What is Intraday Trading?

What is Intraday Trading?

Intraday trading, also known as day trading, is the practice of buying and selling stocks within the same day. This is done to make quick profits from short-term price movements. In long-term investing, you hold onto stocks for weeks, months, or even years, but intraday trades are opened and closed out before the market closes.

Let’s say you buy 100 shares of XYZ Ltd. at ₹200 each in the morning, expecting the price to go up during the day. A few hours later, the stock price rose to ₹210. You decide to sell all 100 shares, making a profit of ₹10 per share or ₹1,000 in total, all within the same trading day . That’s intraday trading in a nutshell, where you buy low and sell high (or vice versa) within the same market session.
 

Features of Intraday Trading

Intraday trading has a few unique features. Let’s take a look at a few of them:

Short Time Frame: All trades are executed and closed within the same trading day, eliminating the risk of overnight news impacting stock prices.
 

Leverage: Many brokers allow you to trade with more funds than you actually hold. This helps to increase the chances of making a profit but also increases risk.
 

High Liquidity: It is crucial to focus on highly liquid stocks so you can make a swift entry and exit without significantly influencing prices.

Rapid Decision-Making: Intraday trading demands quick decisions based on real-time price movements, sometimes within seconds or minutes

High Risk-Reward Ratio: Successful strategies can yield substantial gains, but losses can be equally significant if the market turns against you.
 

How to Start Intraday Trading?

Starting intraday trading may seem overwhelming. Here’s a step-by-step guide to help you get started with intraday trading:

Step 1: Open a Demat Account
For intraday trading, you will first need a Demat and trading account with a registered broker. Choose a reliable broker and complete the KYC process to activate your account.

Step 2: Understand Margin and Leverage
Intraday trading often involves leverage, where brokers allow you to trade with more money than you actually have. For example, with ₹10,000 in your account, you might be able to take positions worth ₹50,000 or more. 

Step 3: Select Stocks for Intraday Trading
Intraday trading is ideal when done in highly liquid stocks. These stocks have high trading volumes and easy buying and selling options that don't affect the market price is essential. You can find them by checking daily trade volume data or indices like the NIFTY 50 or BANK NIFTY. 

Step 4: Set Entry, Exit, and Stop-Loss Points
Before placing a trade, you should decide three things i.e. the entry price, the exit price and stop-loss. Here’s what they mean:

• Entry Price: The price at which you plan to buy.
• Exit Price: Your target price to sell and book profit.
• Stop-Loss: A predetermined level where you will cut your losses if the trade goes wrong.

Let’s take an example to understand it simply. If you buy a stock at ₹100 with a target price of ₹110 and a stop-loss at ₹95, you are risking ₹5 per share for a potential gain of ₹10. This helps maintain a favorable risk-to-reward ratio.

Step 5: Monitor the Market Continuously
In intraday trading, you need to constantly monitor the market since prices can change rapidly. Keeping an eye on live charts can help greatly in this form of trading. It is also crucial to watch market news to understand what might influence stock movements.

Step 6: Practice with Virtual Trading
As intraday trading is risky, many platforms offer virtual trading to practice without real money. Use these to:

• Test Your Strategies: See how they work in real-world conditions.
• Learn from Mistakes: Make adjustments without risking your capital.  

Benefits and Risks of Intraday Trading

Tips for Intraday Trading

Before you dive into the world of intraday trading, here are a few tips you can look at:

• Start Small: Avoid going all in on your first few trades. Start with a small amount to get a feel for how the market moves and how it affects your trades.
• Do Your Homework: It is important to stay updated with market news, company fundamentals, and overall economic conditions.
• Avoid Overtrading: Stick to a few trades per day instead of going after every opportunity.
• Set Realistic Targets: You can avoid impulsive decisions by defining your profit and loss limits before entering a trade.
• Evaluate Your Performance: Regularly assess your trades to see what worked and what didn’t. You need to learn from your trading mistakes to improve your strategy.
   

Ready to Start Intraday Trading?

Intraday trading can be a rewarding experience if you take the right strategy. It is important to remember that intraday trading comes with its own set of risks and so it is important to learn and trade carefully. You can start trading with smaller amounts of capital, manage your risks wisely, and keep learning to build your skills over time before you increase your day trading capital. 

You can gradually become proficient in intraday trading, by following a disciplined approach and making informed decisions. Always remember, successful trading isn’t about luck, but about planning, practice, and perseverance.