Intraday Trading Strategy using EOD Charts

As we discussed in our last unit, Scalping is a trading strategy that can be performed for a very short period of time, like one min to five mins, but now we are going to learn another strategy that can be performed over a longer time frame. 

What is this strategy?

We can initiate quality intraday trading triggers using the End of the Day charts. We filter out stocks by studying the price action of the stocks based on the daily charts, and take intraday positions on them the next day. 

This strategy can be used for both Intraday and Swing Trading.

Which Indicators to use?

89 period Exponential Moving Average (EMA)

For those who are wondering, why 89, simple as it is a Fibonacci number and just seems to work a little better with the price charts. However a 100 or 50 period EMA can also be used. 

The EMA primarily helps in identifying the trend of the stock. If the stock is greater than its EMA, the trend order of the stock is up and vice versa.  Intraday positions should be created in line with the trend order. If the stock’s trend is bullish then try buying the stock intraday, and if the trend order is bearish, look out for selling opportunities. 

Short term Relative Strength Index (RSI):

A 2-period RSI can be used to execute trades intraday.  The main purpose of RSI is to identify the momentum. 

How to incorporate the above 2 indicators into this Strategy?

We can go long, i.e., buy a stock when:

A.The previous day's closing price of a stock is above the 89-day EMA, (Trend order is up) on the daily chart.

B.The RSI is less than 10 and is turning upwards on the daily charts.

C.Enter on a breakout, when price crosses the previous swing high on 15 mins charts. 

Stock Selection based on the Daily time frame. The stock Tata Motors is filtered out on 15th Dec 2021, based on RSI and EMA. 

The trade is executed based on the 15 minutes charts on the break of the previous swing high. The blue line above depicts when the stock came under the scanner based on the daily charts and the execution is done as volume and price moves up as the swing high is broken. 

The rules remain the same for a sell side trade. 

A.The previous day's closing price of a stock is below the 89-day EMA, (Trend order is down) on the daily chart.

B.The RSI is greater than 90 and is turning downwards on the daily charts.

C.Enter on a breakout, when price crosses the previous swing low on 15 mins charts. 

Stock Selection based on the Daily time frame. The stock Maruti is filtered out based on RSI and EMA. 

The trade is executed based on the 15 minutes charts on the break of the previous swing low. The blue line above depicts when the stock came under the scanner based on the daily charts and the execution is done as volume and price moves up as swing high is broken. 

The Stoploss can be kept at 1.5 % of the entry with a target of 2.5 % or 3 % move.