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Intraday Trading

Overview of Intraday Trading

Intraday trading is all about opening and closing out the position on the same day. Intraday trading can be buying in the morning and selling it the same day or vice versa. An intraday trade is a very short term view on market volatility and underlying trends. Intraday trades do not result in delivery of shares as the net position at the end of is zero and the demat account is not impacted.

Intraday trading in stocks is what is really relevant because it allows substantially higher leverage through a process called trading on margin. There are two ways you can do intraday trading.

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KEY FEATURES AND
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HOW INTRADAY TRADING
WORKS IN STOCK MARKET?

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Intraday Trading – Technical Indicators

Intraday trading Indicators – Moving Averages:Market analysts and traders often talk about 50DMA and 100 DMA. What are these? They are daily moving averages. Basically moving averages are calculated as a continuous series of prices to smoothen out the ups and downs in the price. Moving averages can be arithmetic or exponential or even logarithmic. Moving averages are useful in identifying when the stock is likely to break out either on the upside or the on the downside. As an intraday trader you make most money when you are able to time your trade around the time when these moving averages are breached. The basic thumb rule of thumb in using moving average analysis is that if the short term averages are exceeding the long term moving averages, it is a bullish signal. For example if the 50DMA is above the 100 DMA and the 100 DMA is above the 200 DMA and so on; then it can be interpreted as a bullish signal. The reverse will be interpreted as a bearish signal.

Indicators for intraday trading – Bollinger Bands:The Bollinger is actual an extension of the concept of moving averages we saw above. The DMA only captures the mean values of the prices. It does not compare the stock based on volatility of the stock. For intraday traders, the intraday volatility in terms of the gap between high/low/open/close is very important. Volatility is very important for an intraday trader for two reasons. Firstly, it explains the extent of risk for the intraday trader. Normally, higher the volatility higher is the risk for the trader and that impacts the choice of stop loss and also the choice of profit target. Secondly, Bollinger Bands use range as a measure of standard deviation which enables to define the trading range in a more granular fashion. This is useful for an intraday trader because it helps them define the range within which to trade.

Indicators for intraday trading – Oscillators: Oscillators are very useful when you want to make the best of trading in a range.The beauty of intraday trading is that you need to neither be bullish nor do you need to be bearish to take a view. You can take a view on the cycle and actually ride the cycle in both directions. In this endeavour, oscillators can be of immense help. Oscillators are extremely useful in identifying when the market sentiments are turning so that the intraday traders can position themselves accordingly. When the oscillator does not keep pace with the price movement it is an indicator that the price rise could weaken and traders can position themselves on the short side of the trade. Oscillators basically capture the build up momentum and the loss of momentum which can help your design your trading strategy as a buy-on-dips or a sell-on-rises.

Beginners Guide for Intraday Trading

As a beginner you need to understand a basic thing that intraday trading is not about get-rich quick strategies. It is about managing news flows and charts within the parameters of risk. Here is a basic guide to intraday trading for beginners.

  • Choose your stocks carefully. Avoid stocks that are too speculative and also avoid stocks that hardly show any movement. It is hard to make money in intraday trading in either of them.
  • Time your entry and exit properly. You have just around 4-5 hours of leeway time within which you need to see movement and profitability. That is only possible by proper timing.
  • Set stop losses. You cannot trade intraday without appropriate stop losses; else you are likely to be wiped out. Also set profit targets for constant churning.
  • Set limits of how much you are willing to lose in a trade, in a day and overall as percentage of capital. Also have a clear plan on the conditions when you will avoid trading.
  • Respect the market trend. As an intraday trader, never try to either outsmart or outguess the market. Contrarian approaches don’t work. Understand the underlying trend and trade accordingly.
  • Constantly review and introspect at the end of the day where you went right and where you went wrong. Be absolutely honest with yourself as that is the only way to get to the crux of any problem, especially in intraday trading.
Demat Account

TIPS TO SELECT RIGHT
STOCKS FOR INTRADAY
TRADING

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INTRADAY TRADING?

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