A person cam gain profit in stock market in different ways. They may invest for a long term and accumulate wealth gradually or make use of a short-term strategy like intraday trading, where quick gains are achieved through trading in stocks. If you are a new investor and are in the process of understanding how to start share trading in India, it is advisable you to learn about both the methods. In the below article, you will understand about Intraday Trading closely.
Intraday Trading Meaning
The buying and selling of stocks within the same trading session are called Intraday Trading. In Intraday Trading, stocks are not purchased for investment, rather, they are purchased to earn a profit by capitalizing the movement of stock indices. To earn profits in intraday trades, the fluctuations in the prices of shares are tracked.
You need to open an online trading account and specify that a particular order is for intraday trading because the orders have to get squared off once the trading session comes to an end per day. Your broker might square off your trade on his own or convert it into a delivery trade if you fail to do so.
Advantages of Intraday Trading
Some major advantages of intraday trading are:
- Potential for higher returns,
- The trading strategies pay off within a short to the medium horizon.
- Traders have higher margins available to them than investors.
- Comparatively low brokerage trading.
How to Do Intraday Trading
Follow the below given steps to do intraday trading:
- Study the market and select stocks having high volume of trade. High volume stocks means stocks that are highly liquid, including penny stocks.
- Select as many as 2-3 stocks at one go as it might get difficult to manage too many stocks together.
- Decide upon your entry and target prices, i.e., the prices at which you want to buy or sell a stock.
- Make sure that you have a stop loss order in place to act as a safety net for your trading and reduce your risk.
- Place your order and keep a close watch on the trading. Exit when a particular stock reaches your stop loss level.
Tips for Intraday Trading
Intraday trading comes with its bag of risks. Thus, it is crucial to understand the basics of the concept of intraday trading to avoid such losses. It makes sense to invest only that amount in intraday trading that one can afford to lose and would not land the trader in financial difficulties till he is able to recover the loss. Follow the below mentioned intraday trading tips to learn the art of intraday trading:
- Follow intraday indicators along with a comprehensive strategy to maximize your returns.
- The inherent risks of a stock market often make their way into intraday trading. The stock that a trader picks for daily trading is affected by several factors such as daily volume and price volatility. Risk management is therefore extremely important to intraday trading. For any given trade in a day, traders generally do not risk more than 2 percent of the entire trading capital on one single trade for this.
- The price movement in a stock, on a one day interval is represented in daily charts for a stock traded intraday by a trader. Such charts are very helpful as they conveniently illustrate the movement of the price of a stock between the opening and closing of the market in a day.
- It is important for a trader to understand how to select the right stocks for intraday trading. Study the market well and choose your stocks wisely for intraday trading.
Intraday trading can be a viable way to earn profit if a trader invests enough skill, experience and resources into the trade. On the surface, it looks a simple entry and exit process into the stock market, but actually it requires a careful understanding and close watch on the market.