

FAQ

What is intraday trading?

Intraday trading is an approach in which a trader opens and closes positions within a single day. The main advantage of this approach is the optimal balance between the advantages of high-leverage trading and the lack of substantial capital requirements for investors (minimum margin). The overarching goal of intraday trading is to “catch” price fluctuations, which may span from a few points to several tens of points.

How to start day trading?

Read the article How to Become an Intraday Trader and follow the step-by-step recommendations:

Open an account with a broker or use the built-in demo account on the ATAS platform.
Get acquainted with the tools for intraday trading, such as available indicators, chart types, the DOM, and more.
Develop a trading strategy.
Start trading. Undergo training in Market Replay and then start trading using minimal amounts.

How much can you earn from day trading?

The potential earnings from day trading depend on various factors:

experience and qualifications;
size of the trading capital;
the chosen trading strategy, whether it is aggressive or conservative.

On one hand, there are day traders like Michael Morris, who reportedly earns around $20 million per year. On the other hand, according to a study by Charles Schwab, 60% of day traders lose their money.

How is intraday trading different from scalping?

Scalping is a subtype of intraday trading. It represents one of the approaches to day trading, where scalpers hold positions for a minimal amount of time — sometimes just a few seconds.

Can you learn day trading on your own?

Yes, you can do it. But it demands time, dedication, and self-discipline. Here are a few tips to help you learn day trading on your own:

Start with the basics. Before diving into trading, it is crucial to understand how the market works and what factors influence asset prices. Explore the Market Theory section on our blog.
Practice on a demo account and use Market Replay. This will help you to gain experience in day trading without the risk of losing real money.
Learn risk management. Risk management is essential before engaging in day trading.
Find a suitable trading strategy. Or even better, adapt existing and proven information to your vision of the market by developing your own unique approach.
Be patient. Do not expect to become a successful day trader in a week.

What risks are associated with day trading?

The primary risk is related to financial losses. In day trading, trades are made frequently and for short periods. Therefore, losses can be significant, especially in the case of a series of unprofitable trades when trading against a strong trend. Additionally, intraday trading involves the risk of emotional stress. O assist traders in managing these risks, the ATAS Chart Trader features a set of exit strategies. Further, we will tell you about other features of the ATAS platform that can provide you with a competitive advantage in day trading.

Advantages of Using ATAS for Intraday Trading

Day trading is associated with high competition. Use the ATAS platform to gain significant advantages:

Indicators. ATAS offers tick-level granularity, enabling market analysis with maximum accuracy. This is particularly crucial and valuable for day traders. Some of the most useful indicators include Cluster Search, Big Trades, and Speed of Tape.
Cluster charts or footprints. By accessing information inside candlesticks, you can make more informed decisions compared to traders who only see 1-minute candlesticks. Additionally, you can experiment with different timeframes.
Tape and the DOM. Useful tools for working with Level II and Order Flow include ATAS Smart DOM, DOM levels, and Smart Tape. Do not forget the indispensable tool for scalpers — DOM Trader.
Beginner-friendly. The blog, YouTube channel, and Knowledge Base provide specific instructions on setting up and working with charts, applying indicators, developing strategies, and other valuable information for day trading. ATAS users can also rely on responsive customer support.
Market Replay. You can configure the Market Replay to replay historical data and practice day trading strategies as if in real time. ATAS enables you to load tick data history from futures, stocks, and cryptocurrency markets, providing you with a comprehensive foundation for mastering day trading strategies.

It is worth mentioning the capability to develop custom tools — indicators and automated trading strategies that can be connected via API. ATAS eliminates any limitations for analyzing cluster charts.

Conclusions

According to various estimates, there are several million to several tens of millions of day traders worldwide. The exact number is hard to determine due to the significant turnover:

Beginners enter the market driven by the advantages offered by day trading: the potential for high earnings, independence, and accessibility.
However, the majority fail to achieve consistent profits due to the drawbacks of day trading: high risk of losses, emotional pressure, and the complexity of making trading decisions.

To increase your chances and thrive in the profession, use the premium-class ATAS platform, which provides numerous advantages for day trading in futures, stock, and cryptocurrency markets. This includes professional-level cluster charts with useful indicators and other features. The accessible arsenal continues to expand with each ATAS platform update.

Download ATAS. It is free. During the trial period, you will get full access to the platform’s tools to experiment with the DOM and footprint charts. Moreover, you can continue using the program for free even after the 14-day trial period is over, whether it is for cryptocurrency trading or volume analysis.

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Information in this article cannot be perceived as a call for investing or buying/selling of any asset on the exchange. All situations, discussed in the article, are provided with the purpose of getting acquainted with the functionality and advantages of the ATAS platform.