In Intraday trading, shares are purchased, and positions are squared off within the same trading day. Share prices fluctuate throughout the day, and traders aim to profit from short-term price movements before the market closes.
Compared to long-term investing, intraday trading is definitely a riskier option, especially for beginners. But with good knowledge and risk management techniques, one can make profits as well.
In this blog, we will share some intraday trading tips from beginners to intermediate and advanced-level traders.
You might have heard about intraday trading from a friend, watched a video online, or encountered another reason that sparked your interest in starting trading. So, if you are a beginner trader, the below intraday trading tips will be helpful!
Understanding the basics of intraday trading is the first and most important step to start with. Some key aspects to focus on include:
Popularly known as paper trading, it is one of the best ways for a beginner to learn different trading techniques. There’s no risk of losing money, so one can experiment with several trading practices and learn to do intraday trading.
Once you are confident enough to do live trading, choose the broker with a simple user interface, lower brokerage fees, and good customer support.
Avoid relying on third-party stock recommendations, such as tips to "buy XYZ stock at ₹211 with a target of ₹220."
This doesn't require any hard work, but this way, one can never learn to trade, especially beginners. Also, there’s no guarantee of profits as stock market movements are unpredictable. Instead, do your own research and thorough technical analysis to pick the right stocks.
Read more: Intraday Trading Guide for Beginners
Read the next section for some tips on choosing stocks for intraday trading.
By setting a Stop Loss Level, you can limit your losses.
Let’s understand this with an example of two trader friends! Sahil & Ravi buy 100 shares of Company XYZ at ₹500 per share, believing its price will go up. The total amount invested is ₹50,000 each.
Ravi set a stop-loss order at ₹490 per share, but Sahil didn’t.
They both did all the analysis, and all signs point towards a potential upward movement.But unfortunately, the stock price drops to ₹480 instead of rising.
Till Sahil realised the loss, the share price dropped to ₹450, and he lost ₹5,000.
However, in Ravi’s case, the stop-loss order is triggered, and the shares are sold at ₹490 per share.
Ravi only lost ₹1,000 because he set a Stop Loss Level/order.
In short, stop-loss acts as a safety that automatically exits the position when it reaches a certain price, preventing bigger losses.
Analyse Risk Appetite
Before starting trading, you need to analyse your risk appetite. The traditional rule suggests that you should not risk more than 1% to 2% of your capital on one trade.
Hit-Rate/Success-Rate in intraday trading refers to the percentage of profitable trades. For instance, if a trader takes 10 trades, and 4 are profitable, their hit rate is 40%.
Position sizing helps traders determine the total number of shares to trade in an intraday position.
For instance, you have ₹10,000 in your trading account, and you are willing to lose ₹200 per trade. You buy a stock at ₹100 and set a stop-loss level at ₹95; the stop-loss distance is ₹5.
Formula For Position Size: Risk per Trade / Stop-loss Distance |
This means you can buy 40 shares of the stock with an average risk of ₹5 per share.
Before creating the intraday position, you must set your risk-reward ratio. This ratio refers to the total number of profits compared to the potential losses (risk) taken to attain these rewards.
Formula For Risk-Reward Ratio: |
For example, a trader enters a trade at ₹100 with a target of ₹120 and a stop loss of ₹90.
According to the formula, the Risk-Reward Ratio would be:
₹100-₹90/₹120 -₹100
½ or 1:2
Now, let’s understand how to do trade planning for a month.
Assuming you have
Total Capital: ₹10,00,000
Number of Trades: 10 Trades of ₹1,00,000 each
Hit Rate: 40% (4 out of 10 Trades will be profitable)
Risk Reward Ratio: 1:3
Hence,
For Single Trade
Capital per Trade: ₹1,00,000
Risk (Loss) per Trade: ₹10,000 (Which is 1% of the total capital available. i.e.,₹10,00,000)
Reward (Profit) per Trade: ₹30,000
For 10 Trades
Number of Profitable Trades: 4
Number of Losing Trades: 6
Total Loss:
Loss per Trade: ₹10,000
Total Loss:₹10,000 * 6 = ₹60,000
Total Gross Profit:
Profit per Trade: ₹30,000
Total Gross Profit: ₹30,000 * 4 = ₹1,20,000
So the Net profit will be
Gross Profit - Total Loss, i.e.
Net Profit: ₹1,20,000 - ₹60,000 = ₹60,000
The above illustration shows that with good trade planning, you can secure your capital and book profits in the long run.
Leave your emotions behind while trading.
Many times, traders make the desired profits, but they still hold the position, thinking the stock will rise or fall (in case of a short-sell).
But what happens in the end? All the profits are vanished! This is because no one can predict price movements in the stock market. It only takes microseconds to switch sides, and till one realises this, losses are made!
If you want to be a successful intraday trader, follow the below trading tip. “If the target is achieved, book your profit and exit the position. There should be no room for greediness!”
In the first two trades, if the stop loss level has been triggered, shut down the screen. Don't engage in revenge trading. Many investors make impulsive decisions and try to win back what they have lost immediately. However, this only led to more losses.
Always square off the intraday positions before the market closure.
If you don’t, your broker will automatically auto-square off them, no matter where and what the stock price is! Different brokers have different auto-squaring-off timings. For instance, Groww’s auto-square-off time for intraday positions is 3:20 PM.
There are several consequences for not closing intraday positions in advance.
The last but most important intraday trading tip is to be disciplined and realistic. In fact, discipline is one of those factors that sets successful traders apart.
Trading Strategies can be learned and refined, but without discipline, nothing will work. So, never be allured by other’s profits! Limit the risk per trade, set strict stop-loss orders, and stick to them no matter what.
Read More: Arbitrage Strategies With Binary Options
Below are some of the advanced-level intraday trading strategies.
Gap Up: When the market closes at 500 and opens at 510 the next day.
Gap Down: When the market closes at 500 and opens at 490 the next day.
Gap and Go Trading Strategy allows traders to capitalise on these price movements that occur when stocks open significantly higher or lower than their previous close. Here’s how this strategy works.
It is the initial step where you need to identify potential stocks to trade in the pre-market session. To do so, use tools like Trade-Ideas Scanner and look for stocks that have gapped up or down by a certain percentage (e.g., 3% or more).
Compare the pre-market volume to the average volume. It ensures the gap is supported by strong trading volume. High volume in pre-market hours is a positive signal.
Opening Range Breakout (ORB) is the actual entry strategy. It involves observing the stock's price action during the first few minutes after the market opens (typically the first 5-15 minutes) to establish an "opening range."
Momentum Trading Strategy involves buying assets or stocks that are trending up and selling those that are trending down. Here, traders can capture short-term price moves by focusing on stocks with strong momentum.
The key principles of this intraday trading strategy are to Buy High and sell Higher (for Long Positions).
In a Reversal trading strategy, traders take advantage of price changes that go against the current trend. A trend reversal happens when the price stops moving up (bullish trend) or down (bearish trend) and changes direction. You can use indicators like MACD and RSI to spot divergences indicating a reversal.
Read more : Intraday Trading Indicators
With Intraday Trading, traders can profit from short-term price movements, but it requires using the right strategies with precise execution and risk management.
Remember, successful intraday trading involves staying focused, being prepared for market volatility, and continuously learning from both wins and losses.
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