Intraday Trading Basic Guide for Beginners How to Trade?, How Intraday Trading Works? Indicators, Charts, Rules, Tips for Intraday Trading, Learning Concepts, Time Analysis.
What is intraday trading, how to do intraday trading & How Intraday trading works in India are some of the queries every beginner investor has in their minds?
Intraday trading means buying and selling the stocks on the same day in the stock market, during the trading hour that is specified by the exchange.
Stocks are bought and sold in large numbers deliberately with the aim of locking profits in a day.
Intraday trading as the name suggests is trading within trading hours in a single day. To begin with, you buy the shares when the price is low and sells them when the price is high, thus taking benefit of the price movement.
Traders who trade in this capacity with the motive of earning profits are therefore known as a speculator.
Stay tuned with us to learn in-depth knowledge regarding the “intraday trading”.
So, without any further delay let’s get started!
Is intraday trading good? How is intraday done – all your queries will be explained with the help of this post.
What is Intraday Trading?
Intraday trading includes buying and selling of the stocks within the same trading day.
Here stocks are purchased with an intention of fetching profits by harnessing the movement of stock indices, not with an agenda to invest.
An online trading account is opened for the purpose of intraday trading. While performing intraday trading you need to specify that the orders are specific to intraday trading.
As the orders are squared off before the end of the trading day. It is also known as intraday trading.
INTRADAY TRADING: TIPS, STRATEGIES & BASICS
Intraday trading is considered as unsafe as investing in the regular stock markets.
It is pertinent, especially for beginners, to understand the basics of such trading to avoid the losses.
Individuals are advised only the amount they can afford to lose without facing financial difficulties.
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Tips for Intraday Trading
Below, I have advised a few tips for intraday trading in the Indian share market which will help investors making the right decision.
- Pick two or three liquid shares–
Intraday trading involves the squaring open the position before the end of the trading session.
It is recommended to choose two or three large-cap shares that are highly liquid.
Investing in the mid-size or small-cap can result in the investor having to hold these shares because of the low trading volumes
Determine Entry and Target Prices
Before placing a buy order, an investor should determine your entry-level and target price.
Use stop loss for lower impacts
Stop loss is the trigger that is used automatically sells the shares if the prices fell down a specified limit.
This is advantageous in limiting the potential loss for the investors due to the fall in the stock prices.
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Book your profits when targets are reached
It is significant on the part of the investors not just cut down their losses but also booking or locking their profits when the target price is reached.
Avoid being investors
Intraday trading or investing requires an individual to purchase the shares.
Research Your wishlist thoroughly
Investors are recommended to devote eight to 10 shares in their wish lists and research these in-depth. Knowing about corporate events, such as mergers, bonus dates, stock splits, dividend payments, etc., along with their technical levels is important.
Accessing the Internet for finding resistance and support levels will also be beneficial.
Don’t Move against the stock market
Being content is important to succeeding as a day trader. Even the expert professional equipped with advanced tools cannot predict the market movements.
There are times when all technical factors depict a bull market; however, there may still be a decline
Intraday trading proffers higher leverage, which constructively provides decent returns in one day.
Intraday Trading Guide for Beginners
When is the right time to invest in stocks?
Intraday signifies “within the day”. Hence, intraday trading is known as trading stocks and ETFs during regular trading hours within a single day.
One can buy and sell shares within a short span of time without having to undergo the arduous procedure of availing a physical share certificate.
Being beginners, one is baffled about choosing the right kind of tool and trading accounts for trading.
Here is a guide for you
- Enter and Exit at an ideal time
The investor is required to set profit and stop-loss targets before the trade and must not let the impulsive behavior creep in.
Once the system creates an entry signal and the position is taken, the exit position has to be determined.
You can exit if either of the two conditions is met—you have achieved your desired profit or maximum loss is reached. Once the desired profit is achieved, it is advisable to exit the trade.
- Choose the stocks after the historical research
The prime criteria behind intraday trading are to create the best stock picking strategy which preserves capital and at the same time prevents risk.
Choose highly liquid stocks and with a high average daily volume.
These stocks can be sold in sufficient volumes without causing much impact on the prices.
Also, trade-in stocks that have a good correlation with major indices and sectors. Avoid unpredictable stocks, which tend to trade in a volatile manner.
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- Have a predefined target
New traders may feel unconfident with their ability to reap profits and may fail to do important things necessary to succeed in day trading.
Don’t expect to get rich in the single trade.
- Pick the Intraday market direction
You can choose an intraday market direction using the “value area”. The value area is the range where almost 70% of the previous day trade took place.
If the market opens before or above this value area enters in a long-term position towards the bottom of the value area.
Tips to Choose the Right Intraday Trading Stocks
To be successful as a day trader, it is very important to know how to pick stocks for intraday trading. Often people failed because they are unable to make any profits because they fail to recognize appropriate stocks to trade during the day.
Trade in liquid stocks only
Liquidity is the most crucial while choosing the right stocks to trade during the day.
As liquid stocks have huge trading volumes where large quantities can be sold and purchased without significantly affecting the price.
Stay away from volatile stocks
Traders are recommended to not to trade with high volatile stocks
Trade in good correlation stocks
Here is an intraday tip for picking the right stock is to opt for those that have a higher correlation with major sectors and indices.
This means when the index or the sector sees an upward movement, the stock price also increases.
Stocks that move according to the sentiment of the group are reliable and often follow the expected movement of the sector. For example, strengthening of the Indian Rupee against the Dollar will generally affect all information technology companies dependent on the US markets.
A stronger rupee implies lower earnings for the IT companies and weakening rupee will result in higher export incomes for these companies.
Follow the trend
One of the powerful intraday tips is moving with the trend is always beneficial.
During a bull run in the stock market, traders must try to identify the stocks that can potentially arise.
Pick after Research
One of the most vital tips I would like to give to an intraday trader is undertaking quality research.
Unfortunately, most traders avoid doing research identifying the index and then finding sectors that are of interest is recommended. The next step is to create a list of several stocks with these sectors.
Traders are required necessarily include sector leaders, but rather identify stocks that are liquid. Technical analysis and determining the support and resistance levels along with studying the fundamentals of these stocks will help traders find the right stocks to profit through
Intraday trading has some risk, but speeds play a key role in making all the difference.
Earning profits margins via price fluctuation during the few trading hours is not a simple task
Intraday trading is all about initiating and closing out your trades on the same day. For example, if you buy 500 shares of Reliance in the morning at Rs.920 and sell it by an evening at Rs.928, then you can book a profit of Rs.4000 (500×8) intraday. This trade does not result in any delivery as your net position at the end of the day is zero.
You can also sell the stock in the morning and buy it back in the evening if you believe that the stock is likely to go down. In fact, if you want to short sell stocks (without delivery), then the only way you can do it in rolling settlements mode is intraday.
Intraday Trading Indicators
What is the information provided by the intraday trading indicators?
The direction of the trend to determine the movement
Profit potential due to volatility
Determining the popularity through the volume measurements
Existing momentum with the investment market
It allows the trader to make a well-informed decision with respect to the trade position.
Useful Intraday Trading Indicators
This is the most commonly and widely used indicator he moving average is a line on the stock chart that connects the average closing rates over a specific period. The longer the period, the more reliable the moving average.
This indicator will assist you in understanding the underlying movement of the prices, as prices do not move in one direction.
This indicator is one step before the moving average. Let me tell you how? This band comprises of the three lines
- Moving average
- Upper limit
- Lower one
This proffers a trader an understanding regarding the stock trading range.
As we are aware that the stock market moves up and down. There are short-period cycles
In other words, the momentum oscillator helps us to know when the market sentiments are undergoing modifications.
There are short period cycles that are unrelated to bearish or bullish markets.
Relative Strength Index (RSI):
With this, you can compare the share price’s gains and losses.
RSI score ranging between 0 and 100. This index increases with price rises and vice versa. Once the RSI increases or decreases to a specified limit, you can modify your trading strategy.
Intraday Trading Time Analysis
When it comes to intraday trading, daily charts are the most preferable that represents or depicts the price movement on a one-day interval.
These charts are useable for analyzing short and medium-term periods; however, some of the traders may use it for the long term analysis.
Intraday Trading Charts
These charts are very famous in the trading world; they help to tell the movement of the prices between the opening bell and the closing of the daily session.
Below I have mentioned types of intraday trading charts
- Hourly charts– Depicts the price movement of a particular stock for a specified period of time
- 15-minute charts-These show the opening, closing, high, and low price movements at 15-minute intervals for a particular stock
- Intraday five minutes charts-This is one of the most widely used charts by traders. It represents the price movements of the index or stocks over a particular period of time
- Two minutes charts-depicts the price movement over some hours on the same trading day
- Tick trade charts- these are the line charts showing every trade that is being executed on the stock market. Every point of the chart shows that an actually completed trade.
As long as there are willing market buyers and sellers, market orders are filled.
In the share market, order refers to an instruction given by the issuer of order to their broker or dealer for buying, selling, and delivering or receiving securities/commodities as part of their commitment to a given set of terms.
What are the different types of orders in the share market?
- Market Order
A Market order is an order to buy or sell stock at the best available price.
Usually, this type of order is executed immediately.
- Limit order
A limit order is an order that places a limit that you are willing to pay to buy a stock or on the price you are willing to accept to sell a stock.
3 Stop loss order
It is designed to limit an investor’s loss in a position in a security.
For example, if an investor holds 100 shares of ABC Company at Rs. 20 per share and the stock is now trading at Rs. 28 per share. The investor wants to continue holding the stock for further upsides but also does not want to lose out on all the unrealized gains he has made so far.
He decides to hold the stock, but sell it only if it drops below Rs. 25. Rather than monitoring the stock price on a daily basis, the investor can simply enter a stop-loss order to sell 100 shares of ABC if its price drops to Rs. 25. This way he can gain if the stock goes up and limit his losses if the stock goes down.
Can I retain my order, if yes, then how?
Yes, one can retain the order. An order can be retained using one of the order retention types
- Good For Day (GFD) – The lifetime of the order is that trading session
- Good Till Date (GTD) – The life of the order is still the number of days as specified by the Order Retention Period
- Good Till Cancelled (GTC) – The order if not traded will remain in the system till it is canceled or the series expires, whichever is earlier
Q. What is the best time frame for intraday trading?
The best time frame for intraday trading is an hourly chart.
Q. Which indicator is best for intraday trading?
Useful Intraday Trading Indicators
- Moving Averages: Traders often hear about daily moving averages (DMA), which is the most common and widely used indicator. …
- Bollinger Bands: This intraday trading indicator is one step ahead of the moving average. …
- Momentum Oscillators: Stock prices move up and down. …
- Relative Strength Index (RSI):
Q How can I profit from intraday trading?
Below advised are a few tips for intraday trading in the Indian share market which will help the investor in making the right decision.
- Pick two or three liquid shares
- Determine entry and target prices
- Lock your profits when targets are reached
- Avoid being an investor.
I hope you find the above post on the basics of the intraday trading relevant.
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While venturing into stocks for intraday trading, do not blindly rely on other’s advice. You need to conduct in-depth research and develop an understanding before buying any stock.