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20 things you need to remember when you trade intraday

Most of us love the lure of intraday trading. You enter into a position in the morning and take home the profits by end of day. You do not have to worry about demat and delivery and you can take positions which are a multiple of the funds you have. Unfortunately, intraday trading is not such a simple game as it is made out to be. You need to learn intraday trading secrets before getting into the act of intraday trading. So, what are the intraday trading tricks for good returns? Let us look at 20 such successful intraday trading strategies. More that specific strategies, they are the 20 rules that can help you trade successfully intraday in the share market.

20 Trading rules to become a successful intraday trader.

Once you are sure about the crux of intraday trading meaning, you can work on becoming a successful intraday trader by following some effective rules: 

1.  Don’t trade in the midst of a volatile market. That is the cardinal rule. Intraday trading is best done when the direction and momentum of the market is predictable. Otherwise you could end up spending more time triggering stop losses. You must be aware that volatile markets tend to be unpredictable in the best ways, but also in the worst of ways. In volatile markets, investors may be spurred on to take risks and chances, but lose out on predictions of gains. The volatility itself tends to be unstable and stocks may look rosy, only to fall miserably with suddenness that even savvy investors wouldn’t expect.

2.  Intraday trading is all about protecting capital. First focus on how much loss you are willing to take overall and on a per trade basis. Once you can protect your capital from depleting beyond a point, intraday profits will automatically follow.

3.  Never trade intraday without a stop loss. Remember, stop losses are required in most trades but in intraday trading it is an absolute must. In the absence of stop losses you may end up holding positions with unmanageable MTM losses.

4.  If you want to learn intraday trading, some rules are crucial to follow.  Always decide your profit target based on our risk-return trade off. Stop loss is one side of the story; the other side is you also need to take profits. Let your profit targets be a multiple of your stop loss. A trade-off of 3:1 or 2:1 is understandable, not 1:1.

5.  Don’t stretch yourself on margin of trading. When you leverage yourself on margins keep an eye on your worst case loss. Don’t stretch yourself to a point that your losses become unaffordable in the event of any black swan occurrences.

6.  Avoid the lure of tips and only trade when you are convinced. There is no shortage of research analysts and market experts. Most of them are just pretenders to the throne. Treat these ideas with a pinch of salt. There is no alternative to doing your own research before trading intraday. That works best at all times!

7.  When you learn the basics of intraday trading, you may learn that keeping away from markets may be a good decision at times. Staying away from markets is also an important decision for intraday traders. As an intraday trader there are 3 key decisions you make; when to buy, when to sell and when to sit tight. Interestingly, most of the money in intraday trading is actually made when you sit out doing nothing while the rest of the market is burning profits in the chaos. Again here, when there is chaos all around, investors who want intraday profits make good choices when they sit back and wait for a good time to cash out. You may think this is a bad rule as your time is limited to just a trading day, but it has paved the way for good returns for many day traders.

8.  Record your wins and your losses and evaluate them at the end of the day. This may sound pedestrian and clerical but extremely important. Keep a tab of trades that went wrong and those that went right. Keep a scrap book to analyze what you did wrong and what you could have done better. It will really help you in becoming a better trader.

9.  Averaging your trades is the cardinal sin in intraday trading. It is quite common to buy more of a stock when it corrects. Averaging is wrong for two reasons. Firstly, you are running the risk of being wrong twice. Secondly, you might increase your exposure to a particular stock more than warranted. That could also put your capital at greater risk.

10.  To know what is intraday in share market trading and understand how to go about it with proficiency, you should keep a tab on the news; otherwise you are likely to fail as an intraday trader. Intraday trading is not about punting in the markets; it is a lot more organized. Keep a tab on news and on macros. Evaluate the flow of corporate actions and results announcements. All these are useful inputs if you want to be an informed intraday trader. 

By now, any trader, novice or expert, knows how the media affects market sentiments. This, in turn, influences the buying and selling behaviour of traders. Therefore, the announcement of company data, certain political announcements, and the like can play a huge role in swerving markets into all kinds of directions to facilitate trades or prevent them. 

11.  Know the companies you are trading, their business, technical levels etc. That is not only for fundamental analysts. Even intraday traders need to have a hang of what the company is doing and how it is performing. If you know the fundamentals of a company and the way it is evolving on the path to growth, it may be a good bet to trade on. Certain company announcements may also give you clues as to whether you should trade or leave well alone, letting you know if the stock is good for day trading purposes relative to holding in the long run.

12.  Learn to catch momentum and learn to evaluate F&O data. Intraday trading is all about being on the right side of momentum. F&O data points like open interest, option strike accumulation, IVs; Put Call Ratios are all important indicators for intraday trading.

13.  Never panic when you are trading intraday. When you panic you subsidize the other trader who does not panic. Also, panic forces you take hasty and wrong decisions in the market which you are forced to regret at leisure. To learn intraday trading in the best possible way, you should first try to have a calm mind. While this is true for any trader entering the markets, it is especially essential for intraday traders who must slip in and out of markets within minimal time limits - just 24 hours (the trading day).

14.  Don’t rue over losses, they are part and parcel of intraday trading. It is good to look back and analyze why you made losses. But don’t lose sleep over the losses you made on a day. These are part and parcel of your trading activity. Take it in your stride. Once traders get fixated on their losses, they get into a rut and form a mindset that is negative. It's a bit like the situation you may face while injuring yourself while riding a horse, only to never want to get on a horse in future. Trading is the same. If you learn from your failures, you will see rewards in the future, so take your losses as learning experiences.

15.  If you are an intraday trader, beware the overnight risk. If you are intraday trader, stick to your knitting. Carrying positions overnight runs the overnight risk and your intraday trader capital may not be equipped to take that kind of risk. Be cautious.

16.  There is nothing like a free lunch in intraday trading. Don’t get carried away because you earned handsome profits on a single day. Markets have the dirty capacity to hit you when you least expect it. Return is a function of risk and there is nothing like easy money. You may go into intraday in share market trading with the expectation of easy money because you predict that you can make money quickly, in a day. This is just your perception playing tricks with your mind. One of the most important rules in any kind of trading is to be realistic.

17.  If something is too good to be true then it is probably not true. This is especially true if your position has yielded attractive profits within an hour. Don’t try to run your luck for long. If something is too good to be true, just take your profits and walk out. This way, at least you will walk away with some profits in hand instead of nothing if you wait it out.

18.  Don’t waste your time with stock highs and lows; they don’t matter. Whether you are an intraday trader or an investor; nobody has consistently caught market tops and bottoms. It is not only impossible but also meaningless. The incremental benefit is limited so don’t obsess yourself with buying at the bottom and selling at the top. 

Furthermore, in intraday trading you cannot afford this strategy as it may take you more than a day to be effective, if it is effective at all. 

19.  Never try to recover your losses through over trading. This is a golden rule of intraday trading. Quite often if you buy and the stop loss gets triggered, the tendency is short double the position. This overtrading will lead you to lose money both ways.

20.  There is no golden rule and only practice makes you a good intraday trader. Finally, the golden rule of intraday trading is that there is not golden rule. It is essentially an activity that calls for discipline and risk management and will only be perfected over time. With all kinds of trading, you must keep this in mind. The way to successful trades is to keep an open mind. Rules may help you, but only to an extent. Moreover, rather than being rules, these are more like recommendations that guide you on the way in your intraday trading activity. As Euclid wrote, “There is no royal road to Geometry”. That applies to intraday trading as well. 


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