Stock market trading requires you to make calculated moves, the ability to watch the market like a hawk and then take tough buy and sell decisions at the right time. If you are a stock market beginner looking to start intraday trading, we have compiled a mini guide for you that you can use to your benefit. Read On!
In this article
A Brief Introduction To Intraday Trading
Intraday is “within the day.” Thus it refers to the trade activity that is done by an individual during the market hours in one day. Intraday trading is all about scouting for names that can either move up or move down. If a stock is likely to move up, a trader buys low and sells high. On the other hand, if a share is expected to go down, a trader tends to short sell, which means sell high and buy low. Needless to say, intraday trading requires you to possess a sharp sense of how the market may behave and take action accordingly.
How Does IntradayTrading Differ From Regular Trading?
One of the primary differences between intraday trade and regular trade is taking the delivery of stocks. In intraday, the trader is required to square off the position the same day before the market closes, irrespective of profit or loss. Whereas in regular trading, the trader may choose to remain invested for a period, and thus, a trade settlement is made in a few days, depending on the category of the scrip.
Also, in intraday trading, there is no change in ownership of the shares, whereas, in case of delivery, the ownership of shares changes, and the rights are transferred from the seller to the buyer. The shares after settlement, sit in the demat account. Beginners often struggle with choosing the right kind of tools to execute trades and thus end up making losses. Let’s see some mantras to stick by when it comes to intraday trading.
Enter and Exit At The Right Time
A great idea is to trade with a prevalent intraday trend. This offers the potential for low-risk entry points while providing high potential for gain if the trend continues. Identifying such patterns helps in finding useful entry and stop-loss strategies. To identify when to exit, you can look at two conditions; when you have reached the target profit or when you have reached the maximum loss limit below which you don’t want to go. Once you have reached the profit level you want, you can consider making an exit.
Have A Stop Loss Always
An offshoot of the first point, always have a stop loss Having a stop loss is a type of exit strategy if in case your trend or expectation doesn’t come true. On the other hand, if your expectation comes true, you should know how to have different target levels – T1, T2, etc.so that you keep exiting at various price points.
Factor In Historical Returns
We all believe the fact that – History repeats itself. While this can’t be said with 100% certainty, usually stocks also follow their historical path. Thus, the aim should be to find a name that preserves the capital and at the same time, provides returns at a controlled risk.
You may choose to start trading a few names initially after analyzing the trend and understanding its characteristics. Also, remember to choose a liquid name that has a high average daily volume. This ensures that you will be able to find buyers while exiting.
Bonus Watch : The Intelligent Investor : Book Review
Don’t Get Impulsive
Traders often feel discouraged if their ability to pick names doesn’t work wonders. Beginners should put to use the historical analysis to find opportunities and build trading strategies around those names. Also, an individual should have well-defined profit and stop loss level and should not let impulsive nature take control of the trade activity. If you have devised an entry and exit strategy that best aligns with your needs then don’t impulsively change it mid trade. Successful trading requires you to be alert and in control at all times.
A few good trades may have boosted your confidence but its still too soon. Don’t be very aggressive with your bets in the initial phase.Focus on a maximum of 1-2 stocks to start with. With time, the volume and the value should be increased. Starting small will allow you to make mistakes and increase your familiarity with how the market works so that you don’t make the same mistakes twice. Increase the trade volume gradually as your experience and risk appetite increases.
Avoid Penny Scrips
Penny stocks provide very high returns but at the same time, comes with high volatility. As a beginner, you should avoid penny scrips owing to the high risk of capital loss. Once you are comfortable with the strategy, understand trends well, you may enter the segment.
Since intraday trading requires you to be hyper-vigilant about the market, its surely brings with it anxiety. However, don’t let it get the better of you.Trades and decisions should be based on logic and rationale. Emotions such as fear, greed, attachment, etc. should be kept at bay.
Alternatives To Day Trading
As mentioned previously, intraday trading looks lucrative but comes with a high degree of risk. So what are the other options if you wish to switch?
Following are some of the alternatives to intraday –
- Swing trading – In this, usually the investor play for a few days or weeks. It can be considered the right way for people looking to diversify.
- Traditional style – This is not trading but investing where an investor puts the money for a longer-term in the lookout for the real value of the company. These investments are decided based on fundamentals and have the potential to become multi-bagger if done right. Also, these methods need patience for making money.
- Robo-advisors – Many people are turning to Robo-advisors these days, which uses machine learning and many sophisticated algorithms to suggest potential names to buy. Based on the risk appetite of the investor, these systems throw up investment ideas.
Intra-day is not very easy and this guide should be used only as a starting point to delve deeper into this trading type. It is also important to note that this type of trading is not suited to all stock market traders or investors. Read more about this trading to see if it aligns with your financial objectives and risk appetite. If you want to explore intra-day trading, start with a small trade volume to protect yourself from market risks, also make sure your technical analysis basics are strong so that you are able to take wise buy and sell decisions. However, if you want to take benefits from the stock market, you can start investing rather than trading. Stock investing involves assessing a stock based on fundamentals and then holding on to your investments for long term wealth prospects. That way you don’t have to constantly watch and time the market and it can save you a lot of anxiety as well as a possible capital loss. In any case, whichever strategy you select, make sure you enter stock markets with thorough preparedness, know fully well about the risks, and remain calm and composed.
Disclaimer: The views expressed in this post are that of the author and not those of Groww