Investors enter the stock market with one of two intentions: either to invest their capital in companies that they anticipate will provide exponential gains over the long term and not trade the stocks frequently, also known as stock market investing, or to invest their money and trade it on a daily basis to take advantage of corrections and short term price fluctuations. The second type of investor is one who engages in intraday trading.
Brokers may permit short selling in the short term as opposed to long-term stock market investment. Due to this, traders can sell a specific stock before purchasing it and then buy it back within a set period of time. This is used by intraday traders to gamble on the likelihood that the price of a stock will decline by selling it at a high price and buying it back at a low price within a set window of time. By placing their best wager on the shares they intend to purchase or sell and settling the transaction at the end of the day, an investor can also opt to simplify the intraday trading activities.
While there are a number of tactics that seasoned traders employ to examine and spot patterns in the movement of a specific asset. Intraday trading is riskier than investing, so beginners need to comprehend the fundamentals of trading to prevent losses.
What is Intraday Trading and How does it work?
Purchasing and selling stocks on the same trading day is known as intraday trading. Day trading is another name for intraday trading. Throughout the day, share values are constantly fluctuating, and intraday traders try to profit from these price changes by purchasing and selling shares on the same trading day. Before the market closes on the same day, stock purchases and sales are referred to as intraday trading. Your broker may square off your position or turn it into a delivery trade if you don’t do this. Whether a person is an expert trader or a novice, this type of trading is always advantageous because the market’s indicators and trends will correctly lead them.
What happens in intraday trading?
The trader either buys and sells the stock all at once or sells the stock all at once and then buys it back. Due to the net position being zero at the end of the day, intraday trading does not result in delivery. Therefore, intraday trading does not affect your Demat account.
Imagine that you wish to play a little movement in the stock that you anticipate in the upcoming two or three hours to better grasp how intraday trading operates. With intraday trading, you can take greater positions with a lesser broker margin because you must pay lower margins. Let’s examine how intraday trading operates in the Indian market. The basic idea behind this is to take advantage of the market’s short-term rise and fall in stock prices. Although you can use this intraday trading reasoning with both stocks and commodities, for this tutorial, we will solely focus on stocks. The markets swing both up and down on any given day because they are volatile. Intraday trading’s goal is to take advantage of these minute price changes and attempt to turn a little profit on both the buy-side and sell-side.
This is how intraday operates. The majority of intraday traders are agnostic, meaning they are willing to buy and sell shares within a single day. Although there are no strict guidelines, the basic rule is to stick with equities that have high liquidity and consistently fluctuate in response to external factors. You attempt to purchase low and sell high or sell high and then try to buy back low when trading intraday. This fundamental trading principle has not changed.
What intraday trading is and how to place an intraday trade. When placing an intraday order, you first state that it is an MIS order, which stands for same-day square-up. If you choose CNC trade, you will be required to pay the whole purchase price in advance. You can profit from lesser brokerage and higher margins if you choose an intraday MIS order and place a trade. You may, for instance, receive 4-5 times the leverage intraday. This means that if you invest Rs. 1 lakh, you can buy up to Rs. 5 lakh worth of stocks.
Basics Of Intra Trading
Experts have outlined a simple set of guidelines to help investors minimise losses when making stock market investments:
- The timing of entering a trade is critical, according to experts. It is advised that traders avoid entering trades during the first few hours of the market opening to avoid the volatility during those first hours and that they take positions between noon and one o’clock in the afternoon to enhance their chances of profiting.
- Intraday traders who are just starting out often invest enormous sums of money because they are so excited about their trades’ success. Even seasoned specialists struggle to accurately predict the market due to its volatility. As a result, traders should only put a minimal amount of money into each trade.
- To predict price changes objectively, a person should be familiar with the fundamentals of both technical analysis and fundamental analysis before engaging in intraday trading. Their trading plan must include research because it offers the traders an edge.
- Establishing your targets before you start trading can help you stay on track and exit transactions when it’s time, preventing excessive expectations. Another crucial tactic is to create stop losses so that, should the prediction start to go wrong, you may limit your losses and leave the transaction promptly.
- If the targets are not reached, traders may be tempted to stick to their positions and receive delivery of their stocks. This is strongly discouraged; instead, it is advised to withdraw positions on the day of closure, even if doing so will result in losses.
How Is Intraday Trading Different From Regular Trading?
Taking delivery of stocks is one of the main distinctions between intraday trade and regular trade. In intraday trading, regardless of profit or loss, the trader must close off the position the same day before the market closes. In contrast, depending on the category of the scrip, a trade resolution is made in a few days during regular trading when the trader has the option to remain invested for a while.
Additionally, in intraday trading, the ownership of the shares does not change; but, in the case of delivery, the ownership of the shares does change and the rights are passed from the seller to the buyer. After settlement, the shares are kept in the Demat account. Beginners frequently experience difficulty selecting the appropriate tools to execute trades and consequently incur losses.
How To Select Stocks For Intraday Trading?
Here are some factors to think about while choosing stocks for intraday trading and locating information on how to choose stocks for intraday trading the day before.
- Liquidity
The liquidity of stock must be high to guarantee that you can buy and sell stocks at any time. Buying equities with high liquidity also involves taking into account their typical high volume. Consequently, you can purchase and sell in bulk without having an effect on the stock price. Make sure to evaluate the liquidity at various price levels before selecting highly liquid equities. Even though some stocks may be highly liquid at bargain levels, volumes might quickly go off at a certain point. Knowing this will enable you to purchase them at the appropriate moment.
- Volatility (Medium-to-High)
Day traders only profit when the price moves in the direction they anticipate. Occasionally, if the price moves contrary to expectations, traders may incur losses. If the stock price is erratic, they can place more intraday orders and profit from favourable price changes. But keep in mind that investing in equities with a high degree of volatility can backfire if the rise or fall is too abrupt. Although there is no set guideline, the majority of intraday traders like equities move between 3 and 5% each way. Although there is no set guideline, the majority of intraday traders like equities with a 3-5% range of daily movement on each side.
- Market Trends
Markets frequently go higher or downward depending on various economic, political, social, and other reasons. Stocks and markets can be correlated positively or negatively. In other words, depending on how the markets perform, stock values may rise or fall. So, while buying stocks for intraday trading, it’s crucial to keep this correlation in mind.
- Sector Trends
The market can be segmented into a number of industries, including banking, FMCG, technology, pharmaceuticals, automotive, oil & gas, and pharmaceuticals. Keeping up with the performance of all economic sectors is crucial for intraday traders. You might hunt for companies in that area to invest in if you can find any sectors that have been consolidating for some time and are about to break out.
You can also look at peer stocks from the same sector that is in the possible-breakout area if you notice any firms that have achieved significant gains but you didn’t take advantage of the advance.
- Stock market momentum
The momentum of a stock is defined as the rate of change in price over time. This can aid in identifying how strongly the stock price is trending higher or downward. A stock is referred to as a momentum stock if its price moves with the momentum’s force. Day traders utilise these stocks to buy when the market is rising or sell when it is falling in order to make a profit.
- Technical Evaluation
You can do a technical analysis of stocks to find buy or sell signals using a number of strategies in addition to a stock’s momentum. Stocks with gaps in their stock prices in either direction can be examined. For day traders, these gaps can present profitable chances. Technical analysis can also be used to identify equities that are breaching their support and resistance levels.
Best Intraday Trading Strategies
- Momentum Strategy
Momentum is a trading strategy based on the premise that if there is the sufficient force behind a stock’s movement, it is likely to continue in the same direction. When a share’s price undergoes a significant fluctuation, it attracts the attention of traders and is consequently propelled in the same direction. This trend persists until a substantial number of sellers enter the market. When these sellers are numerous enough, they affect the direction of the asset’s price and cause it to decline.
On the basis of volume, volatility, and period, the momentum of a price movement is determined. Volume is the number of assets that are exchanged during a given time period. The volume is significant because it influences the trader’s capacity to sell the asset on the market, i.e. liquidity. The volatility of the market impacts the magnitude of price fluctuations. The length of the period depends on how long the price movement continues in the expected direction.
- Gap and Go Trading Technique
The Gap and Go Strategy relies on volatility during the early hours of the market, despite the fact that experts advise avoiding it. It runs on the notion that if the market opens at a price that is at a gap from the previous closing price, then it is likely that the price will go further in the same direction. There is a fundamental reason supporting this type of price movement; traders seek this reason (news, earnings, public relations, etc.) to confirm their prediction. These gaps are a consequence of investor trading behaviour during pre-opening trading sessions. The technique finds big transaction volumes during pre-market sessions and forecasts the price movement.
- Reversal Trading Strategy
The reversal Trading Strategy is also referred to as Pullback Trading Strategy. This approach includes trading on the stock in anticipation of a price trend reversal. The trader wagers against the stock’s price movements. For instance, the forecast is that the price of a previously rising stock will decline after the reversal. The trader enters a position at a support level, i.e., the price level at which a stock’s price tends to halt its downward price trend. Traders are on the lookout for equities that have reached market extremes, such as new highs or lows. As soon as the trader detects a movement reversal, they enter the transaction. Traders attempt to remain as close as feasible to the support levels in order to maximise earnings.
- Moving Average Crossover Strategy
The method involves considering two moving average indicators, one with a shorter time horizon than the other. It attempts to determine a point where the shorter-term moving average curve meets the longer-term moving average curve. This incident may imply that the long-term price trend is about to reverse in accordance with the shorter-term moving average curve. The Golden Cross occurs when the longer-term curve crosses the shorter-term curve from below, whereas the Death Cross occurs when the longer-term curve crosses the shorter-term curve from above. These crossings signal that a particular stock trend has concluded or that a trend reversal has begun.
- Breakout Trading Technique
Under this technique, the trader looks for support and resistance levels, which are price levels below or above which the stock’s price does not often rise. They then wait for the price to break out of these levels before entering the trade with the expectation that it will continue to move in the same direction. A breakthrough occurs when the stock price moves beyond these levels. Traders use trendlines and horizontal lines to determine and trade based on these levels. The Rs. 20 price level is more likely to be a support or resistance level than Rs.
FAQs
-
What is the easiest trading strategy?
The breakout trading technique is the simplest day trading method; news must be responded upon swiftly, and then the trader must watch the market generate profits.
-
What is a reversal trading strategy?
The investments are made contrary to market trends, and with the aid of calculations and analysis, the trading will recover and generate a good return. It is risky, particularly for newcomers, as it necessitates greater market expertise and experience.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch/hear on YouTube:
Start investing through a platform that brings goal planning and investing to your fingertips. Visit Kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.
#MutualFundSahiHai #KuveraSabseSahiHai!
