People often carry the notion that trading is meant for financial firms and seasoned traders. However, as more investors explore the markets and learn the basics of trading, this perception has started to change. This shift is highly attributed to electronic trading and margin trading. Today, it’s easy for anyone to foray into trading. Here, we will explore the concept of Intraday trading and throw light on some of the important aspects surrounding this concept.
What is Intraday trading?
Intraday trading is the buying and selling of stocks or other financial instruments within the same trading day. This type of trading can be done in any market, however, it is most commonly done in the stock and foreign exchange markets. In intraday trading, all positions are squared-off or settled before the market closure for the day. Thus, these trades do not result in a change of ownership of traded shares.
What are the differences between intraday trading and regular trading?
A striking difference between a regular trade and an intraday trade is to do with taking the delivery of stocks. Since intraday trading positions are squared-off on the same day, a trader’s sell order is offset with another’s buy order. Thus, intraday trading does not involve the transfer of ownership of stocks. In comparison, a regular trade is settled over a few days, resulting in the delivery of shares through buyer and seller demat accounts.
Important indicators in intraday trading
Here are some of the important technical indicators of intraday trading:
Moving averages is an indicator put on the stock chart. It connects average closing rates in the market over a specified period. The longer the period, the higher the reliability of these averages. It is a summary of the instant movement of prices in the market.
Moving averages help traders to better understand the volatility of stock prices and trends prevailing in the market. A trader can gauge the upside and downside using this indicator. Every intraday trader should try to remain updated on moving averages.
Bolliger bands provide moving average details along with an upper and lower limit. Carrying the mean values it works in a similar way to standard deviation. Bollinger bands represent the prices that increase or decrease from average levels.
Volatility is an important aspect for traders as it indicates the extent of risk that the market carries. Trading depends on this risk, as it can allow access to higher profit levels. It determines the range for intraday traders so that they can trade within the set range and fetch profits.
Every trader desires to make the most of the markets and, in case of intraday trading, this is possible through oscillators. This helps traders to visualize market sentiments such that they can trade safely and advantageously. It captures the rise and fall of stock prices to help intraday traders in forming a trading strategy.
What thumb rules should beginners know in intraday trading?
Here are some thumb rules that beginners can follow to maximize profits and contain the losses:
- For intraday trading, it is advisable to invest in liquid stocks that can be easily entered or exited.
- Strategize entry and exit points before initiating a trade.
- A stop loss is an important factor in all trades since the position may drift away and result in huge losses.
- Having a trading mentality and instead of an investor mentality is key to intraday trading.
- Traders should be comfortable in making multiple trades in the same companies or indices since markets can offer multiple such trading opportunities.
- Taking trades in the market direction can be beneficial. Traders should adopt the “Trend is your friend.” saying during intraday trading.
- Mean reversion trades are not advisable for intraday trading.
How to strategize intraday trading?
Beginner intraday traders can make a note of the below-mentioned points while framing their strategy for intraday trading:
Stocks to pick
As we read earlier,day trading involves squaring off of positions before the market closure. Thus, a trader should ensure that the stocks he/she selects have sufficient liquidity to allow easy settlement. This is the main reason why large-cap stocks are preferred in intraday trading. This also minimises the chances of a trade impacting the share price of selected stock.
Timing of entry and exit
For intraday traders, the most important factor is timing. If a trader cannot take a position at the right time, it can easily turn a potential profit into a loss. Experts suggest that traders should avoid taking a position at the start of trading. This is because the market may be especially volatile at the start of trading hours, and can help traders if they wait it out.
Selecting a broker
Traders must opt for a broker who provides support in terms of research and technical analysis like Finity that comes with advanced trade features. Looking at the right tools is important while aiming for maximum benefits. Since intraday trading can have a large number of transactions, it makes sense to go for brokers who have low brokerage fees.
If done correctly, intraday trading can be a very financially sound career option, even though you can hit a rough patch from time to time. However, intraday trading is a bit more challenging for beginners, and you need thorough research and a good strategy before you begin.
Day trading focuses on small profits through multiple trades. This helps in containing the losses while making daily profits. Intraday traders should not aim for huge profits through a single trade.
Intraday trading involves several strategies; one of the best ones being the momentum trading strategy, moving average crossover strategy, breakout trading strategy, “risky” reversal trading strategy, and gap and go trading strategy.
No, there is no limit on intraday trading and the limitation can only be the amount of capital available with a trader and his/her ability to take on risk.
To convert delivery to intraday, you can free up your margin and square off the position on the same day if the price target is achieved. You can then convert the delivery position to intraday by 3:10pm.
Options trading is one of the safest trading forms since it allows the freedom to control the stock or capitalize any asset as per price movement without owning it. The price of an option is far lesser than the actual asset’s price per share.