The Pros and Cons of Intraday Trading

  • Intraday Trading can be profitable if you follow the trend
  • You need volatility to make pips on intraday timeframes
  • Watch for intraday news
  • Beware Central Bank rate decision days

What is The Advantage and Disadvantage of Intraday Trading

We traders used to say: “The trend is your friend”. Trends are created by powerful institutions and different economic factors. That is why I always say: “Follow the banks!”. Think of the bank as a shark and yourself as a fish.

How Does Intraday Trading Work

The smaller fish always follows the shark and eats the remnants of the shark’s food. Translated to trading terms, that is precisely what you should do – follow the big companies that actually shape trends and avoid being caught on the wrong side of the market.

The Pros of Intraday Trading – Why Is It Important

Money For Jam

Usually, the most challenging aspect of trend trading is figuring out when a trend is about to begin. Typically, trends in a new direction will start with a reversal pattern and MACD divergence. When a new trend takes shape, the market is likely to begin making thrusts and pullbacks in the trend direction, and that is when we use our systems and methods to pinpoint a good entry and follow the sharks.

If you are patient enough, you will hold on to trade during a trend and make the most of it. The best trend moves happen when the fundamental picture agrees entirely with the technical view, as in this example.

Source: Milton Markets XAU/USD Daily chart

By simply aligning fundamental reasoning with technical knowledge, we can get no brainer trades and, as we usually say it, “Money for jam!”.

Volatility Exploit

When volatility is good, it’s there where sound intraday systems shine. We can make pips much easier. Volatility helps us make more pips and even remedy our bad trades by giving us the chance to trade more.

Reaction not Prediction

Swing traders base their trades on predictions, usually by placing pending orders. Fortunately, intraday trading is not based on predictions but on reactions. By carefully watching the price, intraday traders react by entering with market orders. Market orders follow the price much more precise than pending orders as they allow entering when a signal is confirmed.

Different Money Management

One of the intraday trading pros is money management. Intraday trading allows for inverted pyramiding, aka controlled martingale. This simple yet effective method allows day traders to stay profitable if they have accurate trading systems.

Possibility of News Trading

Traders often have an adverse reaction to trading the news due to the assumption that it is risky and unpredictable at best. We believe that most of this sentiment comes from traders who use news trading strategies that do not take advantage of daily and interim support and resistance or chase breakouts caused by the news release, which leaves them paying the total price for a lousy trade.

Fundamental events can be practical trading tools for those who understand the bigger picture of support and resistance just before the news is released.

Most traders focus on capturing a few pips during the volatility that follows a significant release, but that is rarely the best opportunity offered by trading the news.

Fundamental events often jab into support and resistance zones during the short period of volatility following a release. This provides the observant trader with a low-risk way to enter the market based on support and resistance.

With news being released around the globe almost daily, it is hard to imagine someone not being able to find at least a couple of events that fit into their schedule.

What About the Cons?

The Forex market is much more active and fast-paced than the conventional stock market, and traders definitely need to be cautious. In a highly dynamic market such as Forex, the supply and demand forces prevailing in the market will always affect the currency rates.

But the law of supply and demand also states that prices need to be in equilibrium. In our everyday life, we observe balance as a natural process. E.G. If a company sells something too expensive, nobody could afford it.

On the other hand, if a company sees that it can sell at a higher price because it is selling strongly, it could raise the price. The same is in the Forex market. Due to highly dynamic movement, well-established trends can often lead to the exchange rates too high or too low, and consequently, the demand and supply curves will stray far from equilibrium.

That is when it gets tricky, and it creates something we know as the biggest con of intraday trading. But fortunately, it doesn’t happen so often—the Central bank intervention.

Central bank Interventions

As a result of the disequilibrium mentioned above, the central bank is compelled to intervene in the floating market to control the exchange rate. This form of intervention primarily occurs due to pressure from external sources aiming to stabilize currency rate fluctuations.

Investors will hold back their investments if the currency rate is way out of equilibrium. As the central bank plays a vital role in stabilizing a country’s economy, it is forced to step in to curb the fluctuating prices, known as “dirtying the float”.

Once there is intervention, we will see a solid one-way directional movement in the exchange rate, meaning either the end of a trend we know it or simply a considerable retracement in the opposite direction. That is the time when we need to be ready for a possible trend change and analysis reassessment.

Earnings Report on Indices

Aside from F.X. trading, many traders specialize in other tradeable markets ranging from Commodities, Gold, Company Shares, and Stock Markets. One of the key markets that we have been monitoring is Stock Markets or known as Indices. Indices are an Index value of the share price of the various Listed Companies in that particular Share Index.

It is an Index value because, at some point in time in the past, known as the “base date”, when the Index was usually created, the value of the Index would typically start with 100 or 1000 points. This would represent each Listed Companies’ share prices in the Index on the “base date”.

To explain how Indices change their value in points in the basic sense, as Companies grow in size (by market capitalization), they may force their way into the Index and force out the smaller companies (by market capitalization). Over time, with inflation, Listed Companies tend to grow their Revenues and Earnings, which causes the share price to go up, and this is where the Indices increase in points.

Conversely, during an economic downturn, we may get deflation, and Company Earnings may drop, and the Share price of the Listed Companies can go down, causing the Indices to fall in points. This can make even the best trading system perform poorly in those market conditions.

What Did We Learn From Pros and Cons of Intraday Trading

Forex intraday trading generally offers lots of trading opportunities on most of the markets. Simultaneously, explosive moves can usually be seen on the JPY pairs and some exotic indices such as Nikkei (JP225) and Hang Seng (HSI50) during the Asian session.

In our opinion, the pros overcome the cons by far. If you are in a good mood for intraday trading and you can reserve a small part of your pre-planned budget, go for it. Focus on good intraday opportunities by closely monitoring the market. Align fundamental reasoning with technical knowledge, and you can get no brainer trades and, as we usually say it, “Money for jam!”.

Detail Info on Pros and Cons of Intraday Trading

What is the Best Session for Intraday Trading?

Traders are generally used for trading during the London market, which has been the cornerstone of Forex and financial trading globally. The New York market is also robust when it comes to trading volume, making the London/New York overlap the best session for trading in terms of volatility, liquidity and market dynamics.

The Asian session (headed by Sydney and Tokyo markets from 22:00 GMT to 8:00 GMT) remains on the third stage. Those who can’t trade on London and New York markets due to the difficulty of staying awake all night might participate during this session. Due to the optimum liquidity during London market time, traders might easily spot the trend.

Does Intraday Trading Require Monitoring the Market?

The obvious problem here is timing. Intraday trading requires monitoring the markets and glueing your eyes to the screen during the most liquid sessions. Fortunately, if you have spare time during the day or even a part-time job, you still can enjoy intraday trading despite the time requirements.