Intraday trading, often known as “day trading,” is the process through which traders buy and sell stocks on the same trading day, with no open positions remaining at the end of the trading day. Their primary activity is purchasing stocks at a discount and then reselling them at a profit. In rare situations, they also short-sell shares by purchasing them at a premium and then reselling them at a loss the same day.
Investors must have a thorough understanding of the market and be aware of market trends in order to engage in such a risky activity. The trader must be able to make the appropriate decision at the right time in order to profit in this situation. The price of a share on the stock market is influenced by several different factors, including supply and demand.
If one trades without analysing price charts, they are trading incorrectly. If they continue to trade without the use of technical analysis, there is a significant risk that they can lose everything they have invested. And for the same reason, employing any tools or performing technical analysis before investing is crucial. Technical analysis is built on the price and volume of the stock, both of which are crucial inputs. The traders have proven to benefit greatly from tools like candlestick charts patterns.
Intraday Trading
The process of buying and selling stocks on the same day, just before the market shuts down, is known as intraday trading. The objective is not an investment per se but rather trading for quick profits by controlling the movement of stock indices. In order to profit from stock trading, the variations in share prices are therefore regularly monitored. The most crucial item to remember while engaging in intraday trading is to clearly state the respective orders; if one does not, their broker may square off the position or convert the trade into a delivery.
As already mentioned, intraday trading is the buying and selling of stocks on the same day. This method is also known by many traders as “day trading.” Even while it seems simple, investing in the stock market this way could be riskier. To prevent losses, it is crucial for traders, especially new traders, to comprehend the finer points of such a trading approach.
Let’s say someone decides to invest in specific stocks of a company. In that case, they must first and foremost precisely specify “intraday” on the trading platform they choose. By doing this, the customer is telling the broker that they want to trade the same company’s stocks on the same day before the market closes.
Candlestick Charts
The candlestick charts are the most commonly used tool utilised by traders. The price graph is shown as a series of candles in this chart, which is also why it is known as a candlestick charts. They quickly convey information such as trends, bullishness or bearishness, volume, etc. There are red and green candles on the chart.
Every candle provides information on the opening, closing, and range of trade prices over a specific period of time. Even if one is merely an investor, it is best to have knowledge of the candlestick pattern. This chart can also be used to determine the ideal time for entry and exit points.
The body of the candle displays the opening and closing prices for the period’s trading activity. This information is crucial for candlestick trading. Consequently, traders may quickly examine the price range of the said stock during the said period. Additionally, the body’s colour can indicate whether the stock price is rising or falling. Wicks or shadows, which are vertical lines above and below the body, show the lows and highs of the stock’s trading price. Here is an example:
A red candle with a short upper wick could suggest that the stock opened near the day’s high. On the other hand, a green candle with a short upper wick might suggest that the stock closed near the day’s high.
Consequently, a candlestick graph shows the correlation between a stock’s high, low, opening, and closing prices. The body might be red or green, and it can be long or short. Shadows can be short or long. These factors, taken together, show how the market feels about the particular stock. These specifics must be understood in order to comprehend a candle chart.
Candlestick Charts Patterns
A great technique to comprehend investor sentiment and the dynamics of supply and demand, bulls and bears, etc. is through the use of candlestick charts. Traders must keep in mind that while a single candle offers significant information, patterns can only be identified by contrasting a single candle with its preceding and following candles. It’s critical for traders to comprehend candlestick charts patterns in order to take advantage of them.
Let’s separate the patterns into two parts for easier understanding. Both patterns are essential for candlestick chart analysis.
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Bullish patterns
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- Hammer pattern: This candle has a long lower wick and a short body. It is typically found at the bottom of a downward trend. It suggests that a significant buying rush drove the prices higher despite selling pressure. A stronger bull market is predicted by a green body than a red one.
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- Inverse hammer pattern: This candle has a long upper wick and a short body. Additionally, it is typically found at the base of a downward trend. It usually means there was first buying pressure, then selling pressure. It also suggests that buyers will soon have control.
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- Bullish engulfing pattern: This is a two-candlestick pattern where the first candle is a short red candle that is engulfed by a big green candle. It denotes a bullish market that drives the price upward in spite of the price opening lower than the day before.
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- Piercing line pattern: A long red candle is followed by a long green candle in this two-candle pattern. Additionally, the second candle’s closing price must be higher than halfway up the first candle’s body. This suggests significant buying pressure.
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- Morning star pattern: This three-candle pattern consists of one candle with a short body positioned between a long red candle and a long green candle. The short candles and the tall candles typically don’t overlap. This signals a drop in selling pressure and the beginning of a bull market.
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- Three white soldiers pattern: This pattern features three green candles with small wicks arranged in a three-candle pattern. These candles open and close higher than they did the day before. After a downtrend, this is a strong indication of an upcoming bull trend.
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Bearish Patterns
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- Hanging man pattern: This candle has a short body and a long lower wick. It is frequently found at the top of an upward trend. It shows that there were more selling pressures than buying thrust. It also indicates that bears are gaining control. It shows that there were more selling pressures than buying thrusts in the market.
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- Shooting star pattern: This candle has a long upper wick and a short body. Furthermore, it is typically found at the top of an upward trend. The market typically starts the day higher than the previous one, rallies a little, and then crashes like a shooting star. It indicates selling pressure taking over the market.
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- Bearish engulfing pattern: This is a pattern of two candlesticks in candlestick charts analysis where the first candle is a short green candle that is engulfed by a large red candle. Typically, it happens at the top of an upward trend. It indicates a slowdown in the market’s rise and an upcoming downtrend. The decline is typically more significant if the red candle is smaller.
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- Evening star pattern: This three-candle pattern contains a short-bodied candle in between long-bodied candles in red and green. The short candles and the tall candles typically don’t overlap. This is an indication of the reversal of an upward trend. If the third candle outperforms the first candle’s gains, this becomes more significant.
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- Three black crows pattern: Three consecutive red candles with short wicks make up this three-candle pattern. These candles open and close lower than the previous day. This is a strong indication of an upcoming bear market after an upward trend.
Intraday Trading Indicators
Whether a person is a seasoned investor or a beginner, they may find it difficult to deal with the multiple events that are occurring at once during intraday trading. Therefore, while performing some tasks, keeping an eye on the trends and indications can be very helpful for India’s intraday trading. Some of the indications that can be used in day trading are listed below:
- Moving average: We are all familiar with the concept of averages because it is taught in schools. Moving average is merely an extension of the same concept. The moving average is a trend indicator that appears as a line on charts and displays how a stock has behaved over a given period of time. These graphs show an individual stock’s opening and closing rates. The lowest average line on the graph displays the stock’s average closing prices for that time period. This assists in determining the flow of the stock and completely understanding price changes.
- Bollinger bands: These are also among the most widely used technical analysis tools for displaying the stock’s standard deviation. The moving average, the upper limit, and the lower limit are its three lines. These lines show the band or volatility range in which the price of a specific stock can go either up or down. These changes in stock price over a specific time period help in identifying price variations, and one might invest using these findings.
- Momentum oscillators: Stock prices are extremely volatile and mostly based on market conditions. A trader could use momentum oscillators to predict whether a stock will rise or decline over a specific time period. It indicates whether a stock would continue to rise or fall and is displayed in the range of 1 to 100. This in turn assists a trader in figuring out when to buy a specific stock.
- Relative Strength Index (RSI): A momentum indicator that is useful in technical analysis is the relative strength index. It measures how much the stock’s price has changed over time. Additionally, it shows graphically when a certain stock is bought or sold at the highest price and runs from 1 to 100.
Conclusion
A key part of understanding how to read a candlestick charts is understanding chart patterns. There are numerous other patterns that can be observed to comprehend market trends and moods. To realise sufficient gains, an investor needs to have a thorough knowledge of the intricate functioning of the stock market. For a new investor aiming to make capital gains, it could appear intimidating. In these situations, it is crucial to choose securities from the appropriate company, which necessitates a careful review of the financial records.
When it comes to trading stocks intraday, market volatility is crucial. Investors may experience losses in the event of unanticipated market fluctuations. Since the technical analysis of markets is based on historical volatility, it may not always be completely correct.
Frequently Asked Questions (FAQs)
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What are some advantages of intraday trading?
Transacting in intraday share has some of the following advantages:
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- Chance to earn a regular income: Even though intraday trading carries some risk, it also offers significant potential rewards. You might simply develop a secondary source of income by developing a well-organized investing strategy and trading for just a few hours each day.
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- Lower commission charges: Stockbrokers charge minimal commissions when trading intraday stocks because there are no delivery charges involved in transferring securities in an investor’s name. Brokerage fees include all taxes, including stock transaction tax, trading fees, services tax, and others; as a result, an investor’s income is reduced. Brokerage costs for stocks traded intraday are typically less compared to those incurred when conventional trading is conducted.
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- Higher profits: When appropriate investment strategies are used, intraday trading has a reputation for generating significant wealth for investors. A rising stock market makes it simple to accomplish capital appreciation. Short selling is a strategy used by intraday share traders to profit from unfavourable market conditions.
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- Liquidity: Another advantage of intraday trading is that all capital investments could be swiftly recovered at any time. It is not blocked through an asset purchase transaction. As a result, an investor’s desire for liquidity to meet any personal needs is preserved.
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- Capital gains through market fluctuations: With the right investment approach, investors could make money through intraday trading in both bullish and bearish markets. The purchase and sale of securities listed on a stock exchange might result in capital appreciation in a bullish market. In the event of a stock market downturn, profits can be generated through short-selling financial instruments.
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