What is intraday trading?

A handy guide to intraday trading for beginners

If you tend to invest in and hold stocks for the medium to long term, the concept of intraday trading may intrigue you. What is intraday trading? It is a special form of stock trading where the trader buys and sells assets within the timeframe of a single business day.

An intraday trade could range between a few minutes to a few hours. The only stipulation is that intraday trading positions have to be closed by the end of the business day. The day trader cannot keep any positions open overnight. By taking positions and squaring them off within a single day, the trader hopes to gain from slight fluctuations in the stock price.

In recent times, many individuals have shown interest in intraday trading in the hopes of making a quick buck. But it has to be understood that day trading is complex and time-consuming. To achieve sustained success, day traders have to exercise rigorous discipline and extensive analysis.

Tips for intraday trading

Intraday trading can seem complex if you are just starting out. Keep these intraday tips in mind as you begin your trading journey:

  • Shortlist two or three liquid shares. Go for large-cap shares which are in high demand. This would help you square off open positions more easily.
  • Curate a list of eight to 10 stocks. Research these in detail so that you are in the know about corporate events like mergers, acquisitions, dividend and bonus payments, and so on.
  • Move with the market, not against it. If the market is moving against you, it is better to cut your losses and exit your position quickly.
  • Be disciplined about your exit policy. As intraday traders work with very slim profit margins, frequent losses could make recovery difficult. By setting up rigid stop loss points, a day trader can minimise the risk of loss. Meanwhile, profit targets can help them to mop up profits quickly.

Strategies for intraday trading

Follow the right strategies and your trades will fall into place. Here are some strategies that experienced day traders turn to on the stock market:

  1. Scalping: This fast-paced strategy allows you to profit from very small price changes. The timeframes are extremely minute. A scalper may look at five-second charts and make anywhere from 20 to 100 trades in a day. But scalpers must maintain strict exit targets for there is no room for error.
  2. Range trading: When there is no discernible trend, range trading can prove quite useful. In this case, day traders may use the first 30 minutes after market opening to identify a price range for the stock. This serves as a point of reference. If the price breaks above the range, they may buy the stock. If it moves below the range, it may be time to sell.
  3. News-based trading: News events can give rise to volatility in stock prices. Day traders look out for news that may lead stock prices to rise or plummet. But it is important to double-check the actual impact on prices before entering into a position.

What is intraday trading preparation?

Intraday traders have to study market trends and stock behaviour as well as be up-to-date with the business news. Stock charts can help them fine-tune their strategies and set up stop loss and profit targets. The advantage of having an exit policy is that you can keep emotions from clouding your judgement.

It would also help to open a trading account with an established broker like Kotak Securities which offers robust trading platforms. In intraday trading timing is key. If the system tends to lag, you might lose out on a trade.

Advantages of intraday trading

  • Each day is a new day for trading. No need to worry about the overnight impact of news on the stocks you hold.
  • Many day traders carry out four to five trades a day to turn profits. It is all good practice for stock trading.

Disadvantages of intraday trading

  • Executing multiple trades a day attracts higher commission costs from the depository participants.
  • Sometimes the holding time might be too short to realise a profit.

Conclusion

By now you know what is intraday trading and how to go about it. Although it seems like an easy way to make a quick buck, there is more to this than meets the eye. The serious day trader spends a lot of time carrying out research, using charting tools, and fine-tuning their trading strategy. If you are new to intraday trading, you will have to put in both time and effort. Digitisation has brought the stock markets within the reach of regular people. But only seasoned players are able to read the market correctly and make the right trading calls.