Intraday trading has recently gained popularity among investors. Unlike traditional investing, where you hold stocks for the long term, intraday trading involves buying and selling stocks within the same trading day. The goal is to take advantage of small price movements in the stock market.
Intraday trading can be highly rewarding if done correctly, but it also comes with a higher level of risk compared to long-term investing. So, how do you become successful in intraday trading?
Here are some successful intraday trading strategies and tips to help you get started.
In intraday trading, you choose to buy/sell stocks that are liquid, which means it is easy to buy and sell them quickly. These stocks also have high trading volume that results in frequent price movements. Higher liquidity and volume help you make trades faster and find more profit opportunities.
Intraday trading generally involves the use of leverage, which is borrowing funds to increase your buying power. While more funds can increase your profits, it also results in higher risk.
Here are some actionable tips that you can use to become successful in intraday trading:
Investing and trading may sound alike, but they are very different approaches in stock markets.
While investing involves holding stocks for the long term, trading is about focusing on short-term price movements. Intraday trading requires a different mindset and approach than long-term investing.
For example, when investing, you might buy shares of a company to hold for years, expecting growth over time. In contrast, as an intraday trader, you buy or sell stocks only to exit the positions within the same day. The primary goal is to earn profits from daily price changes.
To succeed in intraday trading, allocate a specific amount for trading and stick to it. Since intraday trading can be unpredictable, it makes sense to only trade with the quantity of funds that you can afford to lose. By having a budget in place, you can ensure that your trading activities do not negatively impact your overall financial health.
Having a clear trading plan is crucial for successful intraday trading. Your plan should include:
- Entry and Exit Points: These are the price levels at which you will buy and sell stocks.
- Target Prices: Set realistic profit targets for each trade.
If you stick to a plan, you can avoid emotional trading decisions and maintain a disciplined approach.
Also Read - How to Create the Best Intraday Trading Strategy?
A stop-loss order automatically buys or sells a stock as soon as it reaches a predetermined price, helping you limit potential losses. By using stop-loss orders, you protect your capital and maintain control over your trading outcomes.
For example, if you buy a stock at ₹100, you can set a stop-loss order at, let’s say, ₹95. If the stock price falls to ₹95, your order will execute automatically, thereby limiting your loss to ₹5 per share.
You can also aim for success in intraday trading by learning the basics of technical analysis. This involves studying price charts and indicators to help you decide when to buy and sell stocks. You can recognise market trends and patterns with technical analysis to make more calculated trading decisions.
For example, imagine looking at a stock's price chart and noticing that the price tends to go up whenever it reaches ₹50 and goes down whenever it hits ₹60. This means ₹50 is a price point where many people buy the stock, and ₹60 is a point where many people sell the stock. By recognising such price levels, you can plan to buy the stock near ₹50 and sell it near ₹60, aiming to profit from these predictable price movements.
Make it a habit to read about market news and events regularly. Economic indicators, corporate announcements, and geopolitical events can significantly impact stock prices.
Regularly follow financial news, subscribe to market analysis newsletters, and use news alert services to stay on top of market developments. This way, you can quickly take decisions as per market sentiments and price changes.
Overtrading can arise from the urge to recover losses quickly or the excitement of frequent trading, but it often leads to poor decision-making and diminished returns. This could mean significant losses and increased transaction costs in intraday trading.
You must try and stick to your trading plan and avoid making impulsive trades based on emotions. Focus on quality trades rather than quantity of trades and ensure each trade aligns with your strategy.
Intraday trading requires you to square off your trades before the market closes on any given day. Squaring off means you must close or exit all your buy or sell positions by the end of the trading session. For example, if you bought 100 shares of XYZ Ltd. in the morning, squaring off would involve selling those 100 shares and closing the position before the market closes for the day.
If you don’t close your trades by the market’s closing bell, your broker will automatically square off your open positions. This automatic closure can lead to unexpected financial losses, as the broker might sell your positions at unfavourable market prices.
Therefore, it's crucial to manage your trades actively throughout the day to ensure they are closed on time, protecting your investments and avoiding additional fees or penalties.
As the stock markets become more accessible to investors in India, people are drawn to intraday trading in the hope of quick profits. However, success in intraday trading requires a thorough understanding of market dynamics, effective strategies, and disciplined risk management.
So, before entering intraday trading, equip yourself with the right knowledge and guidance through Sharekhan Knowledge Centre. Apart from in-depth training, it offers supervised practice sessions for you to get hands-on experience in real-world trading.
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