Intraday Trading

Intraday Trading Explained: Strategies, Benefits, and Risks

Key takeaways
* Intraday refers to trading and price movements that occur within a single trading day.
* Day traders open and close positions before the market closes, aiming to profit from short-term price fluctuations.
* Common strategies include scalping, range trading, and news-based trading; execution tools such as VWAP can improve fills.
* Advantages include avoidance of overnight risk and use of tight stop-losses; disadvantages include high transaction costs, leverage risk, and limited time for positions to develop.

What is intraday?

Intraday literally means “within the day.” In finance, it describes securities that trade during regular market hours and their price action over a trading session. Intraday measures include the session’s highs and lows and the minute-by-minute price changes that day traders monitor to make rapid trades.

Fundamentals of intraday trading

• Timeframes: Intraday traders rely on short-term charts—common intervals are 1-, 5-, 15-, 30- and 60-minute bars. Scalpers often use 1- and 5-minute charts; other intraday trades may hold for several hours.
• Price action: Traders look for intraday patterns, support/resistance levels, breakouts, gaps, and volatility spikes.
• Execution tools: Volume-weighted average price (VWAP) and similar algorithms can spread orders across the day to achieve a representative average execution price.
• Instruments: Stocks and ETFs are suitable for intraday trading because they have continuous pricing during market hours. Mutual funds are priced only at market close and are not usable for intraday strategies.

Common intraday strategies

• Scalping — making numerous very short trades to profit from small price moves.
• Range trading — buying near intraday support and selling near intraday resistance within a defined range.
• News-based trading — exploiting volatility caused by earnings, economic releases, or other market-moving news.
• High-frequency strategies — using algorithms to capture tiny price inefficiencies at scale (typically institutional).

Pros and cons

Pros
* Positions close before market close, avoiding overnight gaps from after-hours news.
* Tight stop-loss orders can limit downside on individual trades.
* Access to margin can amplify returns for active traders.
* Fast feedback loop accelerates learning for active traders.

Cons
* Frequent trading increases commission and fee drag on returns.
* Leverage can magnify losses quickly.
* Limited time for positions to develop can prevent trades from reaching larger profit targets.
* Some asset types (e.g., mutual funds) aren’t tradable intraday.

Mutual funds vs. intraday pricing

Mutual funds are priced once daily using their net asset value (NAV) calculated after market close, so they cannot be traded intraday. ETFs and individual stocks, by contrast, trade continuously and display intraday prices, making them suitable for day trading.

Example

A stock might open at $174.57, hit an intraday low of $174.44 and an intraday high of $178.49, then close at $178.44. Day traders study these intra-session ranges and patterns to place entries and exits, looking for repeatable setups during the trading day.

How day traders make money

Day traders aim to profit from small intraday price movements by entering and exiting positions within the same session. They often use higher leverage and tight risk controls to amplify returns on small price differentials. Success depends on execution speed, disciplined risk management, and managing trading costs.

Risks

• Large or rapid losses, especially when using margin.
• Trading costs and slippage can erode profits from small trades.
• High emotional and mental demands; mistakes can be costly.
• Inexperienced traders often struggle to achieve consistent long-term profitability.

Conclusion

Intraday trading focuses on exploiting short-term price moves within a single market session. It offers benefits like avoidance of overnight risk and the ability to use tight risk controls, but it also brings elevated costs and the potential for rapid losses. Effective intraday trading requires clear strategies, disciplined risk management, fast execution, and careful attention to costs.