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- Intraday Trading Basics
5paisa Research Team
Last Updated: 20 Aug, 2024 08:53 AM IST
Content
- Basics of Intraday Trading
- Benefits of Intraday Trading
- Features of Intraday Trading
- The Basics of Intraday Trading - A Primer
- The Basics of Intraday Trading - How to Trade Efficiently
- Associated Risks
- Conclusion
Basics of Intraday Trading
Intraday trading is part art, part science. Only the best can survive and make consistent profits. It is not only one of the most remunerative forms of trading but also the riskiest. Hence, if you are an aggressive investor or trader, intraday trading might be your best bet. This article contains information about intraday trading - its basics, features, and ways to profit.
Benefits of Intraday Trading
Intraday trading has various advantages to traders, making it a popular option for individuals hoping to profit from short-term market swings. One of the key benefits is the possibility to earn quick earnings in a single trading day. Because positions are not maintained overnight, traders can avoid the risks associated with market volatility or news that may have an influence on stock prices when the markets shut.
Another advantage of intraday trading is the ability to employ leverage provided by brokers, allowing traders to hold greater positions with a little amount of money. This can improve revenues, but it also raises risk. Furthermore, the shorter time frame of intraday trading allows traders to capitalize on modest price moves that may be negligible over longer periods but can result in huge returns when leveraged.
Intraday traders also benefit from reduced brokerage fees than long-term traders, since many brokers give high-frequency traders special pricing. Furthermore, the ability to swiftly join and exit transactions enables improved liquidity management, making it simpler to control risk and capitalize on market opportunities.
Overall, intraday trading is a dynamic and potentially rewarding technique for traders with the time, dedication, and expertise to actively watch markets and react rapidly to opportunities.
Features of Intraday Trading
Intraday trading offers several unique features that make it appealing to those looking for potentially high returns within a short period. Below are some of the key features that define intraday trading:
• Short Time Frame: All positions are opened and closed on the same trading day, avoiding overnight risk.
• Leverage: Traders can utilize the leverage supplied by brokers to handle greater holdings with less cash.
• High Liquidity: Concentrate on highly liquid stocks or assets to enable speedy entry and exit from positions, which is critical for capitalizing on modest price swings.
• Technical analysis: It involves using charts, patterns, and indicators to make quick, educated trading choices.
• Lower Brokerage costs: Because of the large volume of trades, many brokers charge lower costs for intraday trading.
• High Risk-Reward Potential: Using leverage and short time periods can result in substantial gains, but it also increases the risk of loss.
• Quick Decision-Making: Intraday trading necessitates the capacity to make quick judgments based on market trends and analysis.
• No Overnight Holding: This eliminates exposure to market volatility or news that might affect stock prices outside of normal trading hours.
The Basics of Intraday Trading - A Primer
Intraday trading, also known as day trading, refers to the process of buying and selling stocks, futures, options, commodities, currencies, etc., on the same day. Usually, when you buy shares for the long-term, the seller transfers the ownership of the shares to you. The shares thus obtained get stored in your Demat account. However, intraday trading does not require any transfer of shares. Since the buying and selling of shares occur on the same day, the trader’s Demat account is not credited or debited.
Earlier, intraday trading was the domain of expert traders and professional money managers. But, thanks to the proliferation of online trading services, almost any investor can engage in online intraday stock trading.
The Basics of Intraday Trading - How to Trade Efficiently
The first step to mastering intraday trading basics is choosing the right broker. Brokers like 5paisa offer comprehensive guidance and pinpoint research reports to help you identify the best intraday trading stocks. As a fact, intraday trading stocks are different from delivery stocks. The following sections describe some proven tips to ace intraday trading:
1. Open an Account
You will need a demat and trading account to start intraday trading. 5paisa offers a 100% convenient online account opening facility. You can simply upload your KYC (Know Your Customer) documents like PAN card, Aadhar card, and a photograph to open a free demat and trading account and start trading.
You can open two types of trading accounts in India - cash and margin.
If you have a cash account, you can place trades with the available clear balance. For example, if your account balance is ₹10,000, you can buy shares worth ₹10,000. In contrast, a margin account enables you to buy more shares than your account balance permits. For instance, if your account balance is ₹10,000, you can buy or sell shares of up to ₹1 lakh, depending on the margin value provided by your broker.
2. Pick Liquid Shares
Liquid shares are those that exhibit high trading volumes and experience rapid price movements in both directions. Due to high investor participation, these stocks are very liquid, meaning you can conveniently buy and sell any quantity without worrying about impacting the prices. Generally, large-cap stocks that are also a part of an index like NIFTY 50 or BANK NIFTY are the most liquid. In contrast, many mid-cap or small-cap stocks are not liquid, and if you pick such stocks, you may get stuck for days to get the momentum you need.
3. Determine the Entry, Exit, and Stoploss Before Entering a Trade
Expert intraday traders determine the risk-reward before placing a trade. For instance, if your risk-reward ratio is 1:1, you are ready to lose ₹1 for getting ₹1. Similarly, if the ratio is 1:5, you are ready to lose ₹1 for getting five times the profit. Liquid stocks generally move at a breakneck speed, and sometimes, you cannot execute the trade instantly. Placing a target and stop-loss makes you immune from tracking the second-by-second movement of intraday stocks.
4. Never Be Greedy
Perhaps the most underrated intraday trading basics is the relation between greed and reward. You will often face situations when the market is more positive than expected. It is natural to lose control over your sense of judgment and get swayed in such times. But, in intraday trading, nothing is permanent, and the extraordinary growth in one moment can turn into a catastrophic crash in the next. Hence, it is wise to control your greed and stay true to your target and stop loss for consistent returns.
5. Go With The Flow
Traders often ignore the intraday trading basics by challenging the market. As a rule, you must never challenge the market until you are absolutely confident that your research is top-class. You can observe three broad trend types in the market - uptrend, downtrend, and sideways. If the market is in an uptrend, it is wise to place buy trades before selling. Conversely, you can sell first and buy later if the trend is down.
Associated Risks
Because of its fast speed , intraday trading entails considerable risks. One of the greatest risks is the possibility of significant losses, since rapid market swings can cause sudden and unexpected price changes. The use of leverage can magnify these losses, sometimes exceeding the initial amount committed.
Furthermore, the necessity to make rapid decisions under pressure can lead to emotional trading, which increases the probability of errors. The increased frequency of trades results in greater transaction costs, which might reduce earnings. Overall, intraday trading necessitates a rigorous risk management plan and an organized technique.
Conclusion
While the basics of intraday trading might have made you motivated, the best Demat and trading account can give you wings. 5paisa publishes high-quality research reports and company and industry-specific details to make your task easy. You can read the reports, look for news, read the charts, and ace intraday trading.
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