The stock prices keep fluctuating in the stock market, creating several trading opportunities throughout the day. These price movements reflect shifting investors’ sentiments towards the company stocks. During the day, stock prices fluctuate depending on demand and supply parameters changes. In simple words, when demand exceeds the supply volume of the scrip, its price rises and a more drastic demand-supply gap results in a higher price.
Let’s try to understand the situation with the help of an example. When many investors start buying the stocks of company X, the price of the same will increase. Similarly, if several traders sell the shares, the stock price will fall. When experts refer to market risks, it’s the increase and decrease of share price, which they mean.
Intraday trading involves buying and selling stocks within the same trading day. Here stocks are purchased, not to invest, but to earn profits by harnessing the movement of stock indices. Thus, the fluctuations in the prices of the shares are monitored to earn profits from the trading of stocks.
An online trading account is set up for intraday trading. While doing intraday trading, you need to specify that the orders are specific to intraday trading. As the orders are squared off before the end of the trading day, it is also called Intraday Trading.
Here are a few takeaway points to keep in mind while doing intraday trading:
- Intraday Trading Tips
- How to make a profit in intraday trading
- Intraday Time Analysis
- How to choose stock in intraday trading
Basics of Intraday Trading
Often new investors want to know what intraday trading is.
Let’s explain with a simple example. Say you have bought 1000 stocks of company A at Rs 300 when the market opens. Within one hour, the price moves to Rs 350. You sell those stocks at the current price to earn a profit of Rs 50,000. But both buying and selling should happen within a single trading session. There is no delivery of stocks involved.
As mentioned, intraday trading or day trading involves buying and selling stocks on the same day. As easy as it may sound, it is riskier than long term stock investments. Hence, entering the realm of intraday requires understanding the nitty-gritty of the trading techniques to avoid losses.
So, how does intraday trading work? The most important thing to remember is to mention ‘intraday’ while buying stocks. It indicates the trader is willing to trade the scrips on the same day before closing.
Intraday Trading Tips
Intraday trading is riskier than investing in the regular stock market. It is important, especially for beginners, to understand the basics of such trading to avoid losses. Individuals are advised to invest only the amount they can afford to lose without facing financial difficulties. A few intraday trading tips will help you learn the art of trading. Know now more about intraday trading tips.
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 maximize returns.
Intraday trading includes constantly monitoring the market. It heavily involves analyzing charts and market decisions depending on patterns and indicators. Current affairs and concurrent events heavily influence market dynamism. Day traders use several intraday indicators for the same purpose —these signal changes in trends, price, and volume. Market indicators play a pivotal role in market analysis.
Intraday indicators overlay the charts to provide critical indications of possible price changes. Here are some commonly used intraday trading indicators.
Moving average is the extension of the simple average method. The moving average line on a chart represents the average closing prices, showing the behaviour of a stock price over a timeframe.
The Bollinger Bands consists of three lines – moving average, upper and lower limits. The limit lines represent the volatility range as the price moves up and down.
The Momentum Oscillators help traders identify when the stocks move to the overbought or oversold ranges. An oscillator moves from zero to a hundred and helps traders determine the right time to buy or sell.
Relative Strength Index (RSI):
It is a momentum oscillator and moves in a range of one to a hundred. When RSI moves over 70, it is considered an overbought situation, and when it is less than 30, the stock is said to be in the oversold range.
To get a detailed understanding of intraday trading indicators, and their effect on the trading strategy, visit…
How to make a profit in Intraday Trading
Intraday traders always face inherent risks that exist in the stock markets. Price volatility and daily volume are a couple of factors that play an important role in the stocks picked for daily trading. Traders must not risk over two per cent of their total trading capital on a single trade to ensure the right risk management. So here are a few tips shared to make a profit in intraday trading.
Intraday Time Analysis
The success of intraday trading depends on correctly timing the day, meaning entering and exiting at the right time. It requires a great deal of understanding of the intraday trading time frame to place trades.
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 the closing of the daily trading session. There are several methods in which intraday charts can be used. Know about some of the most commonly used charts.
A skilful trader constantly studies the charts for short, medium and long-term trend analysis. From hourly charts depicting price movement broken into hourly segments to tick charts representing every trade executed in the market, traders use a wide range of daily trading charts. The widely used regular trading charts are listed below.
• Intraday hourly charts
• 15-min charts
• 5-min charts
• 2-min charts
• Tick-trade charts
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 during the day. Choosing the right stocks to book profits is an art that you will learn with experience. For beginners, here get some tips to choose stocks for intraday trading.
Compared to stock market investment, trading involves higher risks. One wrong trade can wipe off the day’s profit. With experience, you will need an understanding of fundamental micro and macroeconomic factors influencing the market to make informed decisions. Once you have shortlisted stocks, you can monitor and analyse their performance to identify trends. The entry and exit strategies will depend on the patterns you observed.
Key parameters to select the best stocks for intraday
Usually, stock trading frequently enjoys a higher demand, making them suitable for intraday trading.
Intraday traders typically pick stocks that trade in high volume. Volume indicators are often used to pick volume stocks.
The trending stocks fluctuate primarily during the day. It is the buzz around a stock that makes it trending. These stocks are likely to show momentum along with a high trading volume.
Following the current performance of the shortlisted stocks help to assess price movement before buying or selling orders.
Traders often pay special attention to shares at the resistance and support levels. Resistance is the level beyond which the stock price is not expected to rise. Conversely, the support level represents the lower limit of the price range. But at times, stocks break out of these levels, and traders capitalize on these breakouts.
Gainers and losers:
Most traders follow the top gainers and losers of the day and track their movement.
Monitor select stocks:
Thousands of equities trade daily in the market, but most traders follow only a few shortlisted stocks. By researching these stocks, they can grab profitable day trading opportunities.
Benefits of Intraday Trading
Intraday trading has many benefits, from quick profit opportunities to eliminating overnight risk. Let’s look at the primary benefits offered by intraday trading.
Chance to earn a regular income:
By committing to a proper trading strategy and trading for a few hours daily, one can quickly create an alternative source of income through day trading.
Eliminates overnight risks:
Since all the trading positions are closed within the day, intraday trading eliminates overnight risks that may arise from global or local news and impact your profitability.
One can optimize their profit by adopting an effective strategy. Day trading allows traders to earn substantial incomes within a short time.
Leverage with a small capital
Another benefit of day trading is one can start investing with a small amount. Traders also use their margin accounts to take a larger position in the market to maximize profit.
Lower commission rates
In other words, the cost of day trading is less than standard trading, which involves delivery charges, taxes and more. The fee for day trading is usually one-tenth of regular trading.
Day trading is exciting and suitably rewarding. But it is also riskier than stock investment. If you are interested in becoming a trader, gain knowledge and experience. Day traders must practice trading discipline to minimise losses. There is no shortcut to success, and a helpful intraday trading tip is to realise your losses early and review your techniques for long-term sustainability.
Intraday trading – FAQ
What is the difference between intraday trading and day trading?
Day trading can be confusing for beginners. So, they must begin by understanding the definition of the term. In other words, intraday and day trading are the same.
Intraday trading involves buying and selling stocks simultaneously for capital gains within the same trading day.
Market fluctuation is a result of the demand and supply gap. As the gap widens, the price of the stock increase, creating trading opportunities.
Traders get attracted to day trading for high profit within a short time. There are several benefits of intraday trading, including eliminating overnight risk and creating an alternative source of income. But it also involves higher risk. Hence, it is essential to understand the nitty-gritty of intraday trading techniques before entering the realm.
Which is the best indicator for intraday trading?
Day traders use different charts and indicators to time the market. These indicators help traders analyse market fluctuations and predict future trends to base their decisions. The stock market is dynamic. Current affairs and concurrent events influence the market resulting in price fluctuations. The market indicators provide valuable insights and help traders optimise returns. Traders overlay the indicators on trading charts for mathematical calculations.
Some common intraday indicators are:
• Moving average
• Bollinger Bands
• Momentum Oscillators
• Relative Strength Indicator
These indicators reflect trends, momentum, volume, and volatility of stocks.
How to find stocks for intraday trading?
The success of intraday trading depends on selecting the right stocks. Below are the criteria for choosing equities for intraday trade.
• Liquidity: Intraday traders pick highly liquid stocks.
• Volatility: Moderately volatile stocks are ideal for day trading since they fluctuate heavily during the day.
• Trending stocks: Traders pick trending stocks because of their news.
• High volume: Stocks that trade in high volume are suitable for day trading since they enjoy high demand.
• Gainers and loser stocks: Traders also closely watch the performance of the highest gainer and loser of the day for profit opportunities.