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What Is Intraday Trading?

Asefa Hafeez
intraday-trading-strategy

Traders make financial gains from the stock market in different ways. Some hold their investments for the long-term to generate wealth over time, while others engage in short-term trading for some quick gains. Intraday trading is a trading option with the shortest investment period.

With the advent of digital trading, many individuals have turned to intraday trading for an additional source of income. However, it is not the easiest trading method, and you need to understand its rules, mechanisms, and risks to be successful.  

Read along to learn the meaning of intraday trading, its basic requirements, intraday trading strategy and more.

 

 

What is Intraday Trading?

 

Also known as day trading, intraday trading involves buying and selling stocks on the same trading day. Stock prices fluctuate throughout the day, and traders use this to their advantage. To make a profit, you have to buy shares and sell them at a higher price before the market closes on the same trading day. 

Another way you can make money from intraday trading is via short-selling shares. Short selling involves selling shares that you do not own when trading. In this, you buy shares with the help of the brokerage and sell them at current market prices with the expectation of a price decline. 

When the share prices decrease, you buy back the shares you need to return and make a profit. With intraday trading, you can sell a stock at the beginning of the day and cover your position at the end of the day. As a result, you do not need to take delivery of the shares for short selling them. 

If you fail to do so before the market closes, you have to square off all your positions or convert it into a delivery trade. Besides stocks, intraday trading is also applicable for commodities, derivatives, and ETFs (exchange-traded funds). 

In this trading method, you have to study and evaluate market movements to predict stock prices. Based on such information, you need to purchase stocks during the day when the market closes and sell them before the market closes. 

You should look at relevant trends and indicators for intraday trading irrespective of whether you are a beginner or an experienced trader. As a trader, you also need to make quick decisions due to the fast nature of intraday trading. Otherwise, you can miss chances to make profits or prevent further losses.

 

Best Intraday Stocks For 2022:

The Most Active Stocks are the one that are used of intraday trading. Here is the list of best performing intraday stocks in 2022:

 

Company  NSE Code  Industry  Market Cap (Cr) P/E Ratio 
Tata Motors  NSE:TATAMOTORS  Four Wheelers  1,41,781.77 -12.39
SBI NSE:SBIN Public Banks 4,02,276.86 11.37
CIPLA NSE:CIPLA  Healthcare 75,695. 29 29.93
Axis Bank NSE:AXISBANK Private Bank  1,95,492.53 13.89
JSW Steel NSE:JSWSTEEL Iron and Steel  1,38,847.84 19.28
Adani Green  NSE:ADANIGREEN Renewable Energy  2,86,567.32 587.23
Wipro NSE:WIPRO  IT Services & Consulting 2,32,339.50 19.0
Oil and Natural Gas Corporation Ltd.  NSE:ONGC  Oil and Gas 1,74,991.68 3.84
Bharti Airtel  NSE:BHARTIARTL Telecommunication  3,70,339.89 87.04
Infosys  NSE:INFY IT Services 6,08,072.84 27.50

 

*(Data as of June 21, 2022)

 

Basics of Intraday Trading

 

The following points list all the basic facts of intraday trading:

 

You can engage in day trading on online intraday trading apps. Choosing a broker and trading platform that charges the least fees is important as you will trade frequently.

 

You need to be prepared to lose money for intraday trading. You will need to track the market and time the trades efficiently. Furthermore, you should have adequate time and skills for carrying out technical analysis to make the correct decisions.

 

To execute an intraday trade when buying shares, you will have to choose the ‘intraday’ option on the platform. It allows users to buy/sell shares of the same company on the same day and get profits. 

 

Timing is crucial for intraday traders as share prices can move unpredictably. Taking a position at the wrong time can be the difference between profits and losses. Experts say that the best intraday trading strategy is to avoid taking a position within the first hour of trading due to high market volatility. 

 

It is essential to choose stocks with high trading volumes so that you can execute such trades. Some experts recommend choosing highly liquid stocks such as large cap stocks for this reason. 

 

Benefits of Intraday Trading:

 

Here are some of the reasons why some traders participate in intraday/day trading:

 

 

 

 

 

Indicators for Intraday Trading

 

Whether you are a beginner in intraday trading or an experienced investor, you will want to keep track of all the relevant trends and indicators. Some of these indicators are discussed below:

 

 

 

 

 

How to Choose the Right Stocks for Intraday Trading?

 

Selecting the right stock is an essential part of intraday trading strategy. Given are some of the tips and tricks you can follow to choose the right stock:

 

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Things to Consider before Engaging in Intraday Trading

 

Intraday trading is considered one of the most volatile trading categories. Therefore, you will want to know at least the basics of how the stock market operates to have better chances of earning profits. This includes knowing how to conduct analysis of stocks and understanding stock price trends.

 

To get returns from intraday trading, you need to expose your investments to higher risks than long-term investments. You will need to be a speculator willing to take high risks to place high-value trades using margin trading. While you can make an extraordinary amount of cash, you also stand a chance of losing money.

 

Before you start your intraday trading journey, you will first need a best trading app and Demat account. You can get this from any SEBI-registered stockbroker. As you need to trade daily, choosing the right stockbroker is essential. Check which one offers the lowest brokerage fees, the quickest order fulfilment, and high-quality customer support.

 

To make profits, an intraday trader needs to employ and execute the right trading strategy. First-time traders will likely face difficulties in making the right move at the right time. Thus, they should learn several successful intraday trading strategies and enhance their trading skills. 

 

Day traders perform technical analysis of a stock to check the volatility in price and volume. This includes analysing historical trends of a stock’s price to predict its price. Brokers offer various analytics, charting tools and support to help you make an informed decision. 

 

A trader needs to know all the tips and tricks for choosing the best stocks for intraday trading. Choosing a highly liquid stock is beneficial as it makes trading easier. Traders should also look at all available options across different sectors and consider hedging against unexpected changes in the market.

 

Final Word

Intraday trading occupies a niche among stock market investors as it allows them to make a quick buck within a day. While it is the quickest way to earn money, it carries considerable financial risk. 

You will need to have proper knowledge of the technicalities of intraday trading to be successful. Fortunately, many brokers offer a number of online tools, including intraday trading charts, platforms, and technical indicators, to make things easier for traders. 

 

Frequently Asked Questions

 

Follow the given steps to get started on day trading:

 

Step 1: Open a new trading and Demat account.

Step 2: Use your knowledge and market research to speculate the prices of a stock, for example, stock X.

Step 3: At early trading hours, buy a lot of stock X at price R and wait for a few hours.

Step 4: If your guess is correct, the price of stock X will go up. 

Step 5: Place a sell order and pocket your profits. 

 

. The main principle behind short selling is benefitting from the negative value of stocks. While most traders and investors wait for share prices to increase, those looking for short-selling hope for prices to fall. 

In markets with excessive long positions, a market crash becomes more likely. This presents a great opportunity for short-selling shares which may decrease some of the froth from the markets. Besides speculation, investors can also hedge to mitigate the risks of his/her long positions. 

 

A stop-loss order tells the broker to buy or sell a particular number of shares on a precondition that the shares reach a certain price. It is designed to limit your losses automatically.

Owing to the high risks of intraday trading, most experts consider this facility to be essential. Without a stop-loss order, you could end up holding positions with unmanageable losses.

 

Leveraging is a trading facility that allows investors to borrow money from their brokers to get high investment returns. They can use this to increase their exposure to the market while paying less than the full price of their investments. 

You can use this facility to take a ‘long’ position in day trading. It is recommended to not overstretch leveraged positions in day trading to safeguard against substantial losses.

 

In day trading, you must sell the stocks that you have bought on the same day. If you fail to do so, some online platforms allow you to convert them to delivery trades while others square them off at market prices. 

In delivery trading, you can do whatever you want with the stocks once you have bought them. You can sell it the next day or hold it for however long you want.

 

Interested in how we think about the markets?

Read more: Zen And The Art Of Investing

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