Intraday trading or day trading is the process of purchasing and selling a stock within a single day. The goal of intraday trade is not to own the stocks but to make profits by reaping the benefits of price movement during the day. The process is quite common in foreign exchange and stock markets. In day trading, various trading strategies are used to capitalize on small price movements in high-liquid stocks and currencies. However, day trading involves significant risks and it requires a thorough understanding of how the market works.
How To Begin Intraday Trading
For intraday trading, you’ll need a trading and Demat account. You can choose any of the popular brokers for the same. Once your trading account is ready and you’ve deposited funds into the account, you can start trading.
If you are already a long-term investor with an existing account, it’d be wise to open a new account specifically for intraday trading, as it will simplify account and trade management. As intraday profits are taxed differently than long-term stock investment profits, separate accounts will also make tax management easier.
To help you better, we have assembled trading tips that will help you check all the necessary factors you need to consider while trading intraday.
1. Set Aside Funds
Dedicate to the amount of capital you’re willing to risk on each trade. Many successful day traders risk less than 1% to 2% of their accounts per trade.
Set aside a surplus amount of funds you can trade with and are prepared to lose.
2. Trade With Small Amount
Every beginner should always start with small amount. As a beginner, focus on a maximum of one to two stocks during a session. Tracking and finding opportunities is easier with just a few stocks. If the first few trades give good returns, then this will boost the overconfidence in the beginners, and they start investing more, and in that, they end up losing their money. So, beginners should not invest aggressively in their initial phase.
Starting small will allow beginners to make mistakes, get more familiar with the market, and understand how the market works. So, by this, they will not repeat their past mistakes. As their experience grows, they will learn to trade more.
3. Stick To The Plan
Successful traders have to move fast, but they don’t have to think fast. Why? Because they’ve developed a trading strategy in advance, along with the discipline to stick to it. It is important to follow your formula closely rather than try to chase profits. Don’t let your emotions get the best of you and make you abandon your strategy. Bear in mind a mantra of day traders: plan your trade and trade your plan.
4. Set Aside Time
Day trading requires your time and attention. In fact, you’ll need to give up most of your day. Don’t consider it if you have limited time to spare.
Day trading requires a trader to track the markets and spot opportunities that can arise at any time during trading hours. Being aware and moving quickly are key.
Relax Your Mind While Trading
Intraday trading is a trading time that creates a lot of panic situations and anxiety in traders,
There are times when the stock market tests your nerves. As a day trader, you need to learn to keep greed, hope, and fear at bay. Decisions should be governed by logic and not emotion.
Panicking will only lead to defeat. So, it’s better to stay calm, understand the market situation, and start trading.
5. Target The Right Time To Enter And Exit The Market
The best idea is to trade on the general intraday trend. This offers a low-risk entry point potential and a high-profit potential if the trend continues.
Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns at the open and time orders to make profits. For beginners, though, it may be better to read the market without making any moves for some minutes.
6. Maintain A Strict Stop Loss
Stop loss is a crucial tip for intraday trading for beginners. Stop loss is a level determined by you and is used to sell shares automatically if the price falls below this stipulated limit.
A trader should clearly define profit and stop-loss levels and not allow an impulsive nature to dominate their trading activity.
Traders should formulate an entry and exit strategy that best suits their needs.
A stop loss helps stem losses as it eliminates emotions from trading decisions.
7. Be Realistic About Profits
A strategy doesn’t need to succeed all the time to be profitable. Many successful traders may only make profits on 50% to 60% of their trades. However, they make more on their winners than they lose on their losers. Make sure the financial risk on each trade is limited to a specific percentage of your account and that entry and exit methods are clearly defined.
8. Keep In Line With The Market
One of the most important intraday trading tips for beginners is to follow the market. Sometimes, even veterans with the most advanced charting tools are unable to predict market movement. To avoid incurring huge losses, it is wise to exit your position if the market moves against your expectations. By doing this, you may not initially make huge profits. However, it is important to remain content with small gains if your trading strategy is working in your favour.
Types Of Intraday Traders
There are primarily two categories of intraday traders:
1. Traders employed by institutions
The majority of day traders who rely on intraday trading for their livelihood are affiliated with bigger institutions.
As a result, they receive some of the institution’s advantages, including a direct line, trading desk, solid cash, and analytical tools. They look for opportunities that offer quick returns, and their resources also enable them to take advantage of safer trading opportunities.
2. Independent Traders
Individual traders have two options,
assisting others in managing their finances or utilizing their funds for trade. They frequently have ties to a brokerage and have access to additional resources.
However, because they lack the resources available to institutional intraday traders, they are at a disadvantage. As a result, they take more risk in their trading methodology. For modest price movements in highly liquid stocks, individual traders rely more on swing trading and technical research.
Traits That Make An Intraday Trader Successful
The path to being successful in intraday trade requires hard work. Intraday trade is tricky to master, and the terrain will be rocky initially, but, these are some characteristics that successful intraday traders share.
Trading is a zero-sum game and thus, a trader needs to have something that gives an advantage over others in the market. There are different kinds of strategies one can use, some of which are described in the next section. Work on these strategies, and hone them until one finds a way that works.
Whatever approach intraday traders employ, they often aim for a stock with high volatility.
- Sufficient capital
As a day trader, one should only use risk capital or money you can afford to lose, to invest. Such restraint protects one from financial catastrophe and keeps them from making emotionally charged decisions.
A substantial amount of capital is frequently needed to properly take advantage of market changes in intraday trading. If the resources are available to access a margin account, it can prove advantageous because unforeseen fluctuations can lead to margin calls without enough notice.
A solid plan needs to be supported by sound discipline. Because they do not adhere to their standards when making trading decisions, many traders lose money. Any profession takes discipline to succeed.
The erratic character of the market has a significant impact on intraday trading. If a stock’s price moves around a lot throughout the day, traders may become interested in it. There are numerous potential causes for this variation.
Day traders also choose highly liquid equities since they can readily adjust their positions without having an impact on the stock’s price. Traders frequently take a buying position when the price of a stock increases. One might decide to short sell it if the price drops so that one can benefit from the decline.
- Knowledge and experience
Professional day traders have a vast wealth of knowledge of the marketplace. If one makes an attempt to day trade without understanding the fundamentals first, one risks losing money.
Technical analysis and the ability to read charts are handy skills to have, but one needs to understand the market to make sense of the data one retrieves through analysis. Take the time to diligently understand the nature of the product one is trading in.