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Intraday Trading : How to do, Benefits and Risks

Last Updated : 29 Dec, 2023
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What is Intraday Trading?

Intraday Trading is defined as the practice of purchasing and selling securities listed on the stock market on the same day. This form of trading is mostly used to realise capital gains on acquired securities and reduce risks by holding funds invested for a long time. Intraday Trading has been proven to be hectic as all the activities related to sales and purchases have to take place on the same day, but there exists zero risk of market fluctuation.

Geeky Takeaways:

  • Under Intraday Trading, all the activities related to sales and purchases of market securities have to take place on a single day.
  • There are no such risks associated with intraday trading, as there is not enough time between the purchase and sale of securities to face market fluctuations.

How to do Intraday Trading?

Step 1: Set Up a Trading and Demat Account

To begin, you will require a Trading and Demat Account. It can be opened through a SEBI-recognised broker.

Step 2: Get Thorough Knowledge about the Stock Market

To begin, you should learn a lot about the stock market and its features, its rules, and the different types of financial instruments that can be used for intraday investing.

Step 3: Select a SEBI-Registered Broker

Check the SEBI website to ensure that the brokerage you choose is registered. SEBI is in charge of regulating and supervising the Indian stock market.

Step 4: KYC and Authentication

Submit the Know Your Customer formalities, which include providing identification and address verification. Identity cards like Adhaar, Pan or voter ID, etc., can be used for KYC authentication. 

Step 5: Develop a Trading Strategy for Yourself

Create a detailed trading plan outlining your objectives, your tolerance for risk, and the amount of funds that you are ready to invest.

Step 6: Comparing Technical Analysis to Fundamental Analysis

Make trading decisions using technical evaluation tools and indicators. Evaluate the basic elements of equities, such as reports on earnings, events in the news, and economic data, which may influence your transactions.

Step 7: Size of Positions

Consider your risk threshold and the proximity to the stop-loss amounts when calculating the extent of your positions. Avoid excessive leverage.

Step 8: Begin with a Small Amount

If you are completely novice to intraday trading, start with a modest amount of shares or contracts. It is essential to keep your emotions in check.

Benefits of Intraday Trading

1. Zero Overnight Risk: Intraday trading has no overnight risk because investors don’t have to hold the securities in their demat account. One of the primary benefits of intraday trading is that buyers do not have to depend on a few shares to multiply over time because every day brings a fresh possibility.

2. Understanding Market Intention: Another undeniable benefit is that intraday investors are the first ones to learn about any changes in feeling or approach in the market. Day traders are often the first to feel the effects of any situation, whether social or economic. If you can identify the warning signals of these circumstances quickly, you can take proper risk management actions.

3. Earning Potential on a Consistent Basis: The massive profits are the sole reason for intraday trading’s gradual increase in reputation, there is no disputing that it is risky. You can make good money if your plan is sound and you follow strict discipline guidelines.

4. Steady Income Source: If you can apply the correct intraday tactics and commit them continuously, you should have no issue converting this into a steady source of revenue. Some traders have built a living solely from intraday trading. You must conduct comprehensive research, put in a lot of effort, and determine the most suitable window for intraday trading in addition to the appropriate tactics.

Risks Associated with Intraday Trading

1. Market Volatility Risk: Market volatility risk is defined by high price movements and market unpredictability. This risk refers to the probability of loss as a result of adverse and unexpected market developments affecting stock prices. After selecting the best stocks and employing appropriate trading tactics, market swings risk may persist. This risk is manageable (by investing in stocks of established businesses with a history of stability), but not controlled.

2. Addictive: Intraday traders are frequently misled by their emotions, which drive them to take risks they cannot afford. Many traders make the mistake of following their gut feelings and excessive trading in the pursuit of larger earnings. Because intraday trading is focused on speculating on stock price movements, psychological addiction to trading may result in compulsive gambling. Extreme competitiveness, worrying over previous losses, and dismissing the hazards involved are all signs of a neurological addiction to intraday trading.

3. Challenging: Intraday trading is a difficult talent to master. Furthermore, compared to long-term or positional trading, you cannot exit the mobile app before closing a position. Although you can set a target and a stop loss prior resuming to your full-time employment, this technique is not sustainable in the long run. An investment might cross the stop loss without achieving the objective in rare instances.

Tips to Follow for Intraday Trading

1. Enter and Exit at the Correct Times: Trading with a widespread intraday trend is a terrific idea. This provides the opportunity for low-risk entry positions with a great potential for profit if the current pattern persists. Identifying such trends aids in the development of suitable entry and stop-loss strategies. To determine when to quit, consider two conditions, when you have met the desired profit or if you have surpassed a maximum loss limit that you do not want to go below. Once you reach the desired profit level, you can consider exiting.

2. Consider Historical Returns: Everyone agrees that history tends to repeat itself. Despite the fact that this cannot be stated with absolute certainty. Consequently, the objective should be to discover something that keeps capital while also providing returns with a controlled level of risk. By following the evaluation of the trends and gaining comprehension of respective characteristics, you may choose to trade a small number of stocks at first.

3. Reduce Overnight Risks: Stock prices fluctuate for a variety of reasons, including the company’s financial performance, business prospects, industry standing, and a variety of macroeconomic factors. Furthermore, if any adverse political or environmental headlines occur immediately following the market closes down, the market may remain red the next day. However, intraday traders are rarely concerned with such issues because they complete everything in a single day. They can put their fears aside and remain calm once the market closes. In fact, after the market closes, no negative news may damage their sanity or money.

4. Patience: Trading in a day is a difficult skill to master. You also can not switch off your trading device before ending a trade, which is different from positional or long-term trading. You can set a goal and stop loss and then go back to working full-time, but this will not work in the long run. A stock might hit the stop loss before it hits the goal sometimes, or it could come back from just a stone’s throw away from the goal set and hit the stop loss. If you pay attention to how prices move, you might be able to avoid these issues and deal like an expert.

5. Consider Opting for Highly Liquid Stocks: Liquidity is a key element of intraday stocks because such trading would be impossible without it. Stocks of mid-cap and small-cap businesses can be easily acquired and sold, and they are subject to considerable volatility as a result of market changes. The periodic shifts should be carefully examined by analysing 52-week highs and lows values, as this provides a precise understanding of whether someone should invest long or short.

6. Increased Trade Volume: Intraday investors could track a stock’s trade volume index for possible price changes. A larger trade volume index indicates both a spike in demand or supply, which depends on the performance of the underlying company. In such circumstances, capital appreciation can be generated from both sales and purchase transactions.

7. Strong Correlation with Stock Exchange: It is best to buy an intraday share that has a good correlation with a reputable stock exchange’s benchmark index. When the index value fluctuates, a major change in the price of shares can be witnessed. This is because benchmark indexes are composed of shares of prominent companies listed on a stock exchange, it is reasonable to expect variations to move upward, barring any economic deviations. If this guideline is followed, the appreciation of capital by intraday trading will be substantial.

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