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Intraday trading - Guide for Beginners to Start Intraday Trading

15 May 2020

People who invest money in stock markets know about the practice of risky and interesting intraday trading. You can choose intraday trading if you do not want to take the ownership of the securities, which often comes at a higher cost. In intraday trading, you can trade on margins, which means you do not have to pay the full amount of the trade. Before we get into the benefits of intraday trading, let us first understand what is intraday trading and what is the different between intraday trading and regular trading.


What is intraday trading?

Intraday trading can be defined as buying and selling of financial instruments such as stocks, shares, currency, commodity etc. on a daily basis without taking ownership of the securities overnight. Both the actions of buying and selling of a particular financial instrument are carried out within the trading hours of a particular market or exchange. In case of stock markets in India, the intraday trading orders are placed between 9:30am and 3:30pm.

What is the difference between intraday trading and other types of trading?

Intraday trading is one of the many different types of trading practices in the markets. Apart from intraday trading, there is swing trading, BTST and STBT trading, medium term trading and long term trading. In intraday trading, the securities purchased are sold on the same day, or the securities put on sale are bought back on the same day without carrying them forward to the next day.

In BTST or STBT trading, you can buy the security today and sell tomorrow or do the opposite (in case of futures and options). Swing trading refers to holding the trades for a period ranging from few days to few weeks. Medium term trading refers to buying stocks or securities for a couple of months, and in long term trading the time horizon is longer.

Who can participate in intraday trading?

Any person who has a demat account can participate in intraday trading and earn profits from the same. You need to be an adult to trade in the securities market and should have the required capital to invest in the markets.

Where Can You Place Intraday Trades?

Intraday trading can be done in all types of markets such as the stock market, commodity market currency market etc. However, the most common and popular market in which intraday trading is done is the currency market. People buy foreign currency in Indian rupees at lower prices and sell at higher price before the markets close, thus making profit.

How to choose or identify stocks for day trading?

Before directly choosing a stock for day trading, you need to understand the different trading strategies and the ones that work the best for you. There are different types of strategies for intraday trading such as scalping, range trading, news based trading and high frequency trading. You can choose a strategy based on you interest and understanding.

To choose a stock to invest in, you need to study about the company whose stock it is. You must remember that day trading cannot be done in all stocks listed on the markets.  There are very limited companies in which you can do day trading, because day trading requires a huge volume and liquidity in the stock, without which your trade may not get completed.

When to execute Day Trades?

For trading in the intraday markets, timings play a very crucial role since it is important to enter and exit the trading position (buy and sell the security) at the right price level. Generally for intraday traders, the most active time of the day is the morning volatility, when traders take their position in the markets, i.e. 9:30 am to 10:00 am and the end of the trading day at 3:00pm to 3:30pm when the positions are closed by the brokers if the target is not hit during the day. However, since markets are constantly changing, there can be an opportunity at any time of the day when you can enter the trade and exit.

How to get started?

For starting your intraday trading journey, there are many steps you have to follow. Getting a demat account is the first necessity of trading in an intraday market. A demat account is the short form of dematerialized account. This is an account where you store the securities purchased by you. A demat account is opened with a nationalized depository and this task is done by your broker.

Next, you must choose the right broker. The brokers charge a fee for this service which varies from brokerage house to brokerage house. Hence, choosing the right broker plays a very important role. The next steps would be to choose your right oder type, your trading strategy and placing the order through your broker.

Tips and strategies for intraday trades

The most important tip to follow when it comes to intraday trading is to not follow a tip which is not based on a proper research. It is extremely important to trust well researched trading advice given by certified investment advisors before betting your money on a trade.

If we talk about intraday trading strategies, there are a lot of strategies based on technical analysis which can be adopted by you.

Scalping strategy

You can choose to trade using the scalping strategy in which you can book many profits in short durations. This is tough to execute and needs dedicated attention.

Range trading strategy

Another important strategy which you can use for intraday trading is range trading. In this, you analyse the range within which a stock is likely to trade, and make use of this to earn profit.

Using a stop loss

An extremely important mantra for intraday traders is to always use a stoploss. For beginners and experienced alike, this is an extremely important thing to remember. Every trade should have a stop loss to limit the loss that is caused in the markets.

Useful Tools for Intraday Trading

Intraday trading requires you to keep a close watch on the price pattern of the security you have invested in. hence, the most important tool for intraday trader is a charting tool, which is used to creating a chart of the stock’s price.

Another essential tool would be a news website or information source which gives updates about the market’s overall performance so that you can anticipate if there is going to be any sudden movement in the market prices.

Portfolio tracker should also be used to keep a track of the profit and loss incurred during the trading day and in each trade placed.

Conclusion

Intraday for beginners can be extremely risky and exciting at the same time. With a good intraday trading guide, it can be easy to navigate the space. There may be losses in the beginning as you slowly learn to master your emotions and wait for the right trade to bring profit. But once you are able to do that, intraday trading can become a regular source of income for you and can help you in earning more and more profits through the movements in stock markets.

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