What is intraday trading?

Intraday trading means entering into a trade and exiting the trade the same day, before market closes. Intraday trading requires higher accuracy and conviction in the analysis. To build this conviction, the trader must analyze certain parameters on a continuous basis. In this newsletter, I explain 5 such parameters that will help in building an observation for intraday trading. Although the focus here is on the indices analysis on candlestick chart, this can be applied to stocks and other charting methods as well.

The 5 Step process required for intraday trading

1. Identify important levels

2. OI analysis

3. Check dynamic OI

4. Breadth analysis

5. Identify important Support and Resistance zones on chart

1. Identify important levels

A day before the trading day, establish the trend of the index on higher timeframe. Daily TF is used on candlestick chart for trend establishment. The trader can add EMA channel as a trend filter. Other important levels are High and Low of the previous trading session. The trader can also add Central Pivot Range levels as important reference points for intraday trading. Because intraday trading requires quick decision and thinking, marking these important levels before hand is important because they act as important reference points.

2. OI analysis

OI stands for open interest. OI means the number of option contracts, call and put, that are open in the market and not yet settled. Options are an instrument usually used by the smart money or the institutional investors. The positions taken by these players affect the trend of the markets. OI analysis is important because the trader is essentially analyzing the positions held by the institutional investors. On the OI charts, look for PCR value. If the PCR is more than 1.1, it shows a bullish sentiment from the end of Institutional investors. If the PCR is less than 0.9, it shows a bearish sentiment. OI data can also be used to gauge which strike prices could act as short term support and resistance levels for the current expiry/contract.

3. Check Dynamic OI

OI in the form of PCR can be analysed on EOD basis. But what if the trading sessions are active? How do you check the data then? This is when the trader can use Dynamic OI. The tool used to check this dynamic OI is Total Open Interest (TOI). TOI is the number of Put contracts of 6 strikes from ATM open at the moment minus the number of Call contracts of 6 strikes from ATM the strike prices at that moment. Calculation of TOI is not that simple, I have recorded a dedicated video explaining TOI. Link to TOI video.

TOI chart on 5 min TF with 10 and 30 EMA is a great rule of thumb. The TOI’s and the index’s trend should be in sync. i.e. if TOI is bullish, the index’s trend should also be bullish.

4. Breadth Analysis

Breadth analysis is one of the most under-utilized study of Technical Analysis. Breadth as an indicator can be used to gauge the market sentiment as a whole. It can be combined with various indicators to extract information about various parameters like trend, momentum and volatility. Breadth is used as a caution or sentiment indicator. It makes the trader cautious as to when the sentiment is too optimistic and when it is too pessimistic. A day before the actual trading, the Nifty 50 or F&O basket breadth analysis should be done to see if the breadth is in oversold zone or in the overbought zone.

5. Identify important Support and Resistance zones on chart

Identification of support and resistance level can be done in two ways: Dynamic and Static. Dynamic S&R levels can be marked using tools such as Pivot levels. Pivot levels plot Support and Resistance levels based on the most recent candle of Daily TF. Static S&R levels are marked based on observations made on Daily TF. This kind of S&R can be plotted by connecting Market Structures at same levels.

If you have read this far and have found the newsletter interesting, you can check out my YouTube channel for many such knowledge nuggets and weekly market analysis.