Intraday Trading Formulae and Rules

The intraday trading formulae are useful for finding your target price and stop loss in intraday trading. Apart from these formulae, intraday trading requires to follow certain day trading rules, strict concentration, discipline, hold on your nerves and the last but not the least, the technical analysis to succeed.

Intraday trading or day trading is an alluring idea of stock trading to make quick money in stock markets. After all, who would not be interested in making some quick bucks in a matter of minutes or hours. This is the reason of popularity of intraday trading or day trading in a section of traders and especially the beginners.

Intraday trade lasts for few minutes or hours until the close of the trading session. During this period, you achieve your targets or your stop loss is hit. You make money when you achieve your target price. Otherwise, you face the loss.

Intraday trading is a highly profitable trading strategy if you do it with a professional approach. With the added advantage of margin in day trading, you can earn decent profits even if you have low cash in your trading account.

Margin trading enables you to take larger trading position in intraday trading. Most of the brokers provide initial margin as low as 5-10% of the total trade value. This multiplies you profits many folds than what you would have made with cash trading. Moreover, margin trading also gives you the opportunity to make money from short selling in falling stock markets.

But this is not that easy as it looks to make money in intraday trading. Infact, it is a highly risky to trade intraday. There is a lot of noise and price volatility in stock prices during the short periods of trading which can be as small as a few minutes or hours.

The probability of triggering the stoploss is much higher in day trading. Therefore, you can face frequent trading losses. So, it is very important for you to have technically valid target price and stop loss price before you enter a trade. You can place random target and stop loss price for a trade and expect to make money in intraday trading.

We will be talking about these target and stop loss prices through some important formulae in intraday trading. Target price and stop loss price is nothing but support and resistance levels which you can find through these formulae.

These fromuale are no shortcut to successful intraday trading. Infact, no formuale or strategy is perfect to make money consistently in day trading. But even then, they provide you some light in the darkness.

The mantra to make money in any kind of stock trading ; be it intraday trading, swing trading or positional trading is to keep your losses short and let the profits run bigger. Losses are part of trading and you can not totally avoid them. But having profits bigger than the losses will ensure that finally the net result is profits.

Another most important thing to remember is that stock trading is all about mathematics. You should make a rule that you would never risk more than 1% of your total trading capital in any trade, even if you are 100% sure of a trade going in your favor.

1% rule helps you to keep your exposure to stock market limited. With each winning trade your capital increases and exposure increases while with each losing trade, your exposure keeps on decreasing and your capital remains protected. Otherwise, you can loose your money fast, even before you realize it.

It is very easy to start with day trading. All you need is a stock trading account. Just login to your trading account and place your buy or sell order and that is it. However, it is very tough to master intraday trading. You need a lot of other things than only formulas to succeed in day trading.

Strict disciplined and professional approach, control over the emotions and money management make the other things which we will talk further down.

Let us find out what is intraday trading and what is the best way to day trade stocks!

What Is Day Trading?

Before we learn about Intraday trading formula or rules, let us have some idea about what is intraday trading!

Intraday trading or day trading, as the name is self-explanatory, is the technique of taking long or short position in markets and squaring off (exiting) that position before the close of the market on the same day.

Day traders take the advantage of the movement in the price of the stock or the index during the trading session. The movement can be small or significant. Trade can be for minutes or hours.

Intraday traders take position in large quantities of a stock. This is useful because a small movement in the stock provides big gains. On the opposite side, the risk is also equally big in the event of adverse stock price movement.

You can trade in large quantities of stock with limited cash also. You can do that with margin trading.

You can also trade in futures and options in intraday and take the advantage of cash leverage provided by these trading tools.

Taking position in large quantity of a stock and squaring off the position immediately after the stock takes a small move in the favourable direction is called Scalping. Scalpers take several trades during the day. At the end of the day, the profits are significant. Online share trading has made intraday trading easy for day traders.

Intraday trading is very risky and tiring job. It requires you to keep watching the screen, waiting for the right opportunity. Moreover, the probability of a winning trade in intraday trading is only 50%.

You should carefully weigh the pros and cons of intraday trading for you. If you are in some other job and want to do intraday trading for additional source of income, then I would suggest you to reconsider the decision for day trading.

It is not possible to carry on intraday trading along with your regular job. Trading requires total professional approach, concentration and quick trade managements.

If you can give that much time, then only you should go for intraday trading. Otherwise, you can opt for swing trading, positional trading where the trade extends up to days, weeks or months.

Stock Trading Strategies

Of course, there are some intraday trading formulae which are popular among the intraday traders. These are opening range breakout strategy, pivot point formula or fraction theory.

But intraday trading is not all about using formulas. When you are there in the middle, it is a totally different ball game altogether.

We shall be discussing here all the stock trading strategies useful for day trading. The things which are very important and need to be taken care of are –

Having A Proper Mindset And Psychology

Share trading for fun or hobby can be dangerous. Your approach should be very professional. You should be aware that you are risking your hard earned money. You have to keep telling yourself that that you are in the stock market only to make money and not just for trading.

The risk starts the moment you enter the trade. Take trading as a business.

Control Over The Emotions

Emotions like greed and fear are the biggest enemies of a trader. Markets don’t stand at a place. They keep on moving, up or down. So, don’t let the fear take you for ride if markets move in the opposite direction of what you were anticipating.

You should be aware of your exit point in such case. On the other hand if trade starts turning profitable, exit the trade at your target price level.

Stick to stop loss and targets to avoid emotions in trading.

Having A Plan

Having a proper trading plan is an important part of stock trading strategies. You should be clear of your entry level, target level and stop loss of the particular stock which you are trading in.

These levels are determined on the basis of technical analysis and the intraday trading formulas.

intraday trading formula

You need to stick to your trading plan to be a successful trader. Writing the plan on a paper is a good idea so that you stick to your trading plan.

Having a written trading plan also ensures that you don’t get swayed away by the market moves when you are in. Without any of these, it is going to be very tough.

Intraday Trading Formulae

Before we move on to the various intraday trading formulae useful for trading, stock picking for trading is equally important. It is worth learning how to pick intraday trading stocks.

It is worth mentioning an important hard fact about stock trading is that more than 80% of the traders loose money in trading. It means that no formula is perfect, otherwise that figure would had been other way around.

Intraday Trading Formula

But that does not mean that these formulae are useless. These are the most popular and commonly used formulae for intraday trading.

It is advisable to use the intraday trading formulae after testing by paper trading or virtual trading to see which formula is best for you.

Opening Range Breakout Theory

Opening range breakout (ORB) is a popular day trading strategy. This is based on the trading range created by a stock in the first few minutes of opening. The strategy assumes that the breakout in any direction out of the opening range determines the further course for the stock price for the remaining period of the trading session.

Usually first 30 minutes of market opening are taken for finding the opening range for a stock. This period involves high volume trades and are very volatile. After the first hour or half-an-hour, the stock tries to establish a trend for the remaining part of time of the day trade.

In this strategy, the high and low price a stock makes in first 30 minutes is marked. The chart used for intraday trading is 5 minute chart. The two most popular moving averages : 5 period exponential moving average (EMA) and 20 period exponential moving average is drawn.

After 30 minutes, if the stock breaks above the opening range, the stock may move further higher. To confirm the trade, the 5 EMA should cross above the 20 EMA and should be above the upper range level. The volume should be high at this breakout to avoid false signal.

Ride the trade till the 5 EMA is above the 20 EMA. Stop loss for the trade is close below 20 EMA. 50% profits can be booked on close below 5 EMA.

Similarly, the strategy can be applied for the short selling or short trade. It is on breakdown below the low of the range. The 5 EMA should cross below the 20 EMA on high volumes and 5 EMA should be below the level of the range low.

Close above 5 EMA is the point of booking 50% profits and close above 20 EMA is the level of exiting the short trade.

You should make a habit to trade in the direction of overall market trend only.

Pivot Point Theory

Personally, I prefer pivot points as it gives best results when applied after identifying the trend in a stock.

Taking previous day’s trading prices of a stock, we can calculate the support and resistance levels for that stock for the next day.

Support andresistance terms are self explanatory. A stock which is moving higher, may stop at resistance level and come back. Similarly, a stock moving lower, may stop at support level and reverse its move.

After crossing first support or resistance level, stock is expected to move to next support or resistance level.

Pivot Point Theory helps you predict the intraday stock movement for next trading day. You can easily calculate the stop loss and target levels to make your trading profitable. With this day trading formula, you can get 3 Resistance Levels and 3 Support Levels. The Resistance Levels are your Target Prices and the Support Levels are your Stop loss Levels for day trading.

With pivot point formula, you can take long trade as well as short selling trade. Long trade is taken above pivot point or support levels with targets which are the resistance points of pivot point formula. Support levels are your stop losses.

For short selling, you can short a stock below the level of pivot point or resistance levels for target of support levels. Here, resistance levels are your stop loss levels.

Nowadays, you don’t need to calculate pivot points by yourself. They are provided by the trading software. They are also shown in the quote box for stock prices. Two support and resistance levels are also given there.

Coming back to the pivot point formula, we select a stock for intraday trading. For that stock, we need its previous day trading data – intraday high price it touched (H), intraday low price it touched (L) and the previous day closing price (C) for that stock.

Add theses three values – H + L + C = X.

Divide the total value by 3 (P) = X / 3.

Multiply it by 2 :- X / 3 x 2 = Y

This value P is called the Pivot Point. Stock sustaining above pivot point is likely to move higher towards first resistance level and above that towards second resistance level. If stock continues to trade below the pivot point, it is likely to drift lower towards first support level and after that towards second support level.

Let’s calculate resistance and support levels ;

First resistance level (R1) = It is the difference between the {Pivot Point X 2} or Y and the Intraday Low price.

R1 = Y – L

The second Resistance level (R2) is calculated as below :

R2 = P + (H – L)

First support level (S1) = it is the difference between Y and the Intraday High price.

S1 = Y – H

The second Support level (S2) is calculated as below :

S2 = P – (H – L).

You can combine pivot point formula to technical analysis indicators to make one of the best intraday trading strategies.

Most popular and reliable indicator is stochastics oscillator. Look for crossovers of slow stochastics on daily technical charts.

If the stochastics gives you buy signal with a positive crossover near or below 30, you can initiate a buy trade above the pivot point or above first or second support level.

Similarly, a short selling can be done when there is a sell signal on slow stochastics crossover. It is more effective when the crossover is at or above 80 value. With that signal, short selling can be done below the pivot point or below first or second resistance level.

You can read about best settings of stochastics for swing and day trading.

You can also apply Relative Strength Index (RSI) or MACD ( Moving Average Convergence Divergence) indicator.

In this way, you can evolve a more profitable intraday trading strategy.

Fraction Theory

This theory is also based on previous day price movements of a stock.

Add up high (H), low (L) and closing (C) price of previous day of the stock and multiply it by 0.67 (ratio of 2:3 as in pivot theory and it is constant).

(H + L + C) x 0.67 = Y

Resistance (R1) = Y – L

Support (S1) = Y – H

Possible Buy (P.B.) = Y – C

Above possible buy (P.B.), buy the stock for resistance levels.

2652 Theory of Intraday Trading

2652 Theory is based on previous day and present day High and Low prices of a stock. This theory has its own disadvantage that it makes you trade for gain of 0.5% while keeping your stop loss 1% lower.

Your risk is double of your profit and using such strategy in day trading doesn’t make sense where probability of going wrong remains high.

Technical Charts In Intraday Trading

You can use technical analysis based on short-term charts for stock to know the trend and other indicators of technical analysis. Buy stock which show uptrend while look to short which are down trending.

This is similar to Opening range Breakout Strategy we talked above except taking into consideration the ORB.

Exponential moving averages for time periods of 5 and 20 are quite useful with 5 minute intraday candlestick chart. 5 and 20 EMA crossover is very useful for short term trading.

When the 5 period EMA crosses above the 20 period EMA, it makes a good buy signal for day trade. The thing to ensure before taking trade is that price should be taking support at 20 period EMA line. For a short trade or short selling, 5 period EMA should be crossing below 20 period EMA line. Again, prices should be taking resistance at 20 period EMA line before you take your short trade.The volume should be more than average at the time of crossover so as to avoid false signals.

For stoploss of your long trade, you can use lowest point of previous green candle which took support at 20 EMA. Similarly, for short trade, keep stoploss just above the highest point of previous red candle taking support at 20 EMA.

You should book profits when you have made reasonable profits and get out of the market quickly. Otherwise, you may let the profits keep running until the prices break the 5 EMA. Here, you may book 50% of the profits. At break of 20 EMA, position should be closed.

You can try this method with virtual trading or paper trading before taking actual trades.

As we talked above, stock trading is an art. No indicator is perfect and will make you money. They will only guide you in taking decisions. You will have to develop the art of making money in markets with hard work, practice and patience by yourself only.

If you prefer to use trend lines on intraday charts to take buy or sell call on your trade then 5 Minute Bar Chart can be a good option to use for Intraday Trading.

Only formulae do not work to survive in Intraday Trading. There are certain strict day trading rules which you need to follow.

Intraday Trading Rules

I again would like to emphasize that intraday trading is very risky for your capital. Positional trading can be more rewarding than intraday trading.

Profits can be huge with positional trading with minimum risk. I am telling you this from my own experience.

Traders who want to go for day trading, should strictly follow the below rules. The intraday trading rules are as important as the intraday trading formula and keep the most successful day traders ahead of their peers.

Day Trading Rules

1. Use Surplus Cash Only

Trading should be done only with the spare money, the money you don’t need and you can afford to loose. Trading, although very profitable, is associated with substantial risk.

2. Do Proper Research

Before taking trade, proper research should be done about the stock or the index, using charts based technical analysis. It helps in determining important levels of the stock, strength and trend of the stock.

There are so many popular online stock trading software available. They are capable of finding the trading opportunities for you. A trading signal is generated as soon as an event happens on technical charts.

3. Use of Stop Loss

This is very important part of any kind of trading. Most of the traders don’t use it, knowingly or unknowingly and end up taking huge losses.

Stop loss helps cutting short the losses and keeping emotions out of trading thereby protecting your capital.

Remember, capital protection is more important than earning profits. Profit earning opportunities keep on arising in the markets which you can use if you keep your capital protected.

4. Never Overtrade

Overtrading is suicidal. More trades become difficult to manage. So trade only that quantity you are comfortable with.

Keep number of trades limited to 2-3. If one trade gave you sufficient profit, better close the system and do some other work or relax.

Choose your trades on the basis of Risk Reward Ratio.

5. Be Disciplined

This is the major quality of the most successful day traders. Avoiding over trading, not fighting against the trend and cutting short losses and keeping fear and greed emotions out of the trading are some important steps.

6. Follow The Trend

To have a higher success rate in Intraday Trading, always remember ;

‘Trend is your Friend’

Always follow the trend and trade in that direction only.

In up trending markets, select stocks which are strong on charts and have long positions. In down trending markets, select the weaker stocks and short them.

Never trade against the trend. The advantage of trading with the trend is that even if you take a wrong call, you will not suffer big losses.

7. Liquidity

Always try to trade in highly liquid shares. Liquidity is the volume of shares traded. High liquidity is good for day trading stocks.

In liquid stocks, it is easy to enter and exit the trade and you enter or exit the trade near the last traded price.

8. Profit Taking

Exit Strategy is really important. Take your profits and get out of the market when your target are achieved. Money is made in markets on exiting only.

Letting the profits run beyond targets leads to greed which is dangerous for trading. You never know when the market will turn around and throw you in losses after eating all the profit.

Cutting losses is an important part of successful trading. Exit your position if market is not going the way you anticipated.

Don’t be stubborn and let the market do what it wants to do.

Intraday Trading-Formulas and Rules
intraday trading formula

Intraday Trading Formulae help you find the target price & stoploss in day trading. Keep the risk to minimum with maximum profits with these day trading rules.

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Ashutosh R
Ashutosh R

Sir I am a fan of you, your YT videos are fantastic

Anonymous
Anonymous

Visitor Rating: 5 Stars

Anonymous
Anonymous

Visitor Rating: 5 Stars

Pràñâÿ Šägãr
Pràñâÿ Šägãr

sir im mcx intraday begginer please help me sir

Anonymous
Anonymous

Visitor Rating: 4 Stars

Sathish Babu N Suganthi
Sathish Babu N Suganthi

can you help in particular stocks which we are trying..

Bikramjit Singh

Hello,

You can put in values for any stock in these formulae.

Shashikant Salvi
Shashikant Salvi

Hlo,
Ref: 2652 Theory

NSE trading times have changed from 10AM to 9 / 9:15 since the time it was proposed.

Now should “TODAY” H/L range be from 0915 to 0930 IST?

Sikani
Sikani

Which technical strategy to be used for intra day, and how to study charts for intra day.

Manas Chattaraj
Manas Chattaraj

Add theses three values- H+L+C=X.

Divide the total value by 3 (P) = X/3.

Multiply it by 2 :- X/3*2=Y
Sir, what is the meaning of = ” Multiply it by 2 :- X/3*2=Y ” value…plz clarify

pandit
pandit

I am pandit I like to day trading.
Sir I read u r blog I like.b it sir very losses . Through it.
Sir give me u r suggestions.

Thanks dear sir.

Dileep
Dileep

Hi Bikramjitsingh,
What time we will do this analysis ? Soon after opening the market ?

Omkar Gajanan Vaikul
Omkar Gajanan Vaikul

IF NIFTY SPOT
H 7505.9
L 7444.1
C 7485.35

Then Pivot points come 15032, but I guess some prblem in FORMULA , becz I can’t find support levels by your first mention method I.e Pivot points theory…..pls help me to find Pivot points and Resis & support

Manus Ki
Manus Ki

Which trading platform do you use? Which is best and lowest broker?

raja
raja

can you give
some tips for intraday trading

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