Intraday trading is undoubtedly one of the most popular ways to make money in stocks. It is intrinsically different from buying stocks for a long-term, wherein people rely on fundamental analysis instead of technical analysis to make their picks. Even though intraday trading serves as an excellent way to make a quick buck in a short span of time, it is quite risky. For the unlearned and unaware, intraday trading can lead to serious losses.
If you are looking to trade stocks on an intraday basis in India, then you must keep the following things in mind:
- Understand what intraday trading is
Simply put, intraday trading involves buying and selling securities during the trading hours. The idea behind intraday trading is to benefit from the volatility in the markets to make money on the same day. While this may sound simple, it is, in fact, a lot more complicated. There are a plethora of factors which affect the movement of stocks on a daily basis. It requires a great deal of dedication, patience, and concentration. As a trader, you must familiarise yourself with the ins and outs of this exciting world before jumping in.
- Keep your emotions aside
In your quest to become a successful intraday trader, you must learn to keep your emotions at bay. You must realise that profits and losses are a part of intraday trading. At some point in time, you may lose some money and it is quite all right. A lot of successful traders have lost money during day trades and have subsequently moved on to recuperate them.
However, if you let emotions cloud your judgement and go about chasing your losses, then you may end up losing even more money. Similarly, if your investments have delivered good returns, then book your profits and exit the market, rather than waiting for them to go higher. That’s why, it is important to approach intraday trading pragmatically. Every move you make must be driven by logic rather than emotions. Your nerves will be tested by the markets and it is imperative that you keep calm and stick to your plan.
- Familiarise yourself with the companies and its stocks
Before you enter the markets, you should understand the fundamentals of a stock. You should ideally pick shares from a sector that you are interested in as this will keep you engaged and help you make better decisions. Once you have decided on the companies, you must then follow it with a fundamental analysis of their performance, developments, news, and stocks.
These details will give you an idea of how well the companies are placed in the sector and how their stocks may perform. In other words, the more you know about a company, the better you will be able to predict the movement of its stock. In this way, you are basing your decision on logic rather than blind speculation.
- Always trade in liquid stocks
In the world of investment, liquidity refers to the degree to which a security can be bought and sold quickly in the market. A company with a highly liquid stock means that a large volume of its shares is being traded in the markets. This means that traders can easily buy and sell its stocks, without having to worry about finding a seller or a buyer. This also ensures that you have multiple trades.
For intraday trading, it is crucial to trade in such shares. You can easily settle your position by the end of the day as your shares will always have a buyer. If you pick a stock which is not in demand, then you may end up being stuck with it. Some of the large-cap companies like Reliance Industries Limited, Infosys Limited, et cetera have highly liquid stocks.
- Learn technical analysis of stocks and trends
Technical analysis will help you a great deal in making profits as an intraday trader. This methodology involves predicting the direction of prices by studying historical market data, volume, and price. Broadly speaking, there are two ways to go about this – by studying chart patterns and by understanding statistical indicators.
Intraday traders often use a combination of these techniques to maximise their chances of making a profit. As a beginner, you may want to start with candlestick charts and studying various patterns in it. You can then move up to Bollinger Bands, pivot points, support and resistance. Some of the indicators that you should know are the Relative Strength Index (RSI), moving averages, and MACD.
- Have a fixed entry and exit point
You must always enter the markets with a fixed plan in hand. Going in unprepared is a recipe for disaster and you should never do this. You should know at what price you want to buy and sell a stock. While there are many strategies that may help you do this, you should stick to the one that you are comfortable with. If your security has reached that price, simply book your profits and exit the markets instead of riding the momentum. By having a fixed plan, you can also mitigate the risk of losing your money.
- Do not neglect the importance of a stop-loss order
A stop-loss order is an order which is placed with a broker to sell a security when its price reaches a certain level. It is an order which helps you limit your losses or book your profits, depending on the trigger point. By placing a stop-loss order, you are essentially instructing your broker to sell the security when it reaches the price set by you.
As a day trader, you must always implement stop-loss orders on your securities. In case the price of your stock goes down, you will be able to exit the market by selling your security at a predetermined price. Otherwise, you may be forced to keep that stock for a long time without knowing if its price will recover.
- Never go against the market
This is one simple rule that you should always follow during intraday trading. If the markets are bullish, stay with the trend and plan your moves accordingly. Similarly, if the markets are bearish, then you may want to short sell your order and make a profit. Whatever may be the case, never make the mistake of going against the market. Instead, understand how the market is behaving and then take your position. To help you evaluate this better, you may look at broad stock market indices such as NIFTY 50 and BSE SENSEX.
Intraday trading is an art that must be mastered to achieve maximum success. It demands discipline, patience, and knowledge. Instead of blindly jumping into the markets, have a set plan and stick to it. Always follow a chain of logical reasoning rather than rumours and market hypes. You must compliment your knowledge with important news and developments from across the world as it will help you judge the conditions better. And remember – if you make mistakes, it is quite all right. After all, that is how you will learn and become a better trader.