What is Intraday Trading? 

Intraday trading has become increasingly popular among the new market participants in India due to its ability to generate substantial returns if done right. Unlike long-term investment, intraday trading requires rapid decision-making, keen analytical minds, and efficient risk management strategies to take advantage of market fluctuations and earn profits. 

In this blog, we will discuss the process of intraday trading, its key features and the steps to master it.

What is Intraday Trading?

Intraday trading refers to the buying and selling of financial assets, like stocks, derivatives, etc., within a single trading day to earn profits from frequent price movements during the day. Expert intraday traders can earn substantial returns by frequently buying and selling financial instruments such as stocks and derivative contracts throughout the trading session to capitalize on price fluctuations.

Intraday trading may seem attractive, but according to a SEBI study, merely 1% of retail traders report profits consistently, indicating the skill required to master it. Furthermore, frequent buying and selling lead to higher transaction volumes and brokerage fees, reducing overall returns. 

Read More: Intraday Trading Rules and New SEBI Regulations

Key Features of Intraday Trading 

Intraday trading has certain key features. Let’s see what they are: 

1. Short-Term Trading: The traders hold their positions for a brief duration and close all positions before the market closes for the day.
2. Leverage: Brokers might offer you leverage on specific financial instruments such as stocks, commodities, etc. With leverage, you only need to deposit a small amount, known as a margin, to create a much larger trading position.  Leverage can amplify both profits and losses. 
3. High Liquidity: Traders generally focus on stocks with high trading volumes that facilitate smoother transactions. 
4. Risk Management: It is important to set stop-loss orders to protect against adverse price movement and control losses. 
5. Technical Analysis: Analyze chart patterns and use technical indicators while making trading decisions. 

How to Start Intraday Trading? 

You might be wondering now how you can begin your intraday trading journey. Well, don’t worry; we’ll guide you through it comprehensively. Let’s see the steps to start intraday trading:

Step 1: Open a Trading and Demat Account

Select a reliable broker, complete the KYC procedure, and upon successful verification, your trading and Demat account will be opened. Make sure the platform provides real-time market data, technical analysis tools and indicators, and an easy-to-use interface.

Step 2: Learn Market Analysis 

Market analysis and understanding it is the crux of the overall trading business. Make sure you are adept with its technical analysis basics before you make any trade in the markets. 

Step 3: Develop a Strategy 

Having a well-defined trading strategy can determine when to enter and exit the market. It is crucial to have precise entry, target and stop-loss levels before initiating any trade. 

Step 4:  Stay Informed 

Be aware of the recent market trends, economic reports, and global events that impact stock prices. This way, you can spot profitable trading opportunities easily. 

Step 5: Practice First

You should practice intraday trading before deploying real capital. Use a demo account where you can refine your skills first before you enter into such a competitive and volatile market. 

Step 6: Pick the Right Financial Instrument

Select highly liquid financial instruments which facilitate rapid buying and selling. Consider stocks of famous companies with strong trading volume and past price performance closely following the price action and technical chart patterns. 

Step 7: Set Realistic Goals

Set realistic goals. Try to achieve consistent gains and avoid overtrading. 

Read more: How to Choose Stocks for Intraday the Right Way?

Strategies for Intraday Trading

Having a proper strategy for your intraday trading is extremely crucial. Since intraday trading requires quick decision-making, you must have a well-defined strategy to achieve consistent results. Below are some strategies for intraday trading.

1. Momentum Trading

Momentum trading is a strategy where one buys stocks that are moving up and sells them when the momentum fades. Momentum traders use indicators such as Moving Averages and Relative Strength Index (RSI) to determine strong trends and capitalize on short-term price fluctuations for quick profits.

2. Scalping 

Scalping involves multiple trades throughout the day, trying to acquire minor profits. It might seem tedious at first, but it’s all worth it if the profit outweighs your loss. 

3. Breakout Trading 

Try to identify the stocks breaking out of a price range and create long and short positions accordingly to ride along with their momentum. 

4. Reversal Trading 

Identifying stocks that exhibit trend reversals after reaching defined support or resistance levels.

Mistakes to Avoid in Intraday Trading 

You should be careful to avoid the following mistakes while doing intraday trading:

• Overtrading: Don’t create too many trading positions throughout the trading session, as this will result in excessive brokerage.
  
• Ignoring Market Trends: Always trade in the direction of the larger market trend to minimize risks.
  
• Not Setting a Stop-Loss: Establish a stop-loss to minimize losses when the market is going against you.

Conclusion 

Intraday trading is extremely exciting and potentially lucrative as it can help you realize quick gains. However, the high risks involved make it unsuitable for a majority of market participants. To succeed in this intraday trading amid volatile market conditions, you need to be strategic and have a good risk management system in place. 

If you are new to intraday trading, take it slow, learn continuously, and trade with a plan. The stock market is full of opportunities, so make sure to choose them wisely. 

Frequently Asked Questions (FAQs)