The Basics of Intraday Trading

Introduction:

Stock and security markets offer a number of ways for you to increase your bank balance. A popular and passive method to create wealth is to make regular investments over a period of time. The other method that calls for you to be an active participant is intraday trading.

What is intraday trading?

Intraday trading implies that you buy and sell stocks and securities on the same day to make profit. An entire trading cycle is completed on the same day within the trading hours of an exchange.

Here, the agenda is to leverage the rise and dips in the stock price, and profit from the differences. This is done by monitoring fluctuations in stock prices. Typically, in intraday trading, the volumes of trade are high. This helps you make more profit since the shifts in stock prices may be marginal. The ownership of the shares does not change in intraday trading, as the trade is settled within the day itself.

Additional Read: Five suggestions for intraday trading

How do you do intraday trading?

To start with intraday trading, the opening of a trading account and bank account is mandatory. A trading account is a prerequisite, as it enables you to buy and sell your stocks and securities. Only a registered broker can open a trading account for you. Maintaining a sufficient account balance and margin balance is necessary for a good head-start.

Once you have these basics in place, you should pin your preferred trading stocks on the watch list. This will help you in micro-tracking stock movement. Thereafter, the technicalities are simple – buy and sell. In this new age of technology, buying and selling stocks is child’s play, and can be done with a single click. Online brokers’ websites and mobile phone applications are fairly simple to decipher. One constant in trading here is to closely monitor your positions before you buy/sell for favourable trades.

Additional Read: Is Intraday Trading Possible Without a Demat Account?

Intraday Trading Tips

Intraday trading is considered to be risky. This is because as you are required to complete – or square off - your transaction on a given day, irrespective of making a profit or loss. That’s why it is essential for you to know the ground rules of intraday trading well to make accurate and profitable decisions. Here are some go-to intraday trading tips:

Stop-loss strategy

A stop-loss strategy helps screen you from unexpected losses, and make profits. This is done by helping you exit the market by selling the stock once it crosses a certain price point. It is crucial to establish this stop-loss mark as per your risk appetite in intraday trading, especially if you are a beginner. You could consider having multiple target points for profit as well as losses.

Correct timing is key

You should analyse past favourable intraday patterns to understand the right time to enter and exit the market. They help you identify the best time to buy and sell scrips. These past trends will give you a good head-start. The ideal time to exit the market is when you have crossed your stop-loss mark or reached your target profit mark.

Study historical trends

Research is a key weapon in any financial trade. This holds true for intraday trading as well. Historical trends about movement and characteristics of indices and scrips can give you valuable insights into areas such as which scrips should be your pick, what should your ideal trading volume be, etc. Studying the ongoing market trends could also provide valuable insights.

Stay calm and focussed

A minute missed here and there can cost you thousands if not more in intraday trading. That’s why it can be nerve-wracking at times. However, it is very important to stay calm in every scenario – be it profit or loss. You may miss opportunities, but that doesn’t mean it is doomsday. Be alert and focus single-mindedly while trading. Using logical reasoning and practical rationale instead of greed and emotional outbursts will benefit you greatly here.

Start small

You may have beginners’ luck or be inspired by someone’s success story, but avoid large bets in the beginning. Start small instead. One or two stocks are good to deal in when you are a newbie. This will give you the bandwidth and cushion to learn from your mistakes till you gain enough experience. Thereafter, slowly and cautiously, you can increase your trade volumes. Another important point is consistency - it is important to be consistent in intraday trading.

Avoid volatility

Volatile markets offer good opportunities to profit in a big way, as well as make great losses. But too much volatility may do more damage than good. That’s why you should ideally adopt the middle path at the start. A good strategy here may be to first identify stocks as per their categories such as large caps, midcaps, small caps, penny stocks, etc, and accordingly pick stocks from these for trade. Each category typically has a unique volatility quotient. Large caps are usually the least volatile, whereas penny stocks can be highly volatile.

Conclusion

These tips can be very handy for you to start intraday trading, but this is just the tip of the iceberg. The more you expose yourself to the intraday market, the more you get a knack of dealing with different scrips and devise your strategy. You should also know that not all financial instruments function on the same principles. For instance, commodities and stocks can be poles apart fundamentally. So, you should consider having unique plans for each segment.

Additional Read: 5 smart tips for beginners in the Stock Market

Disclaimer:

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.