All About Intraday Trading

Overview

Are you one of those who purchased certain stocks or securities on your friend’s recommendations and are still waiting to recover its costs? Though long-term investing has benefits, sometimes you may have to wait indefinitely to achieve the profits you initially anticipated to get out of it. Therefore, intra-day trading is a common type that requires traders to have sufficient information and acumen to succeed in the stock market. Compared to other forms of trading, intra-day trading might involve a higher degree of risk, but the success achieved depends on the knowledge and due diligence of the trader to make quick profits. Traders who are new to Intra-day trading do not have much idea about how to make money from/in the stock markets.

To succeed in the trading process, the trader also needs to know certain practical and psychological intraday trading tips, which could be acquired through experience and with the right amount of patience. If you are new to intra-day trading or even trading, read this article to learn about the basic concepts related to intra-day trading along with some valuable tips & techniques that could be used when trading on the Indian stock market.

What is Intra-day Trading?

Intraday trading involves the process of buying and selling stocks within the same day without any actual delivery of shares in the Demat account of the buyer. Such stocks/shares are purchased not primarily with the intent of investment but to earn profits by leveraging the stock indices movements occurring due to market fluctuations. Here, it is worth mentioning that the fact that distinguishes a regular trade from an intra-day trade is related to the delivery of the stocks. While in intraday trading, a trader could square off his position on the same day, and the sell order cancels out your buy order causing no actual change in the ownership of the shares. However, in the case of a regular trade, a transaction is completed over a few days, and the buyer receives delivery of the shares you purchased, while the shares sold are debited from his demat a/c.

Key features for Intra-day trading-

• Intra-day trading does not involve the delivery of shares into the Demat account.
• In the case of intra-day trading, the transaction needs to be settled within the same market day.
• Your broker will offer leverage in accordance with SEBI regulations. Small price changes can result in larger moves in your invested funds due to the use of leverage.
• Small price changes can result in larger changes in your invested capital due to the use of leverage.
• Researching the stocks, you wish to trade, carefully examining the chart using indicators, developing your trading strategy, and incorporating a stop-loss to guard against significant losses are all necessary for intraday trading.

How does intraday trading work?

As the name indicates, Intra-day focuses on initiating and concluding a trading transaction within the same day. In such cases, either the trader buys and sells on the same day or sells the stock and then buys it again on the same day. And, since the net position at the end of the day shall be zero, intra-day trading does not ultimately result in any delivery, causing no effect whatsoever on your Demat account. The intraday stock movements are greatly influenced by market outlook, and if a trader wants to profit from intraday trading, the deal must be based on stock market movement.

For instance, instead of waiting for that big move in a bullish stock market, buy and sell a few times to make small profits. Similar to the last example, if the market is bearish, you can short-sell and purchase at lower levels to make a few small profits throughout two or three deals. The latest developments continually influence market sentiments, so keeping track of stories and events that can impact the market’s sentiments on a given day might pay off. Emotional variables are also highly significant in earning.

When it comes to making money from intraday trading, emotional considerations are also crucial. There are no shortcuts in intraday trading, but one may make a solid living by studying and gaining experience, so it’s crucial to realise this if you’re asking how to make money in the smallest amount of time. Intraday trading is a short-term trading method, so you must conduct extensive research before starting.

Difference between Intra-day trading and delivery trading 

It is simple to infer that an intra-day transaction is generally completed within one day. This typically implies that any shares purchased throughout the day must be sold before the markets close at the end of the day, and in case there is no sale made at close, the shares will be automatically squared off. Deliveries-based trading allows purchasing shares that can be held for longer and gain higher returns. Unlike delivery trading, which requires full payment for all transactions, intraday trading allows for modest capital accounts and margin payments.

If a trader can analyse and anticipate the value of shares during short, distinct time intervals, he should consider intraday trading. However, the ability to anticipate price fluctuations can be achieved through the implementation of multiple technical tools.

However, delivery trading may be a better option if a trader believes long-term investing is more compatible with their objectives and can pick shares based on crucial factors such as price-to-earnings ratio, book value, etc.

Benefits of Intra-day Trading 

The following benefits come from trading intraday shares-

• Lower Risk-In intraday trading, significant losses are avoided because shares are bought on the same day. However, when the principal is kept fixed for a long time, price swings might be large in regular trading, leaving an investor worse off during bear markets.
• Lower Commission Fees– Stockbrokers charge minimal commissions when trading intraday equities because there are no delivery costs involved in transferring securities in an investor’s name. Brokerage fees include all applicable taxes, including stock transaction tax, trading fees, services tax, and others; these deductions lower an investor’s take-home pay. Brokerage costs for stocks traded intraday are typically one-tenth of those associated with ordinary trading.
• Higher Profits- If precise investment tactics are used, intraday trading has a history of producing significant wealth development for investors. In an expanding stock market, capital appreciation is simple to attain. Trading intraday stocks employ the short-selling strategy to generate profits when the market is unfavourable.
• Liquidity- Another advantage of intraday trading is that capital investments can be swiftly recouped at any time. A transaction for the purchase of assets does not prohibit it. Investors’ demand for liquidity to meet their personal needs could be easily met.
• Gains from Market Volatility– Investors can make money through intraday trading in bullish and negative markets depending on the investing technique used in such circumstances. By buying and selling securities that are listed on a stock exchange, one can increase their capital in a positive market. Profits can be made by shorting financial instruments in the event of a stock market decline.
• Associated Risks- To achieve sufficient returns, an investor must possess an in-depth understanding of the complex operations of the stock market. It could appear intimidating for a beginner investor wanting to make capital gains. In such circumstances, choosing shares from the right company is crucial, necessitating careful financial data research. When it comes to trading stocks intraday, market volatility is a significant factor. Investor losses are possible in the event of unanticipated market changes. Because technical analysis of markets is based on historical volatility, it may not always be accurate.

Best Strategies for Intraday Trading

For beginners engaged in Intraday trading, realising the greatest strategies inside to evade any profits or losses within a short span is imperative. The investor makes a good profit or faces higher losses depending on the level of understanding and knowledge in the case of intra-day trading. And if he fails to employ the right strategies, intraday trading can result in losses. Some of the best intra-day trading strategies include-

Momentum Trading Strategy

An intraday trader must research and execute trades in response to market conditions before substantially shifting the market’s tendencies. News articles about stocks that have the potential to move the graph in either an upward or negative direction make it easier to choose a stock. However, the direction of the data will depend on external factors, and an immediate investment choice must be taken. An intraday trader’s role is to study market trends and trade accordingly. They must remember that data will either go upwards or downwards depending on external factors, and a quick decision must be made in the form of investment. Momentum trading strategy requires speed in investments as soon as the news breaks out, and the duration of securities held is based on the analysis of market trends that are followed closely and every day provided. Momentum’s trading strategy requires speed and analysis of market trends to ensure the right decision is made.

Breakout Trading Strategy

Timing is the most important element in trading, especially for intraday traders. Timing is crucial when deciding whether to enter a trade using a breakout trading technique. It necessitates determining where stock values rise above or drop below the specified time. Investors contemplate buying stock and taking long positions if the trend drives prices above the threshold level. When prices drop below the cut-off mark, on the other hand, the investor may contemplate taking on short positions or selling the stock. The breakout trading technique is based on the premise that prices will become more volatile and move with the trends if they cross the threshold marks.

The Gap-And-Go Trading Strategy

Equities could open with a gap from the previous day without pre-market volume. Gaps are referred to as either gap up or gap down, depending on how much higher or lower they open compared to the previous day. When news serves as a catalyst, these situations happen. These stocks are sought after by intraday traders who bet on them, hoping that the gaps will close by the conclusion of the trading day. This technique is ideal for you if you want little, rapid returns with little risk.

Crossing the moving averages technique

Stock market trends are one of the most common indicators of market performance, but there needs to be a point of distinction, and the moving average is one such point. The phrases “uptrend” and “downtrend” refer to values that are moving above and below the moving average. Choosing these stocks at the proper time is crucial to the moving average crossover approach. These can be improved with the aid of catalysts, such as news about the stocks directly or indirectly.

How to choose stocks for Intraday Trading?

The first and foremost step towards starting intra-day trading shall be picking the right stocks. If you can get the expected returns, it makes investing money & time valuable. Otherwise, it does feel like an inefficient use of time. Here are some useful strategies to be considered while engaging in intra-trading-

Understand the basics of stocks- To succeed as a day trader, you must thoroughly understand the market and how stocks operate. Most intraday traders identify a specific area of interest and focus on researching a few shares in that industry. Before trading stocks, it’s crucial to comprehend corporate policies and stock behaviour.

Steer clear of volatile stocks- It is generally best to avoid things that appear unstable. Why invest in something that may never allow you to get your money back? Therefore, monitoring stock behaviour and considering trading with potentially steady stocks is advisable.

Compare stock prices with geopolitical trends- It is preferable to invest in stocks that have a connection with significant sectors. A rise in the sector index could also have a favourable impact on the stock price. The Indian Rupee’s strength versus the Chinese Renminbi, for instance, would impact the iron industries. Consequently, it would result in a rise in revenues from exports and an increase in stocks. Choosing stocks will benefit you if you choose equities to the existing market conditions.

Research- The fundamental processes in trading involve looking, analysing, and comprehending. Unless you genuinely have luck on your side when trading, nothing goes according to plan without appropriate calculation. Completing research before trading is vital because luck does not often display its grace.

Aware yourself of the upwards and downward market trends- Sometimes, it makes more sense to follow the crowd than to venture out independently. As a trader, you should familiarise yourself with market patterns and look for stocks that have drawn the most attention from other traders or the market’s flow. In general, investors should retain stocks when the market is moving upward and short-sell them when the market is bearish. Depending on various factors, the stock market undergoes a variety of upwards and downwards, making it necessary to adopt a broader perspective while making intra-day trading decisions. Trading in stocks is usually a smart move because most equities vary with the ups and downs of the market. Maintaining a distance away from certain stocks is wise since they are occasionally unpredictable and exhibit unusual behaviour.

Understand right entry and exit prices- An intraday trader must identify the right prices for entry and exit in the stock market. This can be done by finding the base price of a stock and comparing the current prices with the support and resistance prices. The base price should be the most important detail, as it determines when the stock prices are about to rise. If the prices fall below the base value, the traders may sell the shares at their support prices. As a result, for a successful intra-day trade, it will be crucial to follow the strategies mentioned above and make any trading decisions in haste.

Book your losses- This is a crucial component of reducing losses. You specify a stop loss value. This reminds your brokers to sell off the stocks if the price falls below that level. If you set your stop loss at 5% below the cost price, then the most you can lose is 5%. Even though this is crucial in limiting market losses, traders frequently disregard it. As a result, individuals can spend a long- time holding equities that are declining in value or suffer significant losses while attempting to sell them.

Final Words

To become successful as an intra-day trader, it is important to know certain strategies to pick stocks for intraday trading. People often set unrealistic expectations and choose the wrong stocks to trade during the day. However, if you keep patience, move steadily, keep attention to market changes, and make timely decisions, you will gain experience and ultimately learn the knack for selecting the right stocks for effective intra-day trading. So, what factors influence day trading success? Regular market analysis, trading restraint, and stock market knowledge are all crucial. Thus, if you desire to learn intra-day trading, open a commodity trading account with Bigul.com, and start your journey in the right direction!

FAQs

1. Who should take part in intraday trading?

An intraday trader normally has 5–6 hours each day to purchase and sell. Hence, any motivated, informed person with a risk appetite who agrees to undertake certain profit & loss restrictions could participate in intra-day trading.

2. What are self-generated intraday trades?

When a customer actively sets buy and sell orders through an online platform, this is known as self-generated intraday trading.

3. When is the ideal time to undertake intraday trading?

It is necessary to take a position by the trader and close it out before the trading day ends. Intra-trading in equity markets typically starts at 9:15 am and ends at 3:15 pm. Generally, intraday trading is at its greatest within the first or second hour once the markets open. Most stocks develop a price range that could be used to guide trading decisions in the first thirty minutes of trading.

4. Are the intraday shares eligible for sale the following day?

Intraday shares are automatically delivered to your account even if you don’t trade them that day. The brokerage house’s policy will, however, determine how it operates. Delivery options and intraday options are two categories that certain broking organisations have. The reason for this is that each category receives a separate brokerage fee. At 3:00 pm, shares chosen for day trading under the intraday category will be automatically sold.

5. What exactly does a stop loss mean in intraday trading?

Stop loss is a feature for intra-day trading that enables the trader to square off order in cases where the price shifts unfavourably to minimise investors’ losses.