How Intraday Trading Works?

Also known as day trading, Intraday Trading is the first choice trading segment for beginners. To make money from day trading, one should have an idea of how intraday trading works.

Among all, intraday trading is the shortest trading option and has a span of just a single day. 

Thus one can trade i.e. buy or sell stock within the same trading session. 

The age of digitization has made trading easy, and many turn to intraday trading for making an additional income.

However, day trading isn’t all as easy as it seems and requires the trader to have at least a basic knowledge of the intraday trading rules, risks, and mechanisms that form a part of the intraday trading process.

Before we get to the point, we learn about all forms of the process; we should know what Intraday Trading actually means. In fact, at Stock Pathshala, we have multiple stock market courses around it.

Intraday Trading Meaning

As the name suggests, Intraday trading simply means “trading within a day.” An intraday trade means that the purchasing and selling of stock are carried out within the span of the trading hours of the stock market. 

Financial securities that can be intraday traded include – stocks, commodities, derivatives, ETFs, mutual funds, etc. The basic idea of intraday trading is to purchase a stock or set of stocks and later sell it at a higher price during the day.  

Thus, if you are a derivatives trader you should opt for derivatives courses that will help you in making the right decision.

In day trading, the trader studies and evaluates stock movements, make predictions on stock prices and looks to make profits due to fluctuations in price movements of stocks. The trader will purchase a stock earlier in the day and sell the same stock before the market closes.

Furthermore, few traders look for price action and in such cases, we suggest they should ideally learn a specific price action trading course or more so that they are aware of the basics beforehand.

Intraday trading requires a trader to have quick decision-making capability. If the trader doesn’t act quickly, intraday trading’s fast-moving nature can see the trader miss out on the chance to make profits or, worse, register losses.

Requirements For Intraday Trading

To win in intraday trading, a trader has to have the right mix of knowledge, tools, and strategy. In addition, the trader needs to develop some traits as well. Intraday traders need to have immense risk-taking and quick decision-making ability.

Also, once you get into day trading, you will be required to keep a close watch on the stocks trending and rising in the stock market. 

The idea of intraday trading seems simple. But in reality, it demands time as successful intraday trading involves adoption and following the right strategies and plans. 

Following are the requirements for gaining success in intraday trading:

1. Stock Market Knowledge

Getting into intraday trading, which is considered to be the most volatile trading segment of the stock market, without having at least a basic knowledge of the operations of the stock market, is a sure shot plan to failure.

Learn about the stock market, the various types of stockbrokers, and whether their brokerage services suit your investment plans.

There is a long list of securities to choose from, and one shouldn’t get into trading without learning about your options. 

Intraday trading requires traders to study graphs, charts, and stock price trends while taking the help of various intraday trading indicators and oscillators. Some of the most famous indicators for intraday traders are, ADX, VWAP, and much more. Further, a trader will need to conduct a fundamental analysis of stocks to make more accurate trading decisions. 

Thus, gaining an understanding of the stock market, intraday trading stocks, elements such as graphs, charts, patterns, etc. is important for beginning on the day trading journey.

2. Stockbroker for Intraday Trading

Among the first things, anyone who wants to get into intraday trading will require is a trading and a demat account with a SEBI registered stockbroker. There are mainly two types of stockbrokers, that is – a full-service stockbroker and a discount stockbroker.

Choosing the right stockbroker is crucial for an intraday trader in order to get heavy returns on their trades.

An intraday trader will be required to make multiple purchases every day, so ideally, they should opt for a stockbroker who charges minimal brokerage fees and offers quick order fulfilment.

In addition to low brokerage charges, day traders should look for a stockbroker that offers services such as customer support, reliable research tips, recommendations, and technical assistance. 

3. Select Stocks for Intraday

The next step after a trader has settled for a stockbroker is to select a stock or set of stocks to carry out intraday trading. While selecting stocks, a trader should look at the available stocks across various sectors and also keep a look at their liquidity.

Since intraday trading is highly inconsistent, traders should look to invest in multiple stocks across different sectors to have a cushion against any unpredicted stock market fall.

Also, the best bet for intraday traders is to select liquid stocks. A stock with higher liquidity is greater ease in trading. In general, when it comes to liquidity high-cap stocks are relatively more liquid than small and mid-cap stocks. 

Other than this, consider the capital you are going to invest for intraday trading. For example, if want to start intraday trading with 1000 rupees, then make sure you look for the stocks trading below 1000 that can help you make enough profit.

4. Intraday Trading Strategy

Choosing the right stock is only half the job done. Next comes the execution part. The success of a trade is greatly dependent on the type of intraday strategy employed by the trader. 

Even after all the knowledge, first-time intraday traders will face many difficulties in executing orders or making the right move at the right time because a certain strategy might work on a particular day under specific circumstances, but will completely fail on the other instance. 

Thus, traders should learn to employ multiple intraday strategies to make profits in different stock market conditions. A trader should, therefore, keep learning as many strategies, continually enhancing their trading skills.

5. Tools For Intraday Trading

Intraday trading is definitely not a cakewalk and requires a lot of hard work. But an intraday trader’s life is made easy by various tools at their disposal. Traders can employ these tools for carrying out trade more efficiently.

Tools such as an intraday trading platform offer a great amount of assistance to the day trader. A trader can get access to in-depth and real-time data on the stock market, such as price trends, trade volume, etc. 

These ensure faster transactions for traders and ease of accessibility, which is greatly valued by day traders.

Then there are tools such as intraday trading charts that help traders gain an understanding of the price movements of stocks. These charts depict a stock’s highs, and lows over a certain period of time.

In addition, an intraday trader also is helped by the various types of technical indicators such as moving averages, Bollinger bands, the stochastic oscillator, Relative Strength Index.  

For better results and analysis one can use a combination of indicators, like the best indicator with RSI that can give you a better and confirmed trading decision.

All these tools help intraday traders in making sound trading decisions. 

Intraday Trading Tips

Apart from this to experience a win-win situation, here are some of the tips that give you success in intraday trading. 

1. Freeze Entry and Exit Price

Most of the time, due to lack of knowledge or by getting influenced by other traders, buyers often make the wrong decision and enter into the trade by buying the wrong stock.

In order to prevent yourself from such losses, do a complete analysis to decide the entry and exit price before taking a position. 

This will help you to get a clear objective and end up in a trade that helps you earn a good profit. Using the intraday support and resistance level strategy can help a lot in this context. 

2. Make Use of Stop Loss

Since intraday trading is quite risky, stop loss plays a very significant role.

It is therefore important to decide the maximum low price of the stock that you can afford if the stock price falls before the square-off position. Using the stop-loss strategically minimizes your losses during day trade. 

If you are a beginner, then it is good to follow the 3:1 rewards-to-risk ratio. This signifies that the exit price while loss should be three times lower than the exit price at which you are willing to book profit. 

3. Book Your Profit Once Target is Reached

The mantra behind successful intraday trading is high leverage and margin/ This helps in amplifying profits.

But although margin money gives you the opportunity to trade with the limited fund still it is good not to be too greedy and adjust the stop loss on the basis of your analysis.

4. Close Your Open Positions

When the trader does not get the right price for their stock, they usually opt for the delivery of shares but doing so is not a good option as the stock you pick for the day trading was analyzed on the technical parameters.

Therefore they might not prove to be fruitful for the long-term investment. It is good to go for the fundamental analysis before switching your ideas and plans. 

5. Understand the Market Trend

Most often traders remain overconfident seeing the market trends, especially when the stock is bullish.

This rises their expectation of earning more profit, but this not always proves to be the right decision as most of the time your analysis might go wrong. So, as the trend reverses, it is good to exit to keep yourself away from loss. 

6. Timing is Crucial for Day Trading 

During the intraday trading time, it is good to avoid the first hour of trading to pick stocks, as the first few hours are highly volatile. It is better to trade between noon and 1 PM. 

7. Choose Right Platform

Next comes the platform that you choose to do analysis and pick stocks.

Picking the right stock helps you to make a quick decision and execution of an order at the minimal brokerage. 

Following these tips help you to minimize losses and make money from intraday trading.

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Conclusion

Intraday trading has a strange charm and sees an ever-increasing number of people venture into the domain on a routine. This form of trading happens within a day, making it a place for earning quick profits.

Intraday might be the shortest trading option in terms of duration. However, it is also the most risk-prone of all the trading options. Intraday trading is different from delivery trading as intraday trading doesn’t involve the ownership transfer of stocks. 

Traders need to consider a lot while deciding on the right stockbroker and a winning stock for day trading. Stock selection usually consumes a lot of time but is just as important a part of the process.

Also, traders can assist with tools such as trading platforms, intraday trading charts, and intraday trading technical indicators, which helps them make a more refined trading decisions. 

But the whole concept of intraday trading is speculation and therefore it is important to consider the eligibility like can government employees do trading in the market?

Well, they cannot trade but can take delivery trading positions and can invest in mutual funds.

However, if you are eligible you can trade by joining stock market classes.