Intraday trading, or day trading, has grown immensely popular among regular folks seeking to benefit from short-term stock price movements. With helpful intraday trading tips, innovative intraday trading strategies, and the right tools, it opens up opportunities to make money within the trading day – before intraday closing time. This guide breaks down key aspects of how to do intraday trading in simple terms.
Overview of Intraday Trading
Intraday trading involves buying and selling a financial instrument, such as stocks or derivatives, within the same trading day. The goal is to profit from small price movements. Instead of holding positions overnight, intraday traders open and close trades within hours or minutes. For example, you may buy shares of a company in the morning when the price is lower, then sell them later in the day when the price rises from positive news or increased market volatility. The difference between your purchase and sale prices would be your profit.
A crucial part of this approach is knowing how to choose stocks for intraday trading effectively. Savvy traders look for stocks with high liquidity, strong price movement potential, and volatility to capitalise on price swings. By selecting the right stocks and timing trades well, intraday traders can rack up gains of 4-5% on their capital daily. Over time, these small but consistent profits compound, creating significant wealth.
Why Consider Intraday Trading?
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
Here are some of the main benefits of intraday trading:
- Profit from short-term opportunities: Intraday trading allows you to seize opportunities from small price movements within a single trading day. These short-term fluctuations may not impact long-term investors.
- High liquidity: Popular stocks and derivatives usually have high liquidity, making it easy to quickly enter and exit positions. This is essential for intraday traders.
- Lower risks: Trades take time to be held, reducing exposure to potential unfavourable news or events outside market hours. This stops losses and further controls risks.
- Requires less capital: Intraday trading allows you to start with less capital compared to long-term investing since you only need funds to cover your positions within the day.
- Technical trading: Intraday charts and data best suit short-term technical analysis of price levels, indicators, trends, etc.
How To Do Intraday Trading?
Successful intraday trading requires research, knowledge of trading techniques, disciplined risk management, and the right trading tools/platform. Here is the basic process:
Step 1: Pick a Trading Instrument
Equities (company stocks) and stock derivatives like futures and options are among India’s most commonly traded instruments for intraday trading.
Focus on highly liquid instruments that have significant daily volume and price movement. Actively traded large-cap stocks and key index (e.g. Nifty 50) derivatives are good options.
Step 2: Analyse the Instrument
Conduct technical and fundamental analysis on your chosen instrument using intraday charts, indicators, news events, earnings data, etc. Look for trading opportunities like upcoming support/resistance levels, overbought/oversold signals, breakouts, and favourable news events that could trigger price movements.
When analyzing stocks, it is important to learn how to choose stocks for trading by focusing on aspects like volume, volatility, liquidity, and technical indicators.
Step 3: Place Your Trades
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
Once you have identified a trading opportunity, place your intraday trades accordingly. For instance:
- Buy shares at support, expecting prices to bounce back up.
- Sell shares at resistance if indicators show overbought conditions.
- Buy index futures ahead of a positive news event release.
- Use stop losses to limit maximum risk. Also, track additional margins needed for trading derivatives.
Step 4: Monitor and Close Out
Carefully monitor your open intraday trades. Book profits once your price targets are met or cut losses with stop losses if the trades go wrong.
Squaring off all positions before the market closes ensures you do not carry overnight risks. Disciplined trade management is vital for intraday trading success.
Managing Risks in Intraday Trading
While intraday trading presents opportunities, it also involves significant risks that require prudent risk management:
- Use stop loss orders for all trades to automatically exit positions and limit losses if prices move against you.
- Reduce position sizes so no single trade risks more than 1-2% of your trading capital. This prevents wipe-outs.
- Maintain adequate free margins in your account to support your open derivative positions and associated mark-to-market losses.
- Stick to your predetermined trading rules and plans. Avoid overtrading or revenge trading after losses.
Choosing an Intraday Trading Platform
A suitable trading platform is vital for seamless and efficient intraday trading. The platform should offer real-time streaming quotes, charts, news, and analytics to help you identify trading opportunities. It should also enable quick order placement at the click of a button and support different order types like market orders, limit orders, and stop losses for flexible trades.
Comprehensive charting tools are also essential for technical analysis. You want features like alerts and notifications that can track price levels, volumes, or news events so you can act swiftly. When assessing platforms, evaluate their stability, ease of use, total costs, customer service standards, and mobility support for smartphone trading when away from your computer. Choosing the optimal platform that syncs with your intraday trading strategies and comfort is key before placing those first trades on how to do intraday trading.
Conclusion
Intraday trading allows regular investors to profit from short-term stock price movements without needing huge capital or facing overnight risks. Retail traders can succeed by picking liquid stocks, analysing short-term charts/trends, seizing fleeting price swing opportunities, and managing risks prudently.
The key is to adopt disciplined intraday trading strategies, stay agile around breaking news and data, and leverage technology for efficient execution and insights. Remember to start small, learn as you go, and keep perfecting your personal recipes for trading success.
FAQs
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
What are the benefits of intraday trading for a retail trader?
The main benefits of intraday trading for a retail trader are the ability to profit from short-term opportunities arising from minor price movements within a day, the high liquidity allowing easy trade execution, lower overnight risks as positions are squared off before closing, and requiring less capital than long-term investing.
What are some key things I must analyse before placing an intraday trade?
Before placing an intraday trade, it is important to analyse factors like upcoming support/resistance levels, overbought/oversold signals on technical indicators, trading volumes, breakout patterns, news events that could impact prices, and overall sector/market momentum. This analysis will help identify trading opportunities.
What risk management practices are vital in intraday trading?
Prudent risk management practices vital for managing risks in intraday trading include using stop loss orders for all trades to automatically exit positions and limit losses, reducing position sizes so no single trade risks more than 1-2% of your capital, and maintaining adequate free margins to support your derivative trades.
What features should an ideal intraday trading platform have?
An ideal intraday trading platform should offer real-time streaming quotes, comprehensive charting tools for technical analysis, news/data feeds, trade alerts/notifications tracking prices or events, quick and flexible order execution options, and mobility features allowing you to trade on-the-go from your smartphone.
References
https://www.angelone.in/knowledge-center/intraday-trading
https://www.bajajbroking.in/knowledge-center/intraday-trading-guide-for-beginners
