As a stock market trader, you must have often wondered: how to do intraday trading? Well, intraday trading involves purchasing stocks and selling them the same day to make financial gains. Rather than considering factors such as delivery dates, demat, and so on, you are just required to square off your open position before the end of the day’s trading session. But, intraday trading is not as simple as it seems. You have to consider a range of factors for getting good returns. As a thumb rule, you must understand that intraday trading is subject to more market volatility as compared to regular investments in stock markets. Also, you must suitably assess your risk appetite before commencing your trading journey.
Here’s a list of five strategies for successful intraday trading.
1. Understand the basic techniques of intraday trading:
Here’s is a list of the basic techniques for intraday trading:
- Do your research: Before purchasing the stocks of a particular company, do comprehensive research to gauge the vital parameters, indicating the strength and weakness of the company.
- Risk-management and risk-reward ratio: As a beginner, you must always invest only the amount that you can afford to lose. Among the basic intraday trading strategies is to invest in stocks that have a risk-reward ratio of 3:1. This will allow you to lose the amount that would not pinch, while simultaneously providing the opportunity of receiving good returns. Another risk-management technique is to avoid investing more than 2% of your total trading capital on a single trade.
- Select liquid stocks: Rather than investing in several small and mid-cap stocks, you can select a few large-cap stocks. These stocks don’t have issues of liquidity as they are traded in higher volumes. Conversely, purchasing small or mid-cap stocks might force you to hold on to them, because of the comparatively lower volume of trade.
- Time the market: Once you purchase the stocks, market experts suggest avoiding trading in the first hour of the trading session. You can take opening positions from early afternoon and square your position by 1 pm to balance the price movements between the opening and closing hours.
- Avoid emotions and pre-determine returns and risks: Another basic technique for intraday trading is to determine your entry-level and target price beforehand. You must avoid making impulsive and emotional decisions, no matter what. Once you reach the target price, immediately square your position. To avoid emotions altogether, you can assign the stop-loss level on your trade beforehand. This will allow your transactions to automatically close if stock prices fall below the pre-decided levels. You can then start afresh with a new plan while suffering minimal losses.
2. Use intraday trading time analysis:
The second in the list of intraday trading strategies is to carefully analyze the daily charts. Daily charts illustrate the price movement between the opening and closing hours, in a day’s trading session. You can analyze the price fluctuations between short-term and medium-term through the daily charts. For intraday trading, you can study a range of charts, like the 15-minute chart, five-minute chart, two-minute chart, and tick-tack chart (line charts representing every executed trade).
3. Follow sound intraday trading strategies:
The third in the list of intraday trading strategies is to follow credible strategies. You can follow the techniques given below:
- Making use of the Opening Range Breakout (ORB) to map resistance and support:The opening range is the fluctuations in stock prices -whether high or low-after the beginning of a day’s trading session. The period for ORB can range from 30 minutes to 3 hours. You can take various positions, after identifying the highest point, assumed as resistance, and the lowest point assumed as support. While using the ORB for intraday trading, you must remember that when a stock moves upward from the breaking range, the prices are likely to remain bullish. Conversely, a downward trend can imply a bearish price. You can use this intraday trading strategy, in tune with other market indicators.
- Look for demand-supply imbalances: This intraday trading strategy is used to identify stocks, with considerable imbalances between supply and demand, and use them as entry points. You can identify these points on price charts, after assessing the historical price movement.
- Use Relative Strength Index (RSI) along with Average Directional Index (ADX): While RSI is a technical indicator used to identify over-purchased and over-sold stocks, the ASI is a trend identifier to aid traders in their decisions to purchase and sell. Combining both can help you make informed intraday trading decisions.
4. Understand the difference between investing and trading:
The fourth in the list of intraday trading strategies is to understand the difference between investing in stock markets and intraday trading. Both trading and investment require different strategies. For instance, as a diligent trader, you must close all open positions, the same day, irrespective of the target price being reached or not. But investments in stocks require a long-term approach, and prudent investors are seldom affected by short-term market volatility. While investing in stocks requires a more fundamental approach, intraday trading is more technical.
5. Remember that the market is unpredictable:
The last in the list of intraday trading strategies is to remember that intraday trading involves a high measure of risk. Even if you are a seasoned trader with cutting-edge tools, you cannot predict the price movement with absolute certainty. At times, despite the technical indicators predicting a bullish market, the prices can fall, resulting in bearish trends. If the market moves against your expectations, remember to exit your position immediately.
Now that you know how to do intraday trading, follow these intraday trading strategies, and maximize your returns. You must always remember to rely on a trusted financial partner to open your intraday trading account. You can select Angel One to avail multiple benefits, like comprehensive technical analysis, cutting-edge technology, and insightful research reports. What’s more, you can avail of low brokerage fees.