Intraday trading refers to stock transactions that take place on the same day. As a result, it applies to the purchase and sale of stock in a single trading session. You must book gains within the same trading session in intraday trading and not park your money for an extended period of time. Compounding returns over a couple of years isn't a viable option here. Intraday trading necessitates having a keen sense of how the market can behave, as well as the ability to react quickly and profit in a matter of hours.
Intraday trading strategies necessitate constant monitoring of market fluctuations during the day, daily stock volume, and a variety of other factors. so let's take a look at the basics of intraday trading for beginners.
Basics of intraday trading for beginners:-
There are different types of trading and Investments like intraday trading, swing trading, positional trading, medium-term investment, and long-term investment. Among all these types of trading and investments, Intraday Trading is the shortest timeframe trading.
Intraday trading is also called as Day trading which means buying and selling of stocks and other financial instruments within the same day. In other words, in Intraday trading you cannot carry forward your position to the next day; all the transactions are settled on an intraday basis which means that all positions are squared off before the market closes so there is no transfer of ownership of shares.
Who can participate in intraday trading?
- Risk-taker: A person who can take risks can do intraday trade because intraday trades involve higher risk.
- Fast Decision maker: A person who has the ability to take fast decisions can do intraday trade because markets are very volatile in an intraday time frame.
- Fear of overnight risk: If a person has fear of the overnight risk of gap up and gap down on the next day and is not willing to take such risk then such a person can do intraday trade.
- Tracking the market closely: A person who wants to take intraday trade should be able to track the market closely and should have time and inclination to follow the market closely.
How to choose stocks for intraday trading?
In intraday trades, you have a short time span for trading and you need to square off your position before the market closes. So it is essential that you have to choose stocks that have enough liquidity for executing such trades.
Also, the intraday stocks should have high volatility because with a lack of volatility one cannot make intraday trades profitable. That is why for intraday trading one has to choose highly liquid and volatile stocks like large-cap stocks. The large-cap stocks have both enough liquidity as well as high volatility which are required for intraday trades.
What are the strategies of intraday trading?
There are various intraday strategies for beginners. These strategies include:
- Scalping: This strategy involves making a number of very quick trades with small profits on small price changes throughout the day. Scalping requires very fast action to decide and execute the trades.
- Range Trading: This strategy basically uses support and resistance levels of the price to determine buy and sell decisions. This strategy can work well in a sideways market phase.
- News-based trading: For this strategy, the trader should have a strong news source. Also one should have the strong ability to analyze the impact of the news on the market or stock.
- Technical Analysis: It is basically a study of price action with the help of various tools and techniques like price patterns, volume, indicators, Fibonacci, etc.
What is a success mantra for intraday trading?
There are few rules to make intraday trading successful
- Trading Plan: A trader should have backtested trading plan. A trading plan is a written set of rules that specifies a trader’s entry and exit criteria for every buys and sell trade.
- Money Management: Based on the available capital, a trader should formulate a proper money management plan. The trade position sizing should always be according to the money management plan.
- Always use a Stop Loss: For better Risk management always use a stop loss for every trade. A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. There are various types of stop losses like technical stop loss, price stop-loss, revise stop loss, etc.
- Trading with Discipline: Trading with discipline should reward you with a positive money flow. Always stick to your trading plan with patience and also avoid over-trading. Remember that trading discipline will keep you in the game.
- Review your Trades: Maintain a Trading Journal of all your trades. In Trading Journal all the important things should be covered like entry, exit, risk-reward, profit & loss, a reason to enter in a trade, reason to exit from a trade. Always review your Trading Journal.
Conclusion: Understanding the importance of each of these trading rules, and how they work together, can help a trader establish a feasible trading business.
Trading involves hard work, a cool and calm temperament, and a trader who has the discipline and patience to follow these rules can increase their odds of success in the market.