Technical Analysis, Tips, Trading Education

What are some good intraday trading strategies?

Traders can employ many intraday strategies. There are countless methods that which vary in sophistication and historical performance. Open High Low, Pullback, and Morning Gap Trading are a few of the most common strategies.

Open High Low Strategy

When the U.S. markets open at 9:30 am EST, observe the first candlestick of the session and see if its high and the open for that security are the same. Then, if the next candle opens below the closing of the first, take a short position. This is known as Open High.

If the price continues to rise and a trend is established, set a trailing stop loss. Most base this stop loss off of the moving average of the first several periods.

Open Low is the opposite. It occurs when the price of the security’s open is the lowest price for the first candlestick. If the second candle opens higher than the first candle’s close in this situation, buy the security and use the open for the day as a stop loss. If the price continues to rise, add a trailing stop loss to follow the trend. An example of Open Low is shown below:

Pullback Strategy

Bullish and bearish trends don’t move in straight diagonal lines as there are always temporary periods of resistance. These periods are known as pullbacks, and can be good points to trade a security. Many different indicators are used to signal pullbacks, such as moving averages, support/resistance lines, and trendlines to identify if there is a trend and how far the price will pull back before it aligns with the trend again. You want to trade right before the pullback ends. Buy the pullback’s extreme in an uptrend, and short it in a downtrend. 

Pullbacks measured with a moving average
Pullbacks measured with a trendline

Morning Gap Trading

A morning gap occurs when there is a noticeable difference between the close and open price on two consecutive trading days. When the price is higher it is known as a gap up, and a gap down when it is lower.

You need to watch the range of the gap in the first hour of the trading session. After the first hour of trading has concluded, you can derive critical price points on which to base your trades. If in a gap up the price rises above the first hour’s high, you should buy. Conversely, short the position in a gap down if it falls below the first hour’s low. Notice that in both cases you are following the larger trend rather than fighting it (going long after a gap up and going short after a gap down).

Follow the trend with a trailing stop loss, so you can exit the position if and when it reverses.

Open High/Low, Morning Gap Trading, and Pullback are commonly employed intraday strategies which utilize purely technical factors. These strategies may be interrupted by abnormal news events which diminish the reliability of technical analysis. Ideally, traders should try to identify these patterns during trading days without any highly abnormal news events related to the security they are trading.

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