TRAINING MATERIAL

INTRADAY TRADING
Training Material

What we have learnt

•What is Intraday(Day) Trading

• Introduction to Support/Resistance
•Introduction to Oscillators(RSI)

• Intraday trading Guidelines I

•Intraday trading Guidelines II

•Money Management

• Select the Best Trade.

Intraday Trading
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What is Intraday(Day) Trading

 What is it – It’s a style of trading which involves buying and selling (or selling and
buying) of the position in a single day.

 Time frame for trades – A Intraday trading position should only be taken for a
single trading day

 Analyse a Trade, using 2 tools:

Support and Resistance
Oscillator(RSI)

Intraday Trading
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Introduction to Support / Resistance

 Technical analysis is a study of the past price and volume (no. shares traded) data
to predict the future price action. Technical analysis assumes that everything gets discounted
in the price itself and the price is controlled by the Support and Resistance pressure for a particular
stock, i.e. If the Support for a stock (no. of buyers) is greater than its Resistance (no. of sellers) the
prices tend to go up and vice a versa.

 Introduction to Candlesticks –

 Green – Close above opening price (Shows strength)

 Red – Close below opening price (Shows weakness)

Intraday Trading
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Introduction to Support / Resistance

 Support – It’s an area where buyers are more than sellers and the prices are expected to go
up. So as a trader we should be looking at buying opportunities. Once a Support area is broken,
the prices are expected to come near the Support area after that, which can be used as the next
target.

 Resistance– It’s an area where sellers are more than buyers and the prices are expected to
go down. So as a trader we should be looking at selling opportunities. Once a Resistance area is
taken out on the up side, prices are expected to target the next Resistance area.

S/R are areas and not Specific levels – There is a common misconception that price tend
to reverse at a prior level where as prices will find buying or selling pressure (Turning points) in
or near an area of Support or Resistance and not an exact level.
Resistance Area Selling
Opportunity

Buying
Support Area Opportunity
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Introduction to Support / Resistance

 How to mark Support area – Mark the lowest low and the lowest close before the lowest
candle.

 How to mark Resistance areas – Mark the highest High and the highest close before
the highest candle.
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Introduction to Support / Resistance

Basing/Consolidation –
• Basing is an area of indecision. When the buyers and sellers are equally strong and
are not able to take prices in any direction (up/down), then price starts consolidating in a
sideways manner, this area is known as an area of Basing.
• A trader should ideally wait for an either side breakout for initiating a trade, i.e. if the prices
break above the area of basing a long trade should be initiated, whereas if the prices break
below the basing area a short trade should be initiated. {The trade should only be initiated is
the prices are in the respective trend, i.e. no short trade should be initiated if the trend is up
and vice a versa}
Rules of Area of Basing:
1.Prices will move in a range bound movement
for a longer period of time
2.After one point, prices will either break the
support or resistance of area of basing
3.(Rule 3 on Next page)
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Introduction to Support / Resistance

 Basing – Area of consolidation tends to act as Support / Resistance. If the basing area is
broken on the upside then the same will act as an area of Support going forward and vice a
versa.

Prices broke the Basing area on

the Upside now the same area is
acting as Support

Basing Support

Intraday Trading
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Introduction to Support / Resistance

 Support and Resistance areas become weak – If the Support/Resistance area has been
used or tested in the past it loses its important. More the number of times the area is used
weaker it becomes.

Price broke the Resistance

Resistance

2nd time
1st time give Ignore
Importance

Used

Intraday Trading
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Things to remember for a smart trader –

Role reversals – A Support area once broken becomes future Resistance zone and vice
versa.

Resistance

Earlier resistance
Now acting as Support

Intraday Trading
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Things to remember for a smart trader –

Recent = Stronger – The areas of Support and Resistance which are recent are more
stronger than the areas which occurred earlier, i.e. A Support or Resistance of yesterday is
stronger than the area of Support/Resistance one week back, hence should be given higher
importance. While drawing Support/Resistance start from the Right side of the chart and then
go back on the left side to draw the areas.

Intraday Trading
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What does a smart trader do

 Identify Support/Resistance areas – We should draw at least 3 Support and 3
Resistance areas before trading any stock. These areas are our roadmaps and will guide us to
take a successful trade. Fresh (not used) areas of Support and Resistance can act as trading
points like, entry, stop loss and targets.

 Don’t consider used Support/Resistance areas – Already tested/used Support and

Resistance areas should not be considered for deciding price targets and stop losses.

Buy on decline to Support area or buy on break of a Resistance area – We should

buy when the price corrects (comes down) to a Support area as it is an area of lot of buying
pressure. We can also buy once the Resistance area is broken on the upside as the same will start
acting like an area of Support going forward. (Role Reversals)

Sell on a rise to Resistance area or sell on break of a Support area – We should sell
when the prices rally (go up) to a prior Resistance area as it is an area of lot of selling pressure.
We can also sell once the Support area is broken as the same will start acting like an area of
Resistance going forward. (Role Reversals)

Intraday Trading
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What does a smart trader do

 Don’t overtrade during Basing – Basing/Consolidation is an area of sideways
movement. As a trader we should ideally be trading a stock which is likely to either go up/down.
However, if one wants to be benefited by a sideways movement of a stock he can think of buying
when the prices come near the lower area of basing and book his profits (and even go short)
near the higher end of the basing area. But we have to make sure that we don’t do this too many
times (Overtrading) as it would simply increase the cost of trading (brokerage, government
charges, etc.)

 Don’t go against the TREND - Trend is our Friend. Don’t go against it. Trade in the
Direction of the trend. In order to understand more about trends, request you to go through the
tutorial on Trading Tool Box– Price Trends.
(Explanation of Price Trends from Page 35)

***Please refer the videos of Tool’s –Power of Supports and

Resistances for further clarification

Intraday Trading
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Introduction to Oscillators
 What are Oscillators – It is an indicator which fluctuates between a preset ranges.
Oscillators can act as an alert to study price action a little more closely. It indicates a momentum
in the price action. If momentum is waning, it may be a signal to watch for a break of
demand/supply areas for a trade entry.

 A Technical analysis tool - Oscillators are technical indicators that measure a stock’s
momentum as it oscillates between preset extreme levels and then give a trading set up.
Oscillator is a word derived from the pendulum of a clock which oscillates.

 Suitable for non trending markets – As the oscillators fluctuate between extremes,
they can be difficult to use in trending markets. Oscillators work best when the
prices are not trending. This is very important to note because as per our study,
markets trend only for 30% of the times, whereas for 70% of the times the markets are
usually move sideways.

Intraday Trading
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Why to use Oscillators

 Overbought / Oversold – Oscillators tend to point out overbought or oversold regions for
the price. When the oscillator enters the extreme high levels (as specified by the oscillator
calculations) it is an indicator that the prices are in a condition where the stock/the security has
reached its peak levels and is now likely to turn down whereas, when the oscillator enters the
extreme low levels (as specified by the oscillator calculations) it is an indicator that the prices
are in a condition where the stock/the security has reached a point where selling is over and
prices are now likely to bounce back.

 Divergences – To diverge means to move apart. The divergence occurs when the prices go
in a particular direction where as the oscillator moves in a different direction. Divergence is
often said to be a leading indicator. Divergence is price action measured in relationship to
various indicators. However, it is very important to note that trading based only on
divergences is not advisable; it should always be used with supports and
resistance(Demand & supply) areas. We will be discussing divergences in detail a bit later
in this training material.

Intraday Trading
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Important Oscillators
 Relative Strength Index (RSI) – RSI is referred as the momentum in a particular
financial instrument. This extremely popular indicator was developed by J. Welles Wilder;
which measures the speed and change of price movements. RSI oscillates between 0 (zero) and
100. Traditionally, and according to Wilder, the prices are considered overbought when RSI is
above 70 and oversold when it’s below 30. Signals can also be generated by looking for
divergences.(You can use 60 for OB and 40 for OS as per the Indian Markets as well)

 Stochastic – This oscillator is built on an assumption that, in an uptrend the prices tend to
close near the high of the particular candle and in a downtrend it is likely to close near the low of
the candle. Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a
momentum indicator that shows the location of the close relative to the high-low range over a
set number of periods.

Intraday Trading
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Divergence
 Divergences – Divergences occur when the prices move in one direction and the oscillator
either does not move or moves in the opposite direction. Divergences can be –

 Classic Divergence – A Classic divergence can be either +ve or –ve

Bullish / +ve Divergence

Price

Bearish / -ve Divergence

RSI
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Divergence
 Positive/+ ve Classic(Swing) divergence – This happens when the price makes a lower
bottom but the oscillator makes a higher or equal bottoms indicating that the downward price
action is losing its momentum and can be a potential reversal signal. (A +ve divergence occurs
even if prices makes equal lows and the oscillator makes a higher low)
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Divergence
 Negative /- ve Classic(Swing) divergence – This happens when the price makes a higher
top but the oscillator makes a lower or equal top indicating that the upward momentum is losing its
steam and can be a potential reversal signal. (A -ve divergence occurs even if prices makes equal
tops and the oscillator makes a lower top)

Intraday Trading
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Divergence
 Candle Divergence – They are exactly similar to swing divergences however, the price
action of 2 consecutive candles is considered instead of comparing the swing lows or swing
highs.

 Positive/+ ve Candle divergence – This happens when 2 consecutive candles make a

lower bottom but the oscillator for the respective candles make a higher or equal low
indicating that the downward price action is losing its momentum and can be a potential
reversal signal. (A +ve divergence occurs even if 2 consecutive candles make equal lows
and the corresponding oscillator for 2 candles make a higher low)

 Negative/- ve Candle divergence – This happens when 2 consecutive candles make a

higher high but the oscillator for the respective candles make a lower or equal top
indicating that the upward price action is losing its momentum and can be a potential
reversal signal. (A -ve divergence occurs even if 2 consecutive candles make equal tops and
the oscillator for corresponding 2 candles make a lower top).

 Please see the image on the next page, for a better understanding.

Intraday Trading
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Positive
Candle Candle
Divergence Divergence

Negative
Candle
Divergence

***Please refer the

videos of Tool’s –
Oscillators for
further clarification

Intraday Trading
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Intraday trading Guidelines – I

 Use 15 minutes or 5 minutes charts – For trading intraday, we can select a time frame of
15 minutes or 5 minutes on the charts.

Add RSI with default parameters – Use RSI Oscillator with default parameters given in
Sharekhan’s Trade Tiger software. As discussed in the session change RSI regions from 70-30 to
60-40.

Look for Classic Divergences below / above 40/60 RSI – Refer to the video and the
training material of Oscillators.

Please find the rules in the next page

Intraday Trading
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Intraday trading Guidelines – I

Long Trade
After a +ve Classic divergence (in an oversold region), enter long
Entry only above the immediate area of resistance.

Stop Loss Below the recent low (recent price bottom).

The next area of Resistance or a prior area of Support which is

Target broken.

Short Trade
After a -ve Classic divergence (in an overbought region), enter Short
Entry only below the immediate area of support.

Stop Loss Above immediate top / high

The next area of Support or a prior area of Resistance which is

Target broken.

Intraday Trading
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Intraday trading Guidelines – II

 Use 15 minutes charts – For trading intraday, we can select a time frame of 15 minutes on
the charts.

Add RSI with default parameters – Use RSI Oscillator with default parameters given in
Sharekhan’s Trade Tiger software. As discussed in the session change RSI regions from 70-30 to
60-40.

Look for Candle Divergences below / above 40/60 RSI – Refer to the video and the
training material of Oscillators.

Please find the rules in the next page

Intraday Trading
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Intraday trading Guidelines – II

Long Trade
After a +ve candle divergence (in an oversold region), enter long
Entry only above the high of the last candle.

Stop Loss Below last candle’s low

The next area of Resistance (resistance) or a prior area of Support

Target which is broken.

Short Trade
After a –ve candle divergence (in an overbought region), enter short
Entry only below the low of the last candle.

Stop Loss Above last candle’s high

The next area of Support (support) or a prior area of Resistance

Target which is broken.

Intraday Trading
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Money Management Guidelines

 Risk Reward Ratio - Any trade without a favorable risk reward is not worth
taking. Risk is the difference between the initiation price and stop loss where as
reward is the difference between the target and the initiation price. We should not
be taking a trade if the risk is higher than reward. 1:2 is a commonly followed risk
reward ratio.

Example
If your risk is of Rs.5 the reward should of Rs.10 (Risk: Reward – 5:10 –
1:2). With a risk reward of 1:2, the trading activity will be profitable in spite of
being wrong 50% of the time.

Out of 10 trades, if 5 are stopped out and 5 achieve targets, there would be net
profit of Rs.5 with a risk reward of 1:2 {(Profit = Rs.2 * 5 profitable trades = 10 )
- (Loss = Rs.1 * 5 loss making trades = 5)}

Intraday Trading
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Money Management Guidelines

Total Trades 100 Total Trades 100

Hit Ratio (% of Profits) 50% Hit Ratio (% of Profits) 50%
Risk Reward 1:1 Risk Reward 1:2
No. of Profitable Trades 50 No. of Profitable Trades 50
Total Profit (50*1) 50 Total Profit (50*2) 100
Loss making trade 50 Loss making trade 50
Total Loss (50*-1) -50 Total Loss (50*-1) -50
Net Profit 0 Net Profit 50

Intraday Trading
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Money Management Guidelines

 Do position sizing - What is it – Position sizing is mainly about deciding the number of
shares / contracts to be entered in for a particular trade / trading day.

Calculated risks – Position sizing enables us to take calculated risks. One can do an
efficient Position sizing in following manner.

•Capital Risk – While taking any trading position, we have to limit our loss to the
maximum of 1% of your capital.

•Use of Capital – Along with a per trade maximum loss limit, one has to limit his
exposure for any single trade to a maximum of 15% of the entire capital.

•Please refer to the excel file attached with the mail for executing your trade.

Intraday Trading
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Select the best Trade

1. Follow the trend on a higher time frame(60mins / Daily).

a) If the trend is up then look at buying opportunities & if the trend is down
then look at selling opportunities.
b) For trend Identification you can use higher tops & higher bottoms (Up
Trend), Lower tops & lower bottoms (Down Trend), Super Trend, etc

c) Trend should be for last 5-10 candles on daily & 5 Days for hourly.

d) Limit you daily loss(as per your pre-decided risk appetite), (For Example
1000rs). If the limit is touched then don’t trade for the day.

Intraday Trading
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Select the best Trade

1. Follow the trend on a higher time frame(60mins / Daily).

2. Check Daily Support/Resistance – If the stock is trading at or near to Support on daily chart
then look at Positive Divergence and if it’s trading at or near to Resistance then look at
Negative Divergence.

3. Check the Slope / Degree of RSI like one bottom RSI is 29 the other bottom RSI is 33.
Higher the slope higher the probability.

4. Check Gaps - If it’s a Gap up opening then avoid Negative Divergence & If it’s a gap down
opening then avoid Positive Divergence.

5. Check the broader Market trend – If Nifty/ Sensex is up then look at those stocks which are
down for Positive Divergence & If the Index is down then look at those stocks which are up
for Negative Divergence. (Price Trends are explained from page 31)

6. Higher the time frames the Better – If there is a buy alert on 5mins & Sell alert on 15mins
then prefer 15mins trade & also check the previous trend of that Asset.

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What is Price Trend

 Friend for a trader – The trend is nothing else but the price direction. Trends tell us the
probable movement in price going forward. There is a famous saying, The Trend is your
Friend, which means we should not be going against it. In an uptrend we should look at
buying opportunities and vice a versa. Trading in the direction of the trend is the way of trading
successfully.

 Who is in control – Trend tells us the broader psychology of the price action. It tells us
who is in control of the price, buyers or sellers, so that we can be on the winning side.

 Trends tend to continue – Once we identify a particular trend (trend identification

explained in a detailed manner later) we can assume that prices will continue to remain in the
trend, till the time the trend changes. I.e. if the trend is up, prices will continue to trade up and
vice a versa. It’s commonly said that, Trend is your friend until it bends, means, one can trade
in the direction of the trend till the time it changes.

Intraday Trading
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Types of Trend
 Uptrend – It is an upward movement in the price. However, an upward movement can only
be confirmed as an uptrend when there are series of higher highs and higher lows (higher tops
and higher bottoms). A trader should be looking at buying opportunities in an uptrend.

 Downtrend - It is a downward movement in the price. But, a downward movement can

only be confirmed as a downtrend when there are series of lower highs and lower lows (lower
tops and lower bottoms). A trader should be looking at selling opportunities in a downtrend.

 Sideways Trend – It’s an area of no direction. In a sideways trend buyers and sellers are
equally strong and are not able to take the control of the price, as a result price trades in a
sideways manner. As a trader it’s advisable to wait and trade only when there is a
breakout/breakdown of the consolidation area.

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Trendlines
 Trend identification tool – Trendline is a trend identification tool. It enables us to
identify the price direction. Trend lines are important as they are also capable of spotting
comparatively early trend changing signals.

 Measuring the strength of a trend – Trendlines help us in measuring the strength of a

particular trend. Steeper the Trendline faster the price movement and vice a versa. If the trend
line is very steep it shows a sudden price movement, where as if the trend line is not very steep,
it points out towards a sustained movement, either up/down. Trendlines can also be called
as slopping Support & Resistance areas.

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How to draw a Trendlines

 Upward slopping – This trendline identifies an uptrend in the price action. In order to
draw an upward trendline, we have to join the 1st two higher bottoms (lows) and then extend
the same. An upward trendline is only confirmed when the prices come near the trendline and
bounce back on the 3rd time. That is a time to initiate a long trade, advisably when the prices
are also trading near Support areas or they break the area of Resistance which points out to
bullishness in the price. When the prices close below an upward trendline it is
considered to be a trend changing signal, prices then can enter in to a downtrend
or a sideways trend.

 Downward slopping – This trendline identifies a downtrend in the price action. In order
to draw a downward trendline, we have to join the 1st two lower tops (highs) and then extend
the same. A downward trendline is only confirmed when the prices rally near the trendline and
start coming down on the 3rd time. That is a time to initiate a sell (short) trade, advisably
when the prices are also trading near Resistance areas or they break the area of Support which
points out to bearishness. When the prices close above a downward trendline it is
considered to be a trend changing signal, prices then can enter in to an uptrend
or a sideways.

Intraday Trading
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How to draw a Trendlines

 Look at a reasonable amount of data – Before identifying a particular trend it is very
important to look at a reasonable amount of data for the respective trading time period. Which
means, by analyzing an intraday chart, one cannot identify the medium term or a long term
trend. While trading for intraday, advisably we should be looking at a data of past 2-3 days.
While taking a swing trade (for 2 to 10 days), we should be looking at a data of past 2-3 weeks.
While taking a positional trade (for few weeks to few months), we should be looking at a data of
past 2-3 months at least.

 Volumes – Force behind the trend – Volumes are the yellow bars we can see at the bottom
of any price chart. It refers to the no. shares traded for the respective time period. It is also
referred as the momentum. It is said to be the force behind the price as it indicates the strength
of a particular price action. Any price move, either up/down, should happen with increasing
volumes which indicates that the movement is happening with an increasing participation. An
upward or a downward price movement with low or decreasing volumes, suggest that the
movement may not be sustainable. However, it is very important to note that volumes should
be used as a supporting factor while taking a trade. The decision to take a trade should depend
on the important factors like Support and Resistance areas, price trends, Trendlines, etc.

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Smart Trader’s Checklist

1. Identify Broad market trend and its strength as 60% of the stocks follow the
trend in the broader markets. It is advisable to take long trades when the
broader market is in an uptrend and vice a versa.

2. Check for stocks following the broader market trend – Selection of stocks for
trading should depend upon its liquidity and volatility. The stocks should very
liquid (volumes more than 2-5 lakh shares per day) and should be reasonably
volatile (at least 5% average daily movement).

3. Trade in the direction of the trend.

4. Take out 3 Supports and 3 Resistances level before taking any trade.

5. Don’t consider used Supports and Resistances.

6. Don’t enter a position before identifying the Stop Loss.

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Plan of Action
Basing / Consolidation / Sideways trend – It’s advisable not to trade in
the basing area and wait for a breakout on either side. If one wants to
trade the range – DON’T OVERTRADE.

Uptrend – BUY when price is near a demand area or surpasses the

supply area.

Downtrend – SELL when price is near a supply area or breaks the

demand area.

***Please refer the videos of Tool’s –Price Trends for further

clarification

Intraday Trading
Thank You
&
All the Best!
Intraday Trading
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