Intraday Trading

A complete guide to the world of intraday trading and day traders.

What is a Cover Order?

A Cover Order is a special type of order through which the user can take an intra-day position and take advantage of extra exposure while being protected through a stop loss order.

The system will place two orders simultaneously: a market or limit order and a corresponding stop loss market order which would only get triggered at the specified stop loss trigger price. If the trigger price is hit, the stop loss order gets executed as a market order. The combination of both these orders being placed simultaneously is known as a Cover Order. Cover Orders help you limit any potential losses that could be incurred on a position.

Benefits of Cover Orders

Limited Risk and Maximum Profit: Due to the inherent way Cover Orders work, they help traders minimize downside risks and provide better control over risk management. Since there is always a stop loss corresponding to each trade, Cover Orders can help users trade in a more disciplined manner. Users can take advantage of the margin benefits as well, using the Cover Order facility to leverage their positions greatly while enjoying the benefits of a stop loss to protect them from downside risk. Overall, Cover Orders reduce downside risk but do not impose any limits on their returns.

How Cover Orders Work

A Cover Order is basically a two-legged order. The client needs to place a buy/sell order with compulsory corresponding stop loss order in the opposite direction.

• The first entry order can be a market or a limit order.
• The corresponding stop-loss order will sit in the order book as a Stop-Loss trigger pending order; once the trigger price hits the stop loss limit price, it gets triggered as a market order.
• The trigger price range will be defined daily and the client must place the stop-loss order within the specified range. For example, suppose Reliance Industries is trading at Rs. 900 and the range is specified as 10%. In this case, the client can specify the Stop Loss order between the price range of Rs. 810 to Rs. 990 as the trigger price.
• Once the Cover Order has been placed and the first leg has been traded, the client will not have the ability to cancel the Cover Order. The client can only exit the current one-sided position.
• If the first order has not been traded, you can cancel the Cover Order.
• The stop-loss order can be modified within the stipulated price range. After the order has been modified, the margin will be recalculated.

What is Intraday Trading?

Traders base their profits on different kinds of purposes. One may be a long-term investment which is a gradual process, yet may produce high returns. The other can be a short-term strategy which includes trading with quick gains. One such method is intraday trading.

Key Points

• Intraday trading refers to buying and selling of stocks on the same day before the market closes. If you fail to do so, your broker may square-off your position, or convert it into a delivery trade.
• Whether a person is an experienced trader or a beginner, looking at the trends and indicators is always beneficial for intraday trading.

Basics of intraday trading:

Intraday trading refers to buying and selling of stocks on the same day. It is done using online trading platforms. Suppose a person buys stock for a company, they have to specifically mention ‘intraday’ in the portal of the platform used. This enables the user to buy and sell the same number of stocks of the same company on the same day before the market closes. The purpose is to earn profits through the movement of market indices. It is also referred to as Day Trading by many.

Stock market earns you great returns if you are a long-term investor. But even on the short term, they can help you earn profits. Suppose a stock opens trade at Rs 500 in the morning. Soon, it climbs to Rs. 550 within an hour or two. If you had bought 1,000 stocks in the morning and sold at Rs 550, you would have made a cool profit of Rs 50,000 – all within a few hours. This is called intraday trading.

Intraday Trading Indicators

Traders often face difficulties with concurrent events occurring in intraday trading. Whether a person is an experienced trader or a beginner, looking at the trends and indicators is always beneficial for everyday trading. Let us look at some indicators :

• Moving AverageMost traders rely on the daily moving average (DMA) of the stocks. The moving average is a line on the charts that show the behavior of a stock over a period of time. These charts show the opening and closing rates of the stock. The minimum average line shows the average closing rates of that particular stock in the given interval and helps you comprehend the ups and downs in the price and determine the flow of the stock.
• Bollinger BandsThese is bands that show the standard deviation of the stock. It consists of three lines – the moving average, the upper limit, and the lower limit. If you seek the trading ranger of a particular stock, these help you locate the price variation of the stock over a period of time, hence, you can put your money around the observations.
• Momentum OscillatorsThe stock prices are highly volatile. Such variations largely depend on market situations. If a trader wants to know whether a stock would rise or fall, this is where the momentum oscillator is beneficial. It is depicted in a range of 1 to 100 and shows whether a stock would further rise or fall, helping you in determining when to buy a particular stock. It shows the right time to trade, not making you lose your chances.
• Relative Strength Index (RSI)This is the indexed form of all the trading that happens overstock in a period of time. It ranges from 1 to 100 and graphically shows when a stock is sold or bought highest. The RSI is considered overbought when over 70 and oversold when below 30. It uses a formula for this calculation, that is, RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]

Intraday Time Analysis

When it comes to variations and movements in intraday trading, the most helpful tools are the daily charts. These can provide all the necessary information about the stocks with indicators that show the trend of any particular stock over a definite period of time. They convey the movement of the prices from the start to the close of market. Time analysis becomes a useful tool for intraday trading as the momentum tends to shift quickly. You won’t be able to comprehend the charts before the stock you put your money in goes down steeply or shoots right up. Hence, it becomes necessary for day traders to look for such charts that would help you understand the flow better – we’ve covered these concepts extensively in things to know while investing in Intraday Trading.

How to choose stocks for Intraday Trading?

Choice of stocks is the first and the most vital step when it comes to Intraday Trading. After all, the money you put in is only worth the time if you get a return, otherwise, it is done and dusted. So how do we choose stocks wisely? Let us take a look.

• Avoid volatile stocks: It is always preferable to stay away from what clearly looks unstable. Why put your money in something that might never let you have it back. Hence, it is advisable to track the stock behavior and consider trading over potentially stable stocks.
• Correlate stocks with geopolitical changes: It is better to invest in stocks that have a correlation with major sectors. If the index for the sector goes up, it might also affect the price of the stock in a positive manner. For example, strengthening of Indian Rupee against Chinese Renminbi would affect the iron industries. Resultantly, the income from exports would increase and the stocks would go up. Picking stocks while keeping in mind such market situation would help you a lot.
• Research: Looking, analyzing and comprehending are the basic steps of trading. Nothing goes right without proper calculation unless you really have luck on your side while trading. As luck does not often show its grace, it is always necessary to research before trading.
• Trends: Sometimes it’s better to follow the herd rather than being a lone wolf. Look for the general flow in the market or the stocks that have raised the most interests in traders. When the market rises, traders must look for the stocks that rise, when it falls, looks for the stocks that show a potential decline.

Five things to know about intraday trading.

Trading Strategy

Intraday trading is a strategy where you buy and sell your stock holding in the same trading day. Traders thus take advantage of the price fluctuations that take place during market hours. In case the trader expects the price to rise during the day, he or she would first buy a lot of securities and then sell some time during the day. The reverse, called short-selling, can also happen. To take advantage of a falling market, traders would short-sell. This is when they borrow shares and sell it in the market. Once the price falls as required, the traders buy shares at the lower price and then return them to the lender.

High risks

Since day traders essentially take advantage of the volatility, they are exposed to great risks. This is much higher than the risks taken by a long-term stock investor. As a result, intraday traders are usually speculators, who are willing to take high risks. They usually conduct high-value trades worth lakhs and crores of rupees by using margin trading. (Use Cover Orders and Bracket Orders to take advantage of high margins provided by Upstox) However, intraday traders can also make an extraordinary amount of profits.

Stock price impact

By doing so, they often affect the stock’s price trend. For example, a stock is trading at Rs 100-102 range. Intraday or day traders decide to bet on the stock and 1,000 shares each. Thus there is a sudden rise in demand for the share. This causes prices to go up marginally. As soon as it hits a certain level, traders sell their stocks. This, in turn, causes prices to fall.
Technical analysis: Since day-traders are only concerned with the volatility in price and volume of the stock, these traders rarely look into the financial viability of the underlying company. They usually employ technical analysis. This includes analyzing historical trends in stock prices and volumes to forecast the future price. Technical analysis helps determine the right conditions to buy and sell stocks. This usually requires a lot of time and effort. As a result, day traders are usually full-time traders, closely monitoring each and every movement in the stocks.

How to day-trade

First of all, the idea is to select stocks which have a high volume of trade. This means they are highly liquid. This could include penny stocks – shares of small-scale companies with prices as low as Rs 20. Select a maximum of two or three stocks at a time. It would become difficult to monitor more shares. Decide the price at which you want to buy and sell – your entry and target prices. Most importantly, ensure you have a stop loss order to act as a safety net. This will help reduce your risks. Once you have placed your order, monitor closely and exit when the price has hit your target or stop- loss levels.

Delivery vs. Intraday trading

If you buy stock on delivery basis, you can pretty much do anything with it. You can keep it for as long as you want, or sell it the next day. It all depends on what you wish to do with it. Anytime you feel the market is high or the value of the stocks held is adequate enough to trade, you can sell them to earn the benefits.

In intraday trading, you are required to sell the stocks on the same day, before the market closes. If you fail to do so, there can be two outcomes. Some online platforms automatically convert those stocks into delivery trades and levy a brokerage, so that you can sell them at your own desired time. Others just square-off your trades at the market price during the close time, even if you’re making a loss, and sadly you have to bear the losses.

Wrapping Up

• Intraday Trading is done not with the interest of investment, but with the motive of quick profit.
• Common indicators which prove to be helpful for traders are Moving Average, Bollinger Bands, Relative Strength Index, Momentum Oscillators.
• It is advisable to avoid volatile stocks. Traders should look out for stocks which are correlated with major sectors.
• Research and following the trends prove vital for a trader, may they be a beginner or a professional.

Difference between intraday and delivery trading

Stock market trading has many different faces – some of them involve short term buying and selling of shares, while others are long term investments. Depending on which extreme you’re looking at – there are two modus operandi or ways of trading in the share markets – intraday trading or delivery based trading.

Key Points

• When you’re buying and selling stocks within the same trading day, you’re indulging in intraday trading.
• Unlike intraday trading, delivery trading involves a more pronounced intention of investment than just trading opportunities. This is because the investors have it in mind to hold on to their stockholdings for a longer period of time.
• While intraday trading allows low capital accounts and margin payments, delivery trading requires complete amounts for its transactions.

What is Intraday Trading?

When you’re buying and selling of stocks within the same trading day, you’re indulging in intraday trading. In this course of action, stocks are purchased with the aim of earning profits and not with any objective of investment. This is done by harnessing the movement of stock indices, which means that the varied prices of the stocks are harnessed in order to earn profits from trading of stocks.

To participate in Intraday trading, an online trading account must be set up with specific orders which are explicit to intraday trading. These orders are squared off before the trading day ends.

Advantages of intraday trading

• Only a little capital investment is required by the trader as payments can be made in small margins.
• The investor can leverage capital to earn maximum profits.
• It eliminates the overnight risks of the stocks.

Disadvantages of intraday trading

• There are no long-term capital investments.
• The use of leverage can result in more losses.
• It requires constant attention of the trader as trades end by the end of the day.

What is Delivery Trading?

Delivery trading is one of the most common trading methods in the stock market. Unlike intraday trading, delivery trading involves a more pronounced intention of investment than just trading opportunities. This is because the investors have it in mind to hold on to their stockholdings for a longer period of time.

In this process, there are no time constraints in the selling of stocks. As long as the stocks are delivered to the associated demat accounts, it is considered as a delivery trade.

You cannot perform delivery trades without a demat account – since a demat account is where your stocks will be stored.

Advantages of delivery trading

• There is no time limit to sell stocks.
• It provides easy bonus earnings as to dividends, bonus issues, rights issues, etc, with the stock owner earning all the bonuses which the company doles out.
• It helps in significantly increasing the profits of the investor as higher returns are provided to the owner through the company’s dividends and bonuses.
• There is no risk of short selling. Short selling is the process of borrowing shares to sell in the market and then buying them back again before the end of the trading day.

Disadvantages of delivery trading

Complete upfront payments: No trading can take place if the investor cannot pay the entire amount of transaction up front. Thus, an investor can end up losing a good opportunity due to lack of funds.

Intraday Trading v/s Delivery Trading

It is easy to conclude that intraday trading is usually completed within a day. This typically means that all the shares purchased in the day must be sold by the end of the day, before the closing of the markets. If these shares are not sold, they are automatically squared off at the closing time.

However, on the other hand, in delivery based trading, shares bought can be maintained for a longer duration for higher profit returns.

While intraday trading gives the opportunity for low capital accounts and margin payments, delivery trading requires complete amounts for its transactions.

As an intraday trader, if one can judge and forecast the value of shares at short and small intervals, then intraday trading is a good idea. Nevertheless, there are many technical tools which assist in predicting short term price movements.

However, if one thinks long term investing is better suited for them, and they are able to pick shares based on company’s intrinsic value and relatable assessments (such as the company’s fundamental indicators – like price-to-earnings ratio, book value and the like), delivery based trading can be considered as a better option.

Wrapping Up

• When conducting transactions on the stock market, you can either perform intraday trades, or delivery trades.
• Intraday trades are driven purely by profits, and are closed within the same day.
• Delivery trades on the other hand, involve holding stocks for more than a day, and therefore require a person to open a demat account.

Intraday trading tips and tricks

When you buy a stock, it is up to you to decide what you want to do with it. You may keep it for the next decade if you like, or sell it on the same day. Both options have their own benefits, but if you’re going to be closing your position on the same day, there are some intraday trading tips you should know.Key Points

• As the name suggests, Intraday Trading is the process of buying and selling stocks on the same day. Basically, you buy stocks on daily basis, you look for a reasonable price to sell it and then earn your profit.
• Trading is an example of planning and implementing. You have to have a clear idea before doing anything. Build your portfolio according to your requirements and financial strength.
• Daily analysis and research is necessary for Intraday Trading. The movement of the market’s momentum must be reflected in the strategy used by a trader. It is not intelligent to use the same strategy everywhere. So update what you are working upon with the trends in the market and then implement.
• It is advisable to look for liquid shares for Intraday Trading. As the trader needs to square-off their position at the end of the day, it is better to go for large cap shares.
• Do not try to move against the flow of the market. Even the people who have been trading for over a decade fail to explain and predict the situation of the market.

As the name suggests, Intraday Trading is the process of buying and selling stocks on the same day. Basically, you buy stocks on daily basis, you look for a reasonable price to sell it and then earn your profit. While it looks like the easiest way towards big money, the adage “all that glitters is not gold” still holds true. There are some hidden complexities that might make you lose your path in this seemingly simple venture. Learn how to perform intraday trading here [link to article #82], and then take a look at a few steps down below that could help you trade well.

Do’s

• Portfolio: Trading is an example of planning and implementing. You have to have a clear idea before doing anything. Build your portfolio according to your requirements and financial strength.
• Indicators: Trading charts depict the behavior of stocks over a period of time along with various indicators which help predict how a particular stock could behave in the future. Include these in the calculation before buying a stock as they could help you understand how it could behave throughout the day.
• Control: Intraday trading can be as volatile as trading can ever get. Manage to control your greed and fear once you get into this business. It is not always necessary that you earn a profit and it’s the same for the other way around too. This may be fast trading but still requires patience.
• Update: Daily analysis and research are necessary for Intraday Trading. The movement of the market’s momentum must be reflected in the strategy used by a trader. It is not intelligent to use the same strategy everywhere. So update what you are working upon with the trends in the market and then implement.

Don’ts

• Rumors: The media can get chaotic. And so does the stock market. Do not always pay heed to the rumors around you until and unless you are certain about it. They may deviate you from your strategy in unexpected ways. The best way to deal with rumors is to stick to your strategy till you are certain about the news.
• Single Day Trade: “What you have is, Today”. There is no future tense in Intraday Trading. Do not plan for the future with any stock. Whatever you buy is what you would sell today. Plan according to the single day that you have in hand.
• Profit: Do not always expect gains in trade. Trade has never been a fair affair. If one gains, the other has to lose.
• Over Trade: Satisfaction is the key to a healthy life. Cherish your earnings but don’t go running behind earning a lot. If you have gained a lot on a particular day and there’s still time left before the market closes, it does not mean that it’s the right day to put all your money in. The market never works that way. Accept what you earned and learn to be satisfied.

Tips and Tricks for Intraday Trading

It is advisable to look for liquid shares for Intraday Trading. As the trader needs to square-off their position at the end of the day, it is better to go for large cap shares. Otherwise, you might have to hold the stocks due to lack of trading volumes. Here are some more tips and tricks for intraday traders.

• Utilising the Stop LossStop Loss is a feature that enables automatic selling of a stock, if the price falls below a certain limit. It is beneficial for traders as it minimises the potential loss that could occur.
• Set your TargetsIt is as necessary to book your profit as it is to minimise your loss. Stop your greed from controlling your decisions. At the same time, don’t let fear stop you from pulling the trigger on trades. Look for a targeted amount to trade on any particular day. Do not put all your money in at once.
• ResearchLook for all the technicalities before buying your shares, such as dividends, stock splits, bonus dates, mergers, etc. It is advisable to add 8 to 10 shares in your wish list and research in-depth about them.
• Learn when to ExitDo not try to move against the flow of the market. Even the people who have been trading for over a decade fail to explain and predict the situation of the market. If the market goes against your expectations, you should know when to walk out.

Wrapping Up

• Intraday Trading means the buying and selling of stocks on the same day.
• Trading always requires a person to build a strategy before stepping into it. There are several indicators available as a resource to help a trader understand how and when to use their money.
• Control your greed and overcome your fear when it comes to intraday trading. This is as volatile as trading gets.
• Set your targets and never try to go against the flow of the market. If the situation ditches you, it’s never too late to exit.
• Understand that profit never comes to a person everyday. If one gains, other has to lose.

Basics of investing in intraday trading

When we talk intraday trading, we just have trading in mind that lasts for a single day. But, we don’t know the details about intraday trading. Here in this article, we will get into the details of intraday trading and address doubts such as

• What is Intraday Trading
• Intraday Trading Indicators
• Delivery in Intraday Trading
• Things to Keep in Mind in Intraday Trading

Key Points

• The main purpose of intraday trading is to earn profit on the short term by harnessing the movement of stock indices.
• Intraday trading indicators are favorable tools used to maximize your returns.
• In delivery intraday trading, you buy shares and sell it after one day.

What is Intraday Trading?

Intraday trading is basically buying and selling of stocks on the same day. If you are doing day trading in a stock, your intention is clearly not to invest in that stock. The main purpose of intraday trading is to earn profit on the short term by harnessing the movement of stock indices.

You will be needing an online account to conduct intraday trading. While conducting intraday trading, you will have to notify that the orders are specific to intraday trading.

Intraday Trading Indicators

Intraday trading indicators are favorable tools used to maximize your returns. Some important intraday trading indicators are:

• Moving Averages: Moving averages are the most common and widely used indicator. It is the line on the stock chart which connects the average closing rates over a given period. If you are considering a longer period, the moving average will be more well-grounded. Moving averages let you comprehend the underlying movement of price as most of the time price of a stock doesn’t move only in one direction.
• Bollinger Bands: The concept of Bollinger bands is a bit more advanced than that of moving averages. It comprises 3 lines – the moving average, an upper limit, and a lower limit. With all these, you can comprehend the underlying movement of the stocks better than just by moving averages. It will provide you a better understanding of the stock’s trading range.
• Momentum Oscillators: Sometimes stock prices move unrelated to the bullish or bearish market trends. In such cases, it will be easy for you to comprehend the movement of the stock if you follow the momentum oscillator. This indicator is depicted within a range of 0 to 100 and will be advantageous for you when the price has achieved a new high or low. You can predict if the stock will further rise or fall.
• Relative Strength Index (RSI): The RSI is one of the most useful intraday trading tips which helps you determine shares’ gains and losses. It is calculated in index form which narrows down the RSI score ranging between 0 to 100. The index increases when the price of the stock rises and vice versa. You are recommended to sell the stock when the RSI touches 70 and buy when it falls to 30.

Delivery Intraday Trading

Delivery intraday trading is slightly different from general intraday trading. If you want to participate in intraday trading, your money is more secured with delivery intraday trading. In delivery intraday trading, you buy shares and sell it after one day. The main advantage of delivery intraday trading is that it is much more secure than regular intraday trading. You are not obliged to sell the stocks at the end of the day. You can take delivery for an undefined period of time and not sell them on the same day with a loss.

Things to keep in mind while trading intraday

• Choose Liquid Shares: You should always choose liquid shares (or shares with high volume trade) for intraday trading, as you will have to sell these shares before the end of the day. It is recommended that you choose two or three large-cap shares that are highly liquid. Trading in Mid-cap and small-cap shares can oblige you to hold these shares because of low trading volumes.
• Determine Entry and Target Prices: It is highly recommended that you determine your entry level and target price. If you fail to do so, you may lose the opportunity to take full advantage of the intraday market by selling your stock before it reaches a higher price.
• Utilizing stop Loss for lower impact: Stop loss is used to automatically sell the shares if the price falls below a certain limit. You should determine the stop loss to limit your potential loss due to fall in stock prices. It can save you a lot of money and it is highly recommended that you determine stop loss before trading intraday.
• Book Your profits when target is reached:
  Don’t try to be greedy during intraday trading. You should sell your stocks when the target price is achieved. In case you think that the stock has further possibility of rising, you can readjust the target price.
• Research your wish list thoroughly:
  You are advised to include more than 5 shares in your wishlist and research them thoroughly by evaluating corporate events such as mergers, bonus dates, stock splits, dividend payments, etc. After you are confident about the stock you have selected, you can trade in it intraday.
• Don’t move against the market:
  Never move against the market until and unless you are confident about it. It is very tough to predict the market. If the market moves opposite of what you expected, you should exit as soon as possible.

Wrapping Up

• Intraday trading can be rewarding as well as risky, you should invest in them after doing thorough research.
• You might have got a clear idea after going through this article. Follow the tips given before you start trading intraday.
• Always determine stop loss, target price and entry price before trading online.

How to do intraday trading

As the name suggests, intraday trading is the method where buying and selling (or vice versa) of shares and stocks takes place on the same day. It is also called as ‘Day trading’ by many traders – and is different from delivery trading, which involves holding shares for more than one day.Key Points

• As the name suggests, intraday trading is the method where buying and selling (or vice versa) of shares and stocks takes place on the same day.
• In online trading platforms, when an intraday transaction is made, it has to be explicitly specified that it is an intraday transaction while placing the order. However, while buying, there is always an option to change it to ‘delivery trades’ later, before the market closes.
• Unless one is ready to devote enough time, is prepared to self-learn and is mentally set to take risks and accept losses, intraday trading is not the best option.

Let us try and understand how it works with an example.

Assume that you buy 100 stocks of the company Tesla Motors during open market hours. On an intraday trade, you’ll need to sell these Tesla Motors stocks, before the market closes. Similarly, if you had shorted (or sold before buying) the stocks, you would have to buy the same number of these stocks before the market closed.

In online trading platforms, when an intraday transaction is made, it has to be explicitly specified that it is an intraday transaction while placing the order. However, while buying, there is always an option to change it to ‘delivery trades’ later, before the market closes.

In most of the trading platforms, the stocks bought under intraday trading are automatically squared off if they are not transacted as per rules before the day ends.

Guidelines and tips

There are plenty of things you should keep in mind before you begin intraday trading. In addition, we also have some items that you ought to have in good supply before you begin:

• Good amount of knowledge of basics
  Knowledge is power. It is extremely important to keep oneself informed not only about the basic trading processes, but also the newest stock market news and events that could affect stocks and shares.
• Surplus funds
  It is better to estimate how much capital goes into trading online, while keeping in mind the expenses of one’s daily necessities. Setting aside a surplus amount of funds to trade (which one is also ready to lose) is always the right step.
• Starting small
  In the beginning, it is definitely advisable to start with a small number of stocks to trade with. This makes finding opportunities easier.
• Being realistic about profits
  Successful traders always move fast without having to think fast. This is because they tend to develop a trading plan in advance along with realistic approaches about profits.
• Logical decisions
  As a trader, greed does tend to makes its way through, but it is necessary to stay calm and make logical decisions instead of emotional ones.

Intraday trading steps

An intraday trader actively performs buy and sell transactions, sometimes even multiple times during the day, but ensures not to carry any of the open positions to the next day.

• Conducting a complete self-assessment for successful intraday trading requires a mixture of basic trading and financial knowledge and traits as well as dedication to a trading lifestyle. Unless one is ready to devote enough time, is prepared to self-learn, and is mentally set to take risks and accept losses, intraday trading is not the best option. Hence, the first step is to conduct a self-assessment on all the points mentioned above to start with intraday trading.
• Putting together adequate capital It is impossible to generate profits consistently in online trading. Discontinuous and comprehensive losses are part of its game. For instance, a day trader can suffer seven loss-making trades in a row and can only recover with a profit on the ones after.
• Understanding the working of markets is important for an intraday trader to build a solid foundation of information about how the markets function. This should include simple details like exchange trading hours, the impact of news events, margin requirements, and so on.
• The selection of an appropriate trading plan/strategy/tactics trading world has become extremely dynamic. Its strategies can constantly make money for long periods and even then fail at any point in time. Beginners should enter the trading world with at least two established trade strategies, to act as backups of each other in case of failure. Once the trader’s experience increases, it is then recommended to move on to larger and more complex strategies.
• Brokerage ChargesDue to the frequent involvement of transactions, intraday trading can result in high brokerage costs. Hence it is advised to do thorough research before the selection of a brokerage plan for trading. If a trader intends on completing about one or two trades per day, then a per trade basis brokerage plan would be suitable. However, if the trader’s daily trading volume is higher, it’s appropriate to go with unlimited brokerage plans that help in reducing the effective cost. And finally, aspiring traders should make sure that they remain cautious of websites and courses that promise full-proof day trading success or endless profits.

Wrapping Up

• Intraday trading refers to the act of closing a transaction on the stock market within the same trading day.
• Always do your research, and have surplus funds before you begin intraday trading.
• You’ll also need to have a fair understanding of brokerage charges and a good understanding of the markets.

How to choose stocks for intraday trading?

Intraday trading is the simplest form of stock trading. As the name suggests, it’s about buying and selling stocks “within the day”. Changes in price points within the day are important to short-term traders, the prerogative not being “investment”, but quick money – the margin. Intraday stock pickings have to be robust, timely and decisive. The basic requirement for Intraday Trading is a substantial risk-taking attitude. Beginners are generally cautioned away from intraday trading as one must be able to base his/her decisions on foundational research and logical analysis, something more experienced investors have.

Key Points

• Changes in price points within the day are important for short-term traders, the prerogative not being “investment”, but quick money – the margin.
• Price volatility, shifting socio-economic factors, firm specific indicators (both present and historic), sector competition etc. all have to be kept in mind before decisions are made.
• To involve yourself in intraday trading, you must have a handle on market conditions, policy changes, markers within the company or industry that support your decision, basic indicators such as DMA (Daily Moving Averages), the RSI (Relative Strength Index) etc.

Intraday trading is as tedious as it is risky. Price volatility, shifting socio-economic factors, firm specific indicators (both present and historic), sector competition etc. all have to be kept in mind before decisions are made.

Example. A purchases Bharati Airtel at Rs. 408 with the upcoming merger with TATA Teleservices as an indicator for an upward move to Rs. 420, as the market closes. But the JIO announcement – for a new handheld device– depreciates investor confidence in Airtel, and the price drops to Rs. 400; a loss of Rs. 8 per share.

Dos & Don’ts

Intraday trading is a matter of balancing scale and cost. But it also is a matter of experience and analysis. The risk requires that an intraday trader, or someone who aspires to make such a decision, follow some basic guidelines –

• Investment attitudes should come from two places – where losses are to be expected (you should be able to afford losses) or from a place of caution.
• Before entering a position, decide your buy price, your target price, and stop-loss. Buy too close to the curve, your profits shorten. Sell much before the curve… the same.
• No cement. No investment. Intraday movements should not make you decide to stay too long. You are here for one quick fight up the curve.
• Do not (or one is advised not to) bet against the market. The experts can guess. No one knows.
• Research and analysis are your closest friends. To involve yourself in intraday trading, you must have a handle on market conditions, policy changes, markers within the company or industry that support your decision, basic indicators such as DMA (Daily Moving Averages), the RSI (Relative Strength Index), etc.
• Do not “jump in.” Monitor the stock in question and purchase stocks inconsequential scrips.
• Be happy with what you make. But make the most of it.

Stock selection tips for an intraday trade

Intraday trading is either a matter of luck, or of research and concrete decision making. If you fall into the latter category, you will have to decide on a few basic parameters for what the stock you plan to dive into, looks like. These parameters are –

• The liquidity of the stock; trade in stocks that are highly liquid, given their high trading volumes, and minimum effect on prices.
• Stay away from highly volatile stocks – either by individual investment or by sector.
• Don’t fight the market trend (unless the indicators say otherwise).
• Bet well, or scalp trade. Be content and aim for small margins that remain profitable.

Wrapping Up

• Intraday Trading – or the act of closing trades on the same day, is like bungee jumping – utterly exciting and at times dangerous.
• Before you begin, beat that apprehension with concrete evidence and research.
• Enter a position with the right frame of mind, and exit in as timely manner as possible.
• Make it simple and be aware of the risks you take.

What is Day Trading?

We know that you can buy and sell securities (like shares, currency etc.) whenever you like, or whenever you find that the price is appropriate. This buying and selling of securities is what is called trading.

Key Points

• When a person buys and sells securities within the same day i.e. when she/he closes a transactional cycle in one day, traders call it day trading.
• For a person to qualify as a day trader, he must have solid knowledge and experience of the market.
• Day traders use some strategies to make profits. A day trader must be flexible in using strategies, because as any new or experienced investor or trader knows: the stock market is an unstable place.

But when a person buys and sells securities within the same day – when he closes a transactional cycle in one day – we call it day trading. The person can go through the process multiple times in any given day. Day trading can occur in any marketplace, but it is more commonly seen in the stock market and the foreign exchange market (forex). People who perform day trading are known as intraday traders. The day traders who intend to hold on to their shares for a little while longer (say, a couple of days) are called swing traders – riding on the momentum of the stock’s movement.

How does a Day Trader Work?

A typical day trader who is serious about her work and earns her living through day trading has some qualities which makes her an expert in the field.

Let us observe some characteristics of a day trader:

• The most important one is knowledge and expertise. For a person to qualify as a day trader, he must have solid knowledge and experience of the market. Day traders know market fundamentals, but they constantly keep on researching on dynamic technicals because the stock market is an unstable place.
• One cannot make money without sufficient capital. A good amount of capital is absolutely necessary, otherwise the return will be small and of no use. Day traders use risk capital for day trading which they can afford to lose. They often borrow money too (called leverage) because a huge amount of capital is not always readily available.
• A good blueprint is important keeping in mind the risk involved. To have an edge over other day traders, a strategy proves to be worthwhile. Day traders use different strategies like, arbitrage, swing trading, etc.
• Proper discipline is always the key to success, be it any field. A day trader will often end up losing a huge amount of capital invested if discipline is missing.
• A day trader uses proper technology to perform all tasks since everything happens electronically.

Day Trading Strategies

Day traders use some strategies to make profits. A day trader must be flexible in using strategies, because as we already mentioned, the stock market is an unstable place. Here are some common strategies used by day traders:

• Scalping: Scalping used to be called spread-trading, and is a technique based on real time technical analysis. Purchasing and selling is performed by holding a position for a very short duration of time for small profits.
• Range Trading: ‘Trading in a range’ stocks are analysed. They are stocks which on reaching high, fall low. Therefore, the day trader buys them at low price and sells at high.
• Trend Following: Trend following can be considered one of the most basic strategies for day traders. It assumes that the stocks that are rising will keep on rising and vice versa. Hence, the trader buys the rising stocks and sells the falling ones.

Day trading for a living

There are basically two types of day traders – those who work for an institution and those who work alone. Most of the people who perform day trading for a living are those working for some institution.

Here are some of the reasons why most traders work with institutions:

• A large amount of capital needs to be invested which might not always be available at an individual trader’s disposal.
• Expensive analytical software might be required that can be provided at an institute.

Even though most day traders traditionally worked with institutions, with the advent of the internet and lightweight trading platforms that provide real-time information, individual traders can also become day traders.

Wrapping Up

• People who attempt to day trade without proper knowledge and experience tend to fail in their attempt and end up losing large amount of money.
• Proper strategy and discipline is key to a day trader’s success.

Risk management in intraday trading

Intraday trading comes with a high degree of risk compared to long term investments or even short term trades. As opposed to long term investments, any new market development could cause wild price swings in addition to the inherent volatility of the stock. To be profitable as a day trader in the brutal intraday market, one has to be adept at risk management.

Key Points

• Intraday trading comes with a high degree of risk compared to long term investments or even short term trades.
• Stocks fluctuate within price ranges, with the lower point of a price range called a Support and the ceiling, a resistance.
• A stop loss is a price at which you sell your shares to avoid further loss. This should be fixed at a price below the support at which further loss is likely. Similarly, one should also choose a price to sell at a profit, in market lingo, take profit. This is usually set near a resistance.
• Expected return is calculated as (probability of take profit* profit at that price) – (probability of stop loss* loss at that price). Compare the expected return across stocks and choose the stocks that have the highest expected return values.
• Seasoned traders advice an exposure of just 1-2 times the money held by a trader in a trade.

Intraday trading

Intraday trading refers to trades that are squared off in a single market session. In other words, shares bought are sold before the market comes to a close. Brokerages offer margins to trade, that is, part of the money you need to buy shares is provided by the brokerage. This enables one to trade higher volumes of shares and is called leverage. It is usually expressed as a ratio.

For example, if a brokerage offers 4:1 leverage, it means that for every one part of your money, the brokerage pays four parts. Thus, one needs to contribute just 20% of the share price to buy one share. All Intraday positions have to be closed before 3:10 pm. More important things to know while investing in intraday trading here. If not, brokerages either add the shares to your demat account after deducting money due to them, or if your account doesn’t have sufficient balance, auto square off (sell at market price and reclaim their contribution).

Risk management in intraday trading

For trade to not be a wild gamble, a trader must know how to minimize risks. While traders don’t have control over making profits, every trader can cut losses by formulating an intraday strategy to be followed beforehand. Without a plan, people make emotional decisions in the face of adverse developments, leading to more disasters. Therefore, one has to know what shares to trade, how much to buy, and when to sell before starting. In a domain fraught with risk, only those who take effective measures against risk can survive.

Risk management techniques

Determine support and resistance

Technical analysis should be used to determine which stocks to buy. Stocks fluctuate within price ranges, with the lower point of a price range called a support and the ceiling, a resistance. These price ranges and price points can be determined by observation of historical price movements, using tools such as moving averages (average of a number of previous closing day prices) or the fibonacci retracement tool or by connecting price peaks and troughs on a chart to determine resistance and support.

A share usually tends to rise near its support price and if it’s near its resistance price, usually tends to drop in value. But this is not always the case as new market developments can affect the fortunes of stocks greatly. Stocks can go up beyond resistances or slip under multiple supports to settle into new price ranges. There can even be manipulation of share prices by deep pocketed traders, especially if the traded share is not so liquid.

Choose exit points

Once you’ve bought a share, you must know when to sell and get out. A stop loss is a price at which you sell your shares to avoid further loss. This should be fixed at a price below the support at which further loss is likely. Similarly, one should also choose a price to sell at a profit, in market lingo, take profit. This is usually set near a resistance.

These price points are not cast in stone. Based on an assessment of prevailing market conditions and temperament (bullish or bearish trend), one can set stop loss and book profit prices. For example, in case of a volatile stock, the targets should be set wide apart whereas a more stable stock might warrant tight targets. But these prices should be realistic with a reasonable probability of realisation. Setting a stop loss or book profit price way off from the stock price with little probability of realisation is futile.

Expected return

One has to be constantly vigilant while trading and factor in every development to make the right decisions. The strategy has to be dynamic and accommodative.

Amount to buy

While it is tempting to use up leverage while trading, it’s very unwise to do so. Seasoned traders advice an exposure of just 1-2 times the money held by a trader in a trade. This way, losses can be minimised. If one is pretty sure about the prospects of a trade though, higher volumes can be bought and sold.

The leverage multiplier factor would have its impact both on profits and losses.

In trading, there can be four outcomes – big wins, small wins, small losses and big losses. The aim is not to eliminate risk entirely but visualize. Eliminating risk from a situation is beyond human control. However, visualizing the worst case scenario and practically analyzing whether you can handle a big loss is the key. Can you handle it if you incur a big loss? That’s your answer to risk management.

Tips for risk management

• Trade in highly liquid stocks, usually large cap stocks, as this will facilitate easy buying and selling. Large cap stocks might also be less volatile due to the high volume of trade.
• Always do your homework before trading and set stop loss/take profit prices, calculate expected return, amount to trade etc.
• The price at which you’ve bought the shares shouldn’t be set as the stop loss price. Some do this to eliminate the risk of incurring a loss, but often, large institutional traders manipulate stock prices to reach stop loss prices set at buying prices before value increases again.
• Don’t use a fixed distance stop loss and take profit price for every stock. For example, a stop loss that you always set ten points away from the buying price.
  Don’t set performance targets. It only makes you anxious and forces you to make mistakes.
• Modify exposure based on probability of profiting from a trade. A 1-2% exposure is usually advised. Don’t use up leverage.
• Look back at past trades and learn from your mistakes.

Wrapping up

• Intraday trading is much more risky than long term investments
• Have a strategy in hand before trading
• Choose stocks based on expected return values
• Set stop loss and take profit prices
• Trade with only a fractional amount of your money