Intraday Trading: A Quickfire Way to Make Money

With the advent of the Internet, the entire landscape of trading has changed all over the world. Not only has it been more internet-oriented, but the sensitization regarding Stock Markets has increased tremendously. Today, one can learn about Stock Markets from the comfort of their homes. Everything is available to them, including online recorded courses, live courses, articles, blogs, and YouTube videos. Hence, the success stories have also gone viral and have encouraged more and more traders into the market. 

The Stock Market, as we know, has two types of participants. Investors- who look for good projects that will survive the test of time, and traders: the ones studying charts and indicators to predict where the market will be heading. 

There are different types of traders based on the time horizon with which they usually trade. Scalpers are looking at 5-10 minute charts, predicting the market direction, and making small profits. Positional traders often take their positions for the upcoming months, looking at a broader time horizon: maybe monthly or even yearly charts. 

So, what is Intraday Trading? 

Intraday traders are somewhat in between both the afore mentioned types. They take their positions and wait to obtain profits within the same day. In other words, Intraday traders square off their positions within the same day, and never take forward a day’s trades to the next day. This style of trading, on the other hand, necessitates a deep knowledge of not only the market mechanism but also charts and indicators. Generally speaking, all intraday traders need to have some common characteristics. A good understanding of the market direction, correctly defining entry and exit points, use of advanced Technical Indicators, and so on. 

Intraday trading: A Magic Potion to Profits or a Risky Affair? 

While the idea of generating profits every day might seem particularly exciting, Intraday trading needs years to master. Not everybody can be a good Intraday Trader. However, with constant learning and market experience, the journey is possible. Intraday traders generally trade stocks that have good liquidity. Most traders prefer highly liquid large market cap stocks. 

Another important factor to consider is timing. For intraday traders, it’s about the perfect moment. You miss the bus, you suffer. You are early to the bus, you suffer too. 

I Just started trading Intraday, what are some things to start with? 

Intraday trading can be quite daunting for amateurs. Here are some tips for amateur traders:

  1. Always define entry and exit prices: Stock Markets are plagued by this term known as Buyer’s Fallacy: A Phenomenon where buyers can’t define a particular entry point and keep on changing their minds after purchases. Not defining the entry/exit prices while entering the market can prove to be disastrous. 
  2. Always Set Stop-Losses: Stock Markets are probably one of the most dynamic things on earth. There’s no guarantee as to where the market will be heading and there might be situations where your Technical Analysis might fail. As a result, Stop-Loss acts as the protector of your portfolio and minimizes your losses. Generally, the 3:1 reward to risk ratio is a good starting point. It means that your loss-making exit prices should be three times lower than the price at which you are willing to book profits. 
  3. Choosing Liquid Stocks: Always have an eye for stocks for liquidity. Because intraday trading is based on purchasing and selling stocks on the same day, traders should choose equities with appropriate liquidity.
  4. Avoid investing your entire amount in a single stock: If by any chance, your trade goes haywire, this will be beyond recovery. As a general rule, traders usually put a maximum of 2% of their entire capital in a single trade. 
  5. Book profits once your targets are reached: Many traders have lost money due to greed, even when they properly forecast market swings. Leave the market after your profit target has been met. If you’re not sure about something, don’t go for it!
  6. Do not challenge the market: As a retail trader, your job is not to go against the tide. You simply go with the flow and take profits! Never try to challenge the reality of the market. Going against the market can go wrong.
  7. Research, research, and research: Research your target companies through and through. Anything from mergers, acquisitions, stock splits can be important. 
  8. Choose the right trading platform: Since Intraday traders focus on making small but consistent profits, the trading platform being used can be crucial. The trading platform should have low brokerage fees, quick decision-making capabilities, and be simple to comprehend and use.
  9. Always close your open positions: Intraday traders never keep stocks for the next day. Keeping the stocks when the target prices are not met can be very risky, given the dynamic nature of the market! 

Some intraday trading strategies:

Here are some of the most commonly used intraday trading strategies used by intraday traders all over the world:

  1. Breakout Trading Strategy: One of the most commonly used strategies all over the world. The underlying mechanism of this strategy is to define Support and Resistance. Any movement beyond these levels will result in a significant movement upwards or downwards. When a support level breaks, it is an indication for short, and when resistance breaks, it is a good time to long. Along with these levels, traders often use other indicators like Volume to confirm the movement of the stock!
  2. Momentum Trading Strategy: Momentum Traders tend to focus on stocks that are trending on a particular day. A stock may be trending in the market for a variety of reasons: it may be in the news, or there may be company developments. Occasionally, certain stocks begin to trend for no apparent reason. You should always be on the lookout for such stocks as an intraday trader! The momentum of the market can be identified using technical indicators like Moving Average Convergence Divergence(MACD), Relative Strength Index(RSI). Traders need the right moment to enter the market for such stocks. These stocks generally have high volumes, compared to others in the market. For this trading strategy, opening and closing hours of the market is a good time to trade, due to high volatility in the market. Generally, this strategy has long targets and tight stop losses.
  3. Gap Trading Strategies: The underlying mechanism of this strategy is the speculations taking place when the market isn’t open. A gap is defined as the difference between the previous day’s close and the opening price of the present day. When the stock’s opening day price is higher than the previous day’s close, the gap is positive; when the opening day price is lower than the previous day’s close, the gap is negative. Intraday traders evaluate price fluctuations at the end of each trading day and search for news and developments on certain equities.
  4. Reversal trading strategy: Under this strategy, the traders speculate that the ongoing trend for a stock will soon reverse itself. This strategy can be extremely difficult to execute since the trader needs to have great expertise in Technical Analysis to make sure that the chances of reversal are significant. Harmonics can aid in identifying reversal levels, along with indicators like Bollinger Bands and Relative Strength Index(RSI). 
  5. Moving Average Crossover Strategy: The concept behind this strategy is that one moving average on a shorter time frame crosses another on a longer time frame. These crossovers provide signals for buying and selling. The downside of this strategy is that the exact profit and loss targets cannot be often predicted. 
  6. Flags Trading Strategy: This strategy is based on bull and Bear flags across various time frames. The underlying mechanism is that a stock that has seen a huge movement(both upwards or downwards) tends to have a cool-off period where it retraces, reduces volume, and rests. This normally drives out the impatient traders out of the market and then continues with its movement again. 
  7. Head and Shoulders Strategy: As the name suggests, these patterns look like a head and shoulders or an inverted head and shoulders. There are three peaks close to each other, with the two peaks on each side almost similar in height and the middle one being the highest. A good grip on this pattern can provide trading opportunities, even in shorter time frames. 

Concluding, Intraday trading needs a lot of expertise in Technical Analysis, a thorough understanding of how the market works, what can influence the prices of stocks. Even though this form of trading sounds risky, a rule-based approach can make traders reap the benefits. 

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