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Intraday trading, also known as day trading, is one of the most popular trading methods involving buying and selling financial securities on the same day. So, this type of trading consists of no delivery of shares into your Demat account. Traders looking to make quick profits by taking advantage of small price fluctuations are practitioners of intraday trading. And since there is no delivery involved in this trading method, intraday traders don’t have external factors that could affect their positions the next trading day. With the total number of Demat accounts increasing steadily in India, many new traders are stepping into the market to make profits through intraday trading.
However, at the same time, day trading is also considered a riskier approach compared to other trading styles. That is because a slight fluctuation in the price can help you make handsome profits or severe losses. Unlike value investing, which falls on the other side of the spectrum, intraday traders cannot sit comfortably on notional losses. They have to act promptly but still ensure their decisions are prudent. So, in this blog post, we will discuss some intraday trading tips and strategies to help you become a successful day trader.
Table of Contents
Intraday Trading Tips for Beginners
Let us look at some intraday trading tips for beginners, and then we will focus on intraday trading strategies. So, mentioned below are some tips that can help you start as an intraday trader.
Understand the Markets
First and foremost, it’s essential to have a clear understanding of the market and the financial securities that you are trading. So, you need to study and comprehend different market trends and behaviours. It also involves familiarising yourself with key trading terms. For starters, understand the meaning of terms like bull markets, bear markets, support, resistance, and liquidity.
Have a Plan and a Goal
After developing a fair understanding of the market, the next step is to construct a plan that will help you achieve your goal, which, in the case of intraday trading, is profits. However, remember to set a realistic goal, as intraday trading will not double or triple your money. Your plan or intraday trading strategy must adhere to a set of rules. Those rules help you determine when to enter and exit trades, as well as how much money to invest in each trade. A robust trading plan accounts for your own personal risk tolerance apart from your financial goals.
Implement Technical Analysis
Now, you cannot construct intraday trading strategies out of thin air. Technical analysis is the building material that puts your structure, which is the plan, together and helps time your trades. Now, there are two methods of analysing securities: technical analysis and fundamental analysis. However, as an intraday trader, you will primarily be concerned with the technical aspects.
That said, technical analysis involves using charts and other tools to identify patterns and trends in the market. Critical facets of technical analysis include understanding the price action, demand zones, and supply zones. Understanding price action, trends, and various chart patterns will help predict the price of a security. At the same time, it will assist you in developing risk mitigation strategies.
Don’t Ignore Risk Management
Risk management is crucial for intraday traders. It’s important to have a clear understanding of your risk tolerance and to implement strategies to manage your risk effectively. As a trader, one of the most important risk management practices is to always use a stop loss. A stop loss order sets a maximum loss limit for each day and automatically sells security if it reaches a specific price. Here, again, you determine your stop loss level using technical analysis.
Keep an Eye on the News
As an intraday trader, you must not only monitor your trades closely but also keep an eye on the overall market. News events can have a major impact on the markets, so it’s important to keep an eye on the news and be ready to react to any major developments. This might include keeping an eye on economic indicators, such as employment numbers or gross domestic product (GDP) growth, or following news about specific companies or industries.
Choose Stocks Suitable for Intraday Trading
As an intraday trader, you want to focus on highly liquid securities, such as stocks of large companies that are regularly traded on the stock exchange. In the Indian context, it could be stocks that make up major indices like the Nifty 50 index. This is because these securities are more likely to have stable prices and low volatility, which can help reduce the risks associated with day trading. They include stocks like HDFC Bank, SBI, Reliance Industries, and Infosys. The stocks of such large companies are considered highly liquid since there are both buyers and sellers trading these stocks. And because of that, you can enter and exit large positions in such stocks with ease.
Take Regular Breaks and Avoid Impulsive Trading
Now, even if you are a seasoned intraday trader, losses are part and parcel of the trade. As a result, intraday trading can be mentally and emotionally exhausting, so it’s important to take regular breaks and avoid becoming over-stressed. This can help you maintain a clear head and make better decisions. At the same time, don’t let losses get to your head, as that can lead to impulsive trading. Impulsive trading is one of the biggest pitfalls for intraday traders. It’s important to avoid making decisions based on emotions and to stick to your plan. This can help you avoid making rash decisions that can lead to losses.
Intraday Trading Strategies
As mentioned in the earlier section concerning technical analysis, you can use technical analysis to construct your own trading strategies that work best for you. There are plenty of technical indicators you can use to help develop your intraday trading strategies. However, listed below are some of the best intraday trading strategies.
Trend Following
The trend-following strategy involves identifying trends in the market and following them. You can use technical analysis tools, such as moving averages and support and resistance levels, to identify trends and make trades accordingly.
Range Trading
This strategy involves identifying a range within which the price of a security is likely to trade. The boundaries of the range are determined by support and resistance. You can then look for buying or selling opportunities within this range.
Breakout Trading
The breakout trading strategy involves identifying key levels in the market and looking for price breaks through these levels. This can be a good strategy when there is a lot of news or economic data coming out, as it can lead to increased volatility and price movements.
Scalping
Compared to the other intraday trading strategies, scalping is an advanced technique, so you may not want to focus on it as a beginner. It’s a high-frequency trading strategy that involves taking small profits on a large number of trades over a short period of time. Scalping can be very risky, but it can also be very lucrative if done well.
Conclusion
To conclude, you can refer to these intraday trading tips and strategies outlined in this article and introduce yourself to intraday trading. The section on intraday trading tips alludes to three key elements: knowledge, planning, and discipline. You can plan a solid trading strategy if you understand the market and price action. But at the same time, you must stick to the plan. Additionally, the intraday trading strategies outlined here are just overviews, and it’s your responsibility to devise a nuanced one. You can also open a trading account with a broker like Share India to receive daily tips for intraday trading.