Intraday trading, also known as Day Trading, refers to the buying and selling of financial instruments within the same trading day. Unlike traditional investing, where positions may be held for weeks, months, or even years, intraday traders aim to capitalize on short-term price movements to generate profits.
Intraday trading offers the potential for substantial profits but requires a solid understanding of market mechanics, disciplined execution, and effective risk management strategies.
What is Intraday Trading and how does it work?
What is Intraday Trading?
Intraday trading means trading within the same day. In this type of trading, all the shares you buy need to be sold on the same day, and you cannot hold onto them for the next day. If you forget to sell your shares on the day of purchase, your broker automatically squares off all your positions before the market closes on that day. This implies that the broker automatically sells all the shares you bought on that day.
Since you forgot to sell your shares, you are required to pay a charge to your broker, known as a square-off charge, which is approximately Rs. 50. Therefore, if you engage in intraday trading, it’s advisable to sell the stocks on the same day you buy them, whether you make a profit or incur a loss, to avoid additional charges.
Read more: What is Trading, How to learn Trading for Beginners?
How does Intraday Trading work?
Intraday trading is considered risky for newcomers because it requires trading shares within the same day, necessitating the learning of various intraday trading strategies to earn profits from day trading.
It’s worth mentioning that about 80% of those who start intraday trading incur losses. This is often because people perceive intraday trading as a quick way to make money, whereas in reality, it requires continuous practice and following various trading strategies.
When engaging in intraday trading in the stock market, it is essential to track the movement, or price action, of the shares. During intraday trading, you need to observe:
The direction in which the share price is moving,
The support and resistance levels of the share,
The trend on a larger timeframe chart,
The next candlestick formation on the chart,
The potential breakout price,
By paying attention to these factors as an intraday trader, your chances of earning profits significantly increase.
How to get started on intraday trading?
For intraday trading, the first step is to open a Demat account with a broker. If we opt to open our trading and Demat accounts online or with discount brokers, we can benefit from lower brokerage fees compared to full-service brokers.
Ideally, an investor should also have a trading IT system, including charting platforms that provide real-time data feeds for an accurate depiction of market conditions.
Finally, to execute intraday trades effectively, it’s crucial to understand how to use the broker’s trading terminal to place our intraday trading orders.
How to do intraday trading?
It is crucial to recognize the optimal stocks for intraday trading, given the elevated level of risks associated with such investments.
Choose Highly Liquid Stocks: The liquidity of stocks is a fundamental characteristic in intraday trading, as without this attribute, engaging in such trades would be impractical. Shares of small and mid-cap companies in the equity market exhibit easy traceability and are subject to significant price fluctuations due to market dynamics.
To make informed decisions in investing, it is essential to attentively monitor cyclical variations by analyzing the 52-week high and low values. This analysis provides a precise indication of whether an investor should consider taking long or short positions.
Higher Trade Volume: Intraday traders can monitor the trade volume index of a specific security to detect changes in prices. A higher trade volume index indicates either an increased demand or supply, depending on the performance of the underlying company. In such scenarios, investors can achieve capital appreciation by engaging in both buying and selling transactions.
Volatility: Best intraday stocks typically exhibit moderate to high volatility in their price movements. It is advisable to steer clear of market value fluctuations exceeding 3% during intraday trading, as the risk of substantial losses is significant in the event of an unfavorable downturn in the stock market within the economy.
Time Management is Key: Intraday traders closely monitor the market throughout the day, leveraging specific time frames for strategic decision-making. Common intervals include 15-minute, 30-minute, and hourly charts, providing insights into short-term trends.
Setting Exit and Entry levels: Mitigating risks is paramount in intraday trading. Establishing clear stop-loss and take-profit levels helps traders maintain discipline and safeguard their capital in the face of market volatility.
How to select stocks in Intraday Trading?
In trading, it is essential to create a watchlist of selected stocks. Choose stocks that exhibit significant liquidity. High-liquidity stocks have a good number of buyers and sellers, making it easier to buy and sell shares without encountering problems.
When selecting stocks for intraday trading, you can consider trading in the Nifty Next 50 stocks. Conduct a thorough technical analysis of the stocks you intend to trade in for intraday.
Afterward, analyze the trend of the stock’s 10-minute or 15-minute timeframe chart and make trading decisions based on the observed direction. Once you identify stocks with what you believe are good volume and technical indicators signaling an upward movement in share prices, you can consider buying them.
Rules of Intraday Trading
Intraday trading, with its potential for quick gains, has captivated the attention of many aspiring traders. However, to navigate the volatile waters of intraday markets successfully, one must adhere to a set of rules that form the foundation of a robust trading strategy.
Risk Management: The cardinal rule of intraday trading is effective risk management. Set a daily loss limit and adhere to it rigorously. This ensures that even in the face of unexpected market movements, your capital remains safeguarded.
Technical Analysis: Intraday traders often rely on technical analysis to forecast price movements. Utilizing charts, indicators, and patterns, they make informed decisions based on historical data and market trends.
Keep Emotions: Emotional discipline is crucial. Fear and greed can cloud judgment, leading to impulsive decisions. Stick to your strategy, and if necessary, take a step back to reassess before making any significant moves.
Diversify Your Strategies: Avoid putting all your eggs in one basket. Diversify your intraday trading strategies to adapt to different market conditions. Whether you’re a fan of scalping, momentum trading, or a contrarian approach, having multiple strategies enhances your adaptability.
Set Clear Entry and Exit Points: Define your entry and exit points before entering a trade. This not only streamlines decision-making but also prevents emotional responses to market fluctuations.
Continuous Learning: Intraday trading is a dynamic field, and market conditions evolve. Stay abreast of industry news, and market trends, and continually refine your skills. A commitment to ongoing learning is a hallmark of successful intraday traders.
How Does Intraday Trading Difference Between Regular Trading?
One of the key distinctions between intraday trading and regular trading lies in the handling of stock delivery. In intraday trading, traders must close their positions on the same day before the market closes, regardless of whether they make a profit or incur a loss.
In contrast, regular trading allows traders to hold onto their investments for an extended period, and the settlement of the trade occurs in a few days, depending on the category of the stock.
Moreover, intraday trading does not involve a change in ownership of the shares. On the other hand, in the case of regular trading with delivery, ownership of shares is transferred, and the rights shift from the seller to the buyer. The settled shares are then held in the Demat account.
Novice traders often face challenges in selecting the appropriate tools for executing trades, leading to potential financial losses.
Advantages
Quick Profit Opportunities: One of the most enticing aspects of intraday trading is the potential for rapid gains. Traders can capitalize on short-term price movements and pocket profits within a single trading day.
Liquidity: Intraday traders often deal with highly liquid stocks, enabling seamless entry and exit from positions. This liquidity reduces the risk of price manipulation and ensures that trades can be executed swiftly.
Reduced Overnight Risk: Unlike traditional trading, where positions are held overnight, intraday traders close all positions before the market closes. This eliminates the exposure to overnight market movements and related risks.
Learning Opportunities: The fast-paced nature of intraday trading provides ample opportunities for learning. Traders can refine their skills quickly and adapt to market changes, gaining valuable experience in a shorter time frame.
Disadvantages
High Risk and Volatility: Intraday trading operates on the principle of leveraging small price movements, which can amplify both gains and losses. The high volatility of intraday markets poses a significant risk, and traders must be prepared for sudden and substantial price fluctuations.
Emotional Pressure: The need for quick decision-making in intraday trading can lead to emotional stress. Traders may succumb to fear or greed, making impulsive decisions that can negatively impact their overall performance.
Time-Consuming: Successful intraday trading demands a significant time commitment. Traders need to dedicate the entire trading day to monitoring the markets, analyzing data, and executing trades. This can be challenging for those with other commitments.
Transaction Costs: Frequent buying and selling incur transaction costs, which can eat into profits. Traders must carefully manage these costs to ensure that they do not outweigh the gains from successful trades.
Market Noise: Intraday markets can be noisy, with numerous short-term fluctuations that may not necessarily align with broader market trends. Distinguishing between meaningful trends and short-term noise requires a keen understanding of technical analysis.
Conclusion
Intraday trading is a dynamic and challenging endeavor that demands a combination of skill, strategy, and resilience. By understanding the fundamentals, embracing effective tools, and deploying strategic approaches, traders can navigate the complexities of intraday trading and potentially reap substantial rewards. However, it’s vital to approach this financial adventure with a realistic mindset, acknowledging both the allure and the risks that come with the territory.
FAQs What is Intraday Trading? and how does it work?
Which is the best strategy for Intraday trading?
There are several strategies for intraday trading; a few of the best ones are the momentum trading strategy, Breakout trading strategy, Moving average crossover strategy, Gap and Go trading strategy, and the “risky” Reversal trading strategy.
Can I convert delivery to intraday?
To convert delivery to intraday, you can free up your margin and square off the position on the same day if the price target is achieved. You can then convert the delivery position to intraday by 3:15 pm.
What are the requirements of trading?
The requirements for intraday trading typically include a trading account with a registered broker, sufficient capital or margin to meet initial and maintenance requirements, access to real-time market data, and a trading platform.
Can I trade with 100 rupees?
Trading with only 100 rupees is challenging as transaction costs and market fluctuations can significantly impact such a small amount. It’s advisable to accumulate a larger capital base to engage in meaningful and sustainable trading activities, considering the fees associated with buying and selling securities.
Which trading is most profitable?
The profitability of trading depends on various factors, and there is no one-size-fits-all answer. Different trading styles, such as day trading, swing trading, and long-term investing, have varying levels of risk and return. Success often relies on individual preferences, risk tolerance, and market conditions. It’s crucial to thoroughly research and understand any chosen trading strategy before committing capital.
How to earn 1k per day from trading?
Earning 1k per day from trading is challenging and comes with significant risks. It requires in-depth market knowledge, a well-defined strategy, and disciplined risk management. Consider focusing on a specific market, utilizing technical and fundamental analysis, and staying informed about economic indicators. Continuous learning, patience, and the ability to adapt are essential. It’s crucial to start small, gain experience, and gradually increase trading size while minimizing potential losses.
