Until recently, people perceived intraday trading to be the domain of financial firms and professional investors or traders. But this has changed today thanks to the popularity of electronic trading and margin trading in India.

Today, it is very easy to start intraday trading.

What is intraday trading?

Intraday trading meaning: also known by name day trading, is the buying and selling of stocks and other financial instruments within the same day.

In other words, all positions are squared-off before the stock market closes and there is no change in ownership of stocks as a result of the trades.

For example,

Every day, the price of a stock, say ITC Ltd. fluctuates. An intraday trader profits from this fluctuation i.e, rise or drop of price which offers huge returns on investment.

Intraday traders can also avail the benefit of margin funding, whereby they can perform transactions of up to ten times their account value which can boost their gains.

Read more: What is margin trading? Should you use it?

Why should you participate in intraday trading?

Some of the benefits of intraday trading are:

  1. Higher margins available to traders compared to normal investors
  2. The high potential return on investment
  3. Lower brokerage fees, especially with the Free Intraday Trading (FIT) option.
  4. Short to medium investment horizon for strategies to pay off.

How to pick the right stocks for intraday trading?

For starters, picking the right stocks for intraday trading might seem like a challenge. However, it should not deter you from exploring this wealth creation opportunity in the stock market.

Here are a few points which will simplify the process of picking the right stock for the day trading:

1. Stock Volume

One of the major parameter to look for doing intraday trading is the volume of the stocks.

Volume is indicated by the total number of stocks which are being traded in a given market at a particular time of the day. By simply looking at the screen you may not be able to find out the stocks which are high in demand for that particular point of time.

Stock volume helps you to shortlist the stocks which are being purchased in high volumes.

Read more: What is trading volume and what you must know about it

2. Resistance level

A price beyond which a stock price is not able to rise is known as its resistance level.

The primary reason for this behavior could be an overwhelming level of supply of the stock at a particular price level in the market.

As an intraday trader, you may look out for stocks which have broken their resistance levels and are moving upwards.

3. Stocks in the news

Based on a positive development as regards the related companies, some of the stocks may perform well as per the expectation of the investors.

An investor anticipates that it will move in the expected direction with good trading volume. You may think of trading in such stocks after basic analysis.

4. Top gainers and losers in the stock market

Usually, you may find a list of top gainers and loser shares on the social media and news channels as per the recent market trend.

Such kind of lists provides a ready reckoner to pick the right stock that meets your requirements.

However, do not blindly follow such lists. You should your use judgment and analysis as well.

5. Week’s movement

You may study the stock price movement across different time horizons.

An analysis of the last week’s price movements will indicate stocks that are closing in positive or negative on a continuous basis.

This kind of analysis will indicate that the stocks are suitable for intraday trading.

Things to consider for intraday trading

These are the basic points of knowledge you should keep in mind before going for the intraday trading:

  1. Do not be get scared of buying at high prices and selling at low prices.
  2. Do not buy just because it is a low price and do not sell just because it is high.
  3. Follow this basic mantra for intraday trading “buy when there is bad news and sell when there is good news”.
  4. Become the buyer when everyone is selling and become the seller when everyone is buying.
  5. BSE and NSE open every morning at 9.15 a.m. and 5 days in a week. So do not try to be a lakhpati in a day. It is almost impossible to make money every day in the stock market.
  6. Limit your losses in intraday trading by keeping a stop loss order.
  7. Do not ever cancel a stop loss order after you have placed it, otherwise, you may lose more.
  8. Do not hurry to book profit when the market is in your favor, wait for the right time.
  9. If you consider 10 different reasons affecting the market, on an average, 7 reasons are for bearish trend and only 3 reasons for the bullish trend. Hence be cautious in taking a long position.
  10. Do not forget to adjust daily expenses like brokerage fees, telephone, and mobile bills, Internet charges, computer maintenance, etc. in the profits.
  11. There are no experts in this world. Only experienced people are there. No trader in the stock market has ever had a 100% success rate.

The Bottom Line

Starting intraday trading isn’t a decision to be taken lightly.

It is possible to be successful and earn a good living by trading in the stock market only a few hours per day. But that is many months away for people just starting out.

The first year is tough as there are lots of ups and downs in the market and the only real goal should be not to lose everything.

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.