Intraday Trading Tips, Strategies & Basic Rules

Intraday trading is riskier than investing in the regular stock market. Most traders, especially beginners, lose money in intraday trading because of the high volatility of the stock markets. Convention says that one should not risk over two per cent of their total trading capital on a single trade to ensure the right risk management in intraday trading. It is important, especially for beginners, to understand the basics of such trading to avoid losses – the risk of ignorance is greater than the market risk itself.

Tips for Intraday Trading

Below are a few tips for intraday trading in Indian share market which will help investors in making the right decision:

Choose Two or Three Liquid Shares

Intraday trading involves squaring open positions before the end of the trading session. This is why it is recommended to choose two or three large-cap shares that are highly liquid. Investing in mid-size or small-caps can result in the investor having to hold these shares because of low trading volumes.

Develop an informed short-term trajectory beforehand and stick to it

Following points are essential pieces of a short term trajectory:

  1. Determine your entry level and target price beforehand. It is common for a person’s psychology to change after purchasing the shares. As a result, you may sell even if the price sees a nominal increase. Due to this, you may lose the opportunity to take advantage of higher gains because of the price increase.
  1. Book your profits once the target is reached. Uninformed greed may drive you to keep a stock beyond the necessary time-frame and increase the risk of a fall in prices. If you insist on staying on, make sure you readjust a stop-loss price to meet the new expectations.

Stop loss is a trigger that is used to automatically sell the shares if the price falls below a specified limit. For investors who have used short-selling, stop loss reduces loss in case the price rises beyond their expectations.

Realign your strategy for intraday trading (as opposed to long-term investment)

Value investment adopts fundamentals while the former considers the technical details. It is common for day traders to take delivery of shares in case the target price is not met. He or she then waits for the price to recover to earn back his or her money. This is not recommended because the stock may not be worthy of investing, as it was purchased only for a shorter duration.

Research Your Wishlist Thoroughly

Investors are advised to include 8 to 10 shares in their wish lists and research these in depth. Knowing about corporate events, such as mergers, bonus dates, stock splits, dividend payments, etc., along with their technical levels is important. Using the Internet for finding resistance and support levels will also be beneficial. Ofcourse, researching the fundamental concepts and jargon of the stock market is necessary.

Don’t Move against the Market

Even experienced professionals with advanced tools are not able to predict market movements. There are times when all technical factors depict a bull market; however, there may still be a decline. These factors are only indicative and do not provide any guarantees. If the market moves against your expectations, it is important to exit your position to avoid huge losses. Intraday trading provides higher leverage, which effectively provides decent returns in one day. Being content is crucial to succeeding as a day trader.

Time the Market:

Experts often recommend individuals avoid trading during the first hour, once the markets open.

Exit the Position under Unfavourable Conditions:

For trades that provide profits and price-give reversal (price expected to show reverse trends), it is prudent to book the profits and exit the open position. In addition, if the conditions are not favourable to the position, it is advisable to immediately exit and not await the stop-loss trigger to be activated. This will help traders reduce their losses.

Invest Small Amounts that won’t Pinch:

It is not uncommon for beginners to get carried away once they make some profits during day trading. However, markets are volatile and predicting the trends is not easy even for seasoned professionals. In such situations, beginners can easily lose all their investments. This is why an important intraday tip is to invest smaller sums that a user can afford to lose. This will ensure individuals do not face financial difficulties in case the markets do not favour them. Traders must not risk over two per cent of their total trading capital on a single trade to ensure the right risk management.

Map Resistance and Support:

Every stock price fluctuates within a range from the initial 30 minutes of the start of the trading session, which is known as the opening range. The highest and lowest prices during this period are assumed as the resistance and support levels. It is advisable to buy when the share price moves beyond the opening range high and sell if the price falls below the opening range low.

Always Close All Open Positions:

Some traders may get tempted to take delivery of their positions in case their targets are not achieved. This is one of the biggest errors and it is crucial to close all open positions even if traders have to book a loss. Not closing exposes the trader to overnight risk (eg: market crash in USA or Europe)

Spend time on the actual monitoring and execution

Day trading is not for professionals who are employed in a full-time job. Traders must be able to monitor the market movements throughout the market session (from opening bell until its closing) to enable them to make the right calls as required.

Monitor Intraday Trading indicators

When it comes to booking profits in intraday trading, you will require to do a lot of research. For the same purpose, you need to follow certain indicators. Often intraday tips are believed to be the Holy Grail; this, however, is not entirely accurate. Intraday Trading indicators are beneficial tools when used with a comprehensive strategy to maximise returns.

Intraday Time Analysis

When it comes to intraday trading, daily charts are the most commonly used charts that represent the price movements on a one-day interval. These charts are a popular intraday trading technique and help illustrate the movement of the prices between the opening bell and closing of the daily trading session. There are several methods in which intraday trading charts can be used. Below are some of the most commonly used charts while intraday trading on the Indian stock market.

Know more about intraday trading time analysis.

FINAL CHECKLIST:

Choose Two or Three Liquid Shares

Develop an informed short-term trajectory beforehand and stick to it

Realign your strategy for intraday trading (as opposed to long-term investment)

Research your Wish list thoroughly

Don’t Move against the Market

Time the Market:

Exit the Position under Unfavourable Conditions:

Invest Small Amounts that Won’t Pinch:

Map Resistance and Support:

Always Close All Open Positions:

Spend time on the actual monitoring and execution

Monitor Intraday Trading indicators

Intraday Time Analysis

How to Choose Stocks for Intraday Trading

To succeed as a day trader, it is important to know how to pick stocks for intraday trading. Often people are unable to make profits because they fail to select appropriate stocks to trade. Day trading, if not managed properly, can have drastic results on the financial well-being of users. The temptation of earning huge profits in a short period of time can entice traders. However, with incomplete understanding and knowledge, intraday trading can be harmful. Intraday traders always face inherent risks that exist in the stock markets. Price volatility and fluctuating daily volume are a couple of factors that affect the stocks picked for daily trading.

In order to balance the risk taken, while achieving higher returns, here are some advanced intraday trading strategies to follow:

Opening Range Breakout (ORB):

This intraday trading strategy is widely used by professional traders as well as amateurs. To maximise the potential of this strategy, combining it with the optimum use of indicators, accurate assessment of market sentiment and stringent rules are recommended. ORB has numerous variations; some traders may opt for trade on large breakouts from the opening range and others choose to place their trades on the opening range breakout. The time window for the trades ranges between 30 minutes and three hours.

Demand-Supply Imbalances:

An important intraday trading tip for beginners is to look for stocks where drastic demand-supply imbalances exist and opt for these as entry points. The financial markets follow the normal demand and supply rules—price reduces when there is no demand for higher supplies and vice versa. Users must learn to identify such points on the price chart through research and studying the historical movements.

Opt for 3:1 Risk-Reward Ratio:

Traders, especially beginners, must understand the appropriate risk-reward ratio. Initially, finding stocks that provide a potential risk-reward ratio of at least 3:1 will be beneficial in earning profits in share market investment. This strategy will allow them to lose small while giving them the opportunity to earn big even if they have losses on most of their trades.

Use Relative Strength Index (RSI) and Average Directional Index (ADX):

Combining these two intraday trading strategies to find buy and sell opportunities can help traders earn profits. The RSI is a technical momentum indicator comparing recent losses and gains to determine over purchased and oversold stocks. The ADX is beneficial and used to determine when the prices are showing strong trends. In most scenarios, if the RSI crosses the upper limit, it is indicative of a sell trade and vice versa. However, when you combine the RSI and ADX, intraday traders buy when the RSI crosses the upper limit and vice versa. The ADX is used as the trend identifier to help users take their buy or sell decisions.

Conclusion

Intraday trading involves same-day trade settlements. Most traders try to achieve smaller profits through their trades. The golden intraday tip is to ride with the market trend to help make profits.

Angel One’s Angel Eye has charts and portfolio watch tools that help in identifying trends,and thus helping traders to make better decisions. This will help traders to earn profits from Intraday Trading.