Introduction to Intraday Trading
Also known as day trading, intraday trading refers to the purchase and sale of stocks and other financial instruments within the same day. There's no change in the ownership of shares due to these trades once all the positions are squared-off before the market shuts.
Intraday trading aims not to invest, per se, but to trade for quick gains by controlling the stock indices movement. To benefit from short-term price fluctuations, traders need to pay close attention to intraday price movements using real-time charts and technical analysis.
Getting Started with Intraday Trading
Intraday trading in India starts with opening a trading and demat account. If you're a constant investor in the stock market, opening a separate account for intraday trading is advisable. You can then sign up with a suitable broker who can provide you with research, technical support, and tools to help you trade successfully. Given the large number and high frequency of transactions, you must choose an account with low or zero brokerage per transaction and speedy execution.
Once you possess the requisite tools and accounts, you can begin intraday trading online by selecting stocks based on your preference and looking at their daily charts to identify trends in price movement. For this, you may require various technical analysis tools.
Choosing the Right Stock
The goal is to research and choose stocks with a large volume of trading, which indicates extreme liquidity. This can include equity shares of mid-cap companies and penny stocks, which are shares of small-scale companies that sell for as little as ₹5. Such shares can be easily bought or sold and experience high volatility due to market fluctuations. Choose no more than two or three stocks at a time as keeping track of more shares would become cumbersome.
You should assess the cyclical changes carefully by analyzing 52-week high and low values. This gives a precise idea about whether you should assume long or short positions while investing. It is also advised to purchase an intraday share with a high correlation with a reputed stock exchange benchmark index. This ensures that substantial movement in share prices can be observed when the index value tends to fluctuate.
Know More About Open High Low Strategy
It is important to set the price at which you want to buy and sell – your entry and target prices. A stop-loss order can act as a safety net and help reduce your risks. Once your order is placed, monitor closely and exit when the price has hit your target or stop-loss levels.
Traders use numerous strategies for intraday trading in India. Some of these strategies include:
- Scalping, which attempts to make profits on numerous small prices changes in a particular stock throughout the day.
- Range trading, which primarily uses resistance and support levels to determine buy and sell decisions.
Also Read: Range Bound Market
- News-based trading, which involves trading opportunities arising from heightened volatility around news events.
- High-frequency trading trategies that use sophisticated computer algorithms to exploit short-term market inefficiencies.
Intraday Trading Indicators
Using trading indicators paired with the right risk management tools could help you gain more insight into the price trends of various financial instruments. Trading indicators, which are mathematical calculations, get plotted as lines on a price chart and can help identify certain market signals and trends. The following are some of the indicators that can be considered during day trading:
- Moving Average The moving average is an indicator that identifies the direction of a current price trend without the interference of short-term price spikes. The moving average indicator combines various price points of a financial instrument over a given timeframe and divides it by the overall data points to present you with a single trend line. This can help you study levels of resistance and support and see previous price action. It can also help determine possible future patterns.
- Bollinger Bands A Bollinger Band provides a range within which the price of an asset usually trades. They help recognize when an asset is trading outside of its normal levels and are primarily used to predict long-term price movements. It consists of 3 lines – the moving average, the lower limit, and the upper limit. These lines represent a volatility range in which a particular asset price moves up or down. The width of the band is directly proportional to the perceived volatility of the financial instrument and increases and decreases to reflect recent volatility.
- Fibonacci Retracement The Fibonacci Retracement indicator helps pinpoint the extent to which a market will move against its current trend, also known as a pullback. It identifies levels of support and resistance, which could indicate an upward or downward trend. This can help you decide where to apply stops and limits or when to open and close your positions.
- Relative Strength Index (RSI) RSI measures the extent of the price change of stocks in a given period of time and is used to identify momentum, market conditions, and warning signals for dangerous price movements. It is expressed as a number between 0 and 100. An instrument around level 30 is often considered oversold, while an asset at or near level 70 is considered overbought.
The formula used for this calculation is: RSI = 100 – [100 / (1 + (Average gain / Average loss))] Also Read: Intraday Trading Indicators
Benefits of Intraday Trading Online
- High return potential.
- Positions are unaffected by the possibility of negative overnight news or off-hours broker moves.
- Tight stop-loss orders can be applied to protect your positions.
- Regular traders can get access to increased leverage.
Disadvantages of Intraday Trading Online
- Frequent trades can lead to high commission costs.
- There might not be enough time for a position to realize a profit before it has to be closed.
- Losses can mount quickly, especially if you are using margin to finance your purchases.
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Frequently Asked Questions
A stop-loss indicates that a stock should be bought or sold when it reaches a specified price known as the stop price. It can help minimize financial losses.
There is no fixed amount to start day trading online in India. It depends on your budget and risk appetite. However, it is crucial to choose a good broker for your trading needs.
Common helpful indicators are Moving Average, Bollinger Bands, Relative Strength Index, etc.
Intraday Trading is the purchase and sale of financial instruments within the same day with the motive of quick profit while investing requires a more long-term approach.