Day traders use high amounts of leverage and deploy trading strategies to make profits on the small price movements seen in liquid stocks and currencies.
It is common to make money from stock and currency fluctuations as an immediate reaction to news that includes the announcement of GDP numbers, interest rates changes by the Reserve Bank and quarterly or annual results by corporates. When news either falls short or exceeds market participants’ expectations, the market reacts in wild swings.
Intraday trading is inherently risky. One must have a thorough understanding of the markets and strategies to be able to make money. Many experts claim that gains made through day trading over a longer period undermine the index’s growth, especially after fees and taxes are included.
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It is also recognized that day trading is not for everyone and that only those who understand the market well, have seen its rise and fall for close quarters, and are familiar with a range of trading strategies, can You can make money in day trading.
It is important for a day trader to be able to read charts and do technical analysis. In addition, the trader must also understand the characteristics of the market and the asset.
Intraday Trading: Tips, Strategies and Basics
Usually day traders trade in stocks that move a lot and which are highly liquid. This gives them a chance to change their position before the price moves up. If the price moves up, the trader can buy the stock and if the price falls, the trader goes for a short sell. Whatever technique traders follow, they try to trade in stocks that are liquid.
Also traders need to follow discipline. An impulsive sale or purchase can be costly.
To be able to day trade, a trader needs to have access to the following:
Multiple news sources: Many news sources provide many opportunities from which traders make money during the day. Knowing when something happens is very important. Typically, traders keep an eye on popular newswires such as the Dow Jones, and regular news coverage from news organizations and software that analyzes important news.
Analytical Software: This is expensive but important for traders who rely on technical indicators.
Trading Desk: A trading desk enables traders to execute trades instantly, an important event when there is sharp price fluctuation. Thus, it is reserved for those who deal in large amounts of money and work for a large institution.
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Intraday traders follow these intraday strategies
Range Trading: This strategy mainly uses support and resistance levels to buy and sell calls.
Scalping: The objective is to make several small profits on small changes in prices during the day.
High Frequency Trading (HFT): This strategy uses algorithms to capitalize on small market inefficiencies.
News-Based Trading: This strategy seizes trading opportunities from increased volatility, especially around important news events.
intraday trading guide for beginners
To be able to do intraday trading, you need to have a trading account and a demat account. If you invest, and want to try your hand at intraday trading now, you can open a separate account for the same to avoid confusion on different sets of investments – long term and short term.
As a beginner, you should make sure to follow some important tips:
1. One cannot rely completely, but can certainly base their decisions on certain market trends and charts. It is advisable to follow the chart for a few weeks before investing your money in day trading.
2. Since charts and trends are extremely important, it is imperative to choose a broker who can assist you with both research and technical analysis. But make sure that the broker does not charge high commissions as intraday trading involves a lot of transactions.
3. It is necessary to have a stop loss. This will minimize your losses and hence it is important not to do intraday trading without a stop loss.
4. Do thorough research and avoid stocks that swing too wildly, or are too stable
5. Time is of great importance. If the strategy is correct, but since you fail to take the position at the right time, you lose the potential profit.
Read more: All you need to know about futures and options trading
How to choose stocks for intraday trading?
To start with, you should shortlist a few stocks that can be easily tracked. Avoid making profit from every possible movement of the stock. This can jeopardize your chances of making a safe profit. As they say, “If you chase two rabbits, you won’t catch one”.
Experts recommend that day traders should choose stocks that have sufficient liquidity, and at the same time – medium to high volatility, and that move in tandem with the index.
After reading charts and patterns, traders should be able to identify the right stocks and protect them from market noise and then buy and sell stocks to capitalize on that trend.
A Liquid Stock: To be able to buy and sell stocks on the same day, the trader must trade liquid stocks. Since intraday trading largely depends on the exact timing and speed of executing the trade, it is important for the stock to be liquid. Because of this, large cap stocks are preferred for intraday trading.
B. Good Volatility: Volatility is very important. All charts and patterns of the index, sector, economy and company are analyzed and serve as a harbinger of the direction the chosen stock will take. But if the stock is too stable then all efforts to estimate its momentum will go down the drain.
c. Moves with the Index: Generally, traders choose equities that move in the same direction as the sector or index. So when the index rises, the stock price also moves up and when the index falls, the price also falls. Its importance increases when the trader is trading in the strongest or weakest stocks in the index.
intraday trading timing analysis
A time frame is very important for an intraday trader to understand the trend and act on it. To predict the future volatility of a stock, traders rely on charts and patterns that depict their movement during the day. It is a fact in the intraday fraternity that ‘trend is your friend’. But it is important to act on the trend at the right time to make the most of it.
These stock movements vary from a few minutes to a few hours. Based on volatility and liquidity, the charts studied are of different time periods – five-minute charts, two-minute charts, 15-minute charts and hourly charts.
A day trader typically uses 15-minute and 60-minute charts to determine the primary trend and five-minute charts to learn the short-term trend.
Which time frame a trader chooses depends on how often they wish to trade, and the volatility of the stocks and sectors they trade. However, after choosing the main time frame, they choose both the bottom and the top time frame to add their value to. analysis.
In theory, a short-term chart helps determine entry and exit points, an intermediate chart gives trade signals and a long-term chart outlines the overall trend.
Experts warn that an intraday trader should not get too influenced with short term trends. They are essentially used to confirm or reject the trend indicated by the primary chart.
Reflection: Intraday trading is for traders who can trade at high leverage, take large risks and want instant profits without being tied to stocks for a long time. Stocks react positively or negatively to news related to the company, sector, economy and policy decisions taken by the government. Intraday traders take trading calls after the day’s news to profit from the stock movement.
To predict these movements, traders keep track of data announcements, subscribe to news strings, and perform technical analysis. It is important for intraday traders to know the long-term as well as short-term trends to get a direction before taking a trading call.
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