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How to Make Profit in Intraday Trading

How to Make Profit in Intraday Trading

When investing, the focus is on identifying underpriced stocks with a margin of safety. Intraday trading is a different ball game altogether. You have five hours at your disposal or perhaps less than that. You cannot be profitable in every trade but you need to ensure that you’re right more often than you are wrong. With stock and trade selection, there is only so much of profits that you can achieve. The key issue in intraday trading is managing your risk. Most intraday traders lose money because they do not manage their risks effectively. Manage your risk effectively in terms of exposure, macros and losses.

Intraday Trading Profits are more about the Process

  • Your stock selection makes a lot of difference. If you focus too much on volatile stocks then your stop losses are likely to get triggered too often. If you select stocks that are unpredictable, then even your best of analysis will not work. Your stock selection should be based on clear cut criteria with focus on well defined charts and trading levels.
  • The second aspect of profiting in intraday trading is to identify the proper levels of entry and exit. This requires the proper use of supports, resistances, breakouts and turnarounds. The key to being profitable in intraday trading is to time your entry and exit as close to these critical levels as possible.
  • Tweak your risk-reward ratio based on market conditions. In simple terms this is the ratio of the stop loss gap to the profit gap. A minimum ratio of 2.5:1 is required to be profitable. However, in trending markets you can be more aggressive in setting this ratio higher. The whole idea of intraday trading is to make the best of the favourable scenario.
  • Trade on the side of momentum. That is the cardinal rule of intraday trading. You are a trend trader and not a value investor. Don’t try to outsmart the market because the market is smarter than individual traders. Identify the underlying momentum of the market and the stock and position your trades accordingly. For intraday traders, trend is your friend!
  • Learn when to buy, when to sell and when to do nothing. At times, the most profitable trade is when you sit out of the market. This is true when the market is very confusing and trying to dip into the market is likely to backfire. When you sit out of the market, you are able to get a better perspective and look at the markets in a more objective manner. This really works, especially in intraday trading.

Profit is What is Booked; all Else is Book Profits

Why is profit booking so important? You trade intraday with limited capital and you can only be profitable if you can churn your capital quick enough and profitably enough…

  • The first rule is to respect your stop loss levels and your profit target levels. Once your profit target is reached, don’t try to have second thoughts. Book your profits and take a fresh view on whether the stock is headed higher or lower. The idea is to keep booking and realizing your profits at regular intervals in intraday trading.
  • How do you maximize your ROI (Return on Investment) in intraday trading? You need to keep booking profits at regular intervals. Once the profit is booked, it increases your intraday trading capital and that enables you to get more leverage in the market. You improve your ROI in intraday trading by frequently churning your capital profitably.
  • Intraday trading is essentially risky because you trade on thin spreads and in short time frames. The only way to be profitable on an overall basis is to keep booking profits whenever the opportunity arises and when the targets are met.


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