When traders buy and sell stock throughout the day and close all their positions by the end of the same trading day, it is known as intraday trading. Intraday traders will look to make profits from small price movements in a stock by using leverage or margins. The length of time that an intraday trader holds a stock can be from a few seconds to a day. Trading stocks like this requires large amounts of capital to be invested in stock picks so that the small movement in price makes it worthwhile. There are many types of strategies that intraday traders may use to trade on the stock market.
Scalping is a style of investing that is very popular in intraday trading. It involves selling a stock pick nearly immediately the trade turns profitable. This occurs after the stock increases by just a few cents. It may not seem much, but done a number of times and with large amounts of capital, it soon adds up while at the same time maintaining a strict exit strategy to limit your losses.
Momentum trading involves stock picking shares that are moving in a significant direction on high volume. Traders look to take advantage of the stock picks momentum and ride it out up until the point where a reversal may occur. Intraday trading using the momentum technique can see the trader hold onto a stock for a few minutes to a day depending on how the stock moves. The trader will look to identify a break out, which is his signal to buy the stock. Hitting the bid price is not so important, and a trader may let a few breakouts pass by before he gets in through market order. If the stock should suddenly reverse its direction, the trader will sell out immediately and cut his losses. They do not wait to see if the stock will go up again; this could prove risky and see them lose money.
Technical trading is yet another type of intraday trading. Traders who use this technique look at technical analysis to determine what direction the stock or stock market will move in. They perform chart analysis on stock charts and historical data on price and volumes of a particular stock. They then look to identify similarities in the way the stock traded in the past with the present. By doing this, they look to find areas where a stock may reverse its direction. These traders use various technical indicators to help them predict how the stock price will move in a few minutes to a few hours.