Intraday trading, also known as day trading, is a fast-paced and dynamic approach to trading in the stock market. This method requires quick decision-making, precise timing, and a good understanding of market trends to be successful.
To grow wealth through intraday trading, you need to have a strategy in place. This requires you to understand the market well, leverage effective techniques, and adhere to disciplined trading practices.
In this guide, you'll learn about the essentials of intraday trading, how to create the best intraday trading strategy and discover valuable tips to enhance your trading skills.
Intraday trading involves the buying and selling of stocks within a single trading session. This means you have to buy and sell stocks within the same day. The main objective in intraday trading is to capitalise on short-term price movements of stocks and make profits.
Intraday trading is generally considered a high-risk and high-reward trading format that requires you to have a solid understanding of stock markets. Apart from this, you must also be updated about the ongoing market trends, have an understanding of technical analysis, and follow a disciplined approach to trading. Technical analysis involves studying past market data, primarily the price and volume of stocks, to forecast future price movements.
A successful intraday trading strategy can make a significant difference in your trading outcomes. Here, we'll discuss some of the most effective strategies that you can adopt.
Scalping is an intraday trading strategy where you make numerous trades within a single day to earn small profits from each trade. If you adopt this strategy, you must be prepared for quick decision-making. It also requires you to have a good understanding of market movements.
Let’s understand how it works. Suppose you notice a stock’s price fluctuating between ₹500 and ₹505 multiple times in a day. You buy the stock at ₹500 and sell it at ₹505 repeatedly. Each time you do this, you make a small profit. Although each profit is small, the large number of trades can add up to a significant overall gain.
Momentum trading capitalises on strong price trends. In this strategy, you have to identify stocks that are moving significantly in one direction and seeing high volumes of trade. The idea is to participate and make profits from the price trend or momentum.
You can identify stocks that are showing strong trends driven by news or earnings reports and are seeing high trading volume. You can then enter the trade to benefit from the movement and exit before the price trend reverses. This way, you secure profits from the momentum.
For example, if a stock surges from ₹200 to ₹220 on strong earnings news, you can buy at ₹220, expecting the momentum to continue. As the stock rises to ₹230, you sell to earn profit before a potential price reversal.
Also read: How To Become Successful In Intraday Trading?
Breakout trading is a strategy where you make a profit by buying a stock just as its price goes above a certain level (resistance) or selling it just as it drops below another level (support). In this approach, you expect that the price of a stock will break out of its current range and continue moving strongly in the same direction. This approach works best when the market is experiencing significant price changes.
Now, let’s see how it works.
Suppose a stock has been moving between ₹150 and ₹160 for several days. You set an order to buy at ₹161, just above the ₹160 resistance level. When the stock price hits ₹161, your order is executed.
Here, your expectation is that the stock price will keep rising, and you can sell it at a higher price, like ₹170. This way, you make a profit from the price breakout.
Reversal trading is a strategy where you try to make a profit by identifying when a stock's price is about to change direction. You look for signs that the current price trend (up or down) is about to reverse, then buy or sell the stock accordingly.
If a stock's price has been going up for a while, but you see signs that it might start falling, you might sell it before the price drops. Similarly, if a stock's price has been falling but looks like it's about to go up, you might buy it before the price rises. This way, you make a profit from the change in direction. To identify price reversals, you can look for signs like changes in trading volume, patterns in price charts, or news about the company.
Pullback trading is a strategy where you buy a stock during a temporary price dip in an otherwise strong upward trend or sell a stock during a brief rise in a strong downward trend. The idea is to capitalise on the brief price correction before the trend resumes.
For example, a stock’s price is steadily rising from ₹100 to ₹150. At some point, the price temporarily drops to ₹140. As an intraday trader, you buy the stock at ₹140, expecting the overall upward trend to continue.
When the stock price resumes its rise and reaches ₹160, you sell to make a profit. Similarly, in a downward trend, you would sell during a brief price increase and then buy back at a lower price once the trend resumes. This way, you profit from the small corrections within the larger trend.
Here are some tips that can help you enhance your intraday trading approach and make your trades profitable:
|
Intraday Trading Tips |
Description |
|
Choose Liquid Stocks |
Focus on stocks with high liquidity to ensure you can enter and exit trades quickly. High liquidity means you can buy or sell the stock easily, as there are always plenty of buyers and sellers. This helps you trade without worrying about finding someone to buy from or sell to at your desired price. |
|
Set a Stop Loss |
A stop loss is a preset level at which you automatically buy or sell a stock to prevent further losses. With a stop loss, you can limit potential losses, protect your capital, and avoid making emotional decisions during market fluctuations. |
|
Time Your Trades |
Pay attention to market opening and closing times, as these periods often have higher volatility and more trading opportunities. |
|
Use Technical Analysis |
Technical analysis involves studying stock price charts and patterns to make smart trading decisions. By observing how stock prices move, you can predict future trends and decide when to buy or sell. This method helps you make informed choices based on the stock's past performance rather than relying on guesswork. |
|
Avoid Overtrading |
Make sure to stick to your trading plan and avoid making impulsive trades. Remember, overtrading can lead to significant losses. |
In intraday trading, you come across margin requirements. Margin enables you to trade in stocks by paying only a portion of the total transaction upfront. The remaining is covered by your broker. The Indian stock market regulator SEBI (Securities and Exchange Board of India) monitors and governs margin requirements for all stock market transactions. You can find the exact margin requirement for a stock and trade type on the broker’s website.
Margin can help reduce your initial capital outlay in intraday trading, enabling you to trade larger quantities of stocks and providing liquidity. However, the margin acts as a leverage. This means you need to be careful about how you use it. While it can amplify your profits, it can also result in higher losses in case the trade does not go as expected.
Once you understand the best intraday trading strategies, you can begin implementing them in your trades effectively. To further enhance your knowledge of intraday trading, you can use resources on Sharekhan Knowledge Centre. There are various learning materials and courses, along with supervised trading sessions, that can improve your understanding of intraday trading.
Delve into the world of futures and options trading with Sharekhan expert guidance. Our comprehensive resources and intuitive platform empower you to make informed decisions and capitalize on market movements.
Embark on your stock trading journey with Sharekhan's comprehensive platform. Learn the fundamentals of equity trading, gain insights into market trends, and access powerful tools to make informed investment decisions.
Safeguard your investments with Sharekhan's secure and reliable Demat account. Our platform offers robust security features to protect your holdings, ensuring your investments are in safe hands. Open Demat account today and enjoy peace of mind while you invest.
Make informed mutual fund investment decisions with Sharekhan's expert guidance. Explore a wide array of funds to match your financial goals and risk tolerance. Start building your wealth today.
Leverage Sharekhan's market knowledge and experience to make informed decisions in the initial public offering (IPO) space. Our research and analysis equip you with the insights you need to identify promising IPOs and participate in their growth potential.
