Let’s assume that you have an intraday trading account on a trading platform, and you buy a financial product today. You can sell it today, tomorrow or a few days later – depending on when it seems profitable to you. Intraday trading is when you buy and sell the stock on the same day to book the profit based on the stock’s movement.
Intraday trading is completed within the day, so the delivery of stock doesn’t happen. An intraday trader sells the stocks bought earlier during the day before the market closes. Such a sale may be at a profit or a loss. In stock market jargon, this is called squaring off your position.
Swing trading is a short-term alternative to intraday trading, suited for people with a lower risk appetite. Swing traders take delivery of the stock for a few days or weeks, and sell it at a profitable point. With the swing trade, you are not under the pressure of squaring off the position despite losses.
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With regular trading, you invest in a share and hold it for the long term. This is also known as value investing, where you aim to benefit from the long-term growth of the company.
Besides, modern concepts like algo-trading and robo-advisory are also gaining popularity. These techniques use machine learning and complex algorithms to shortlist and suggest trading decisions.
To get your intraday trading right, you must keep a few basic things in mind.
Detailed study: Your selection of a particular stock must be based on background research and analysis. Basic research like the historical pattern of the stock will give you an idea of the stock’s movement pattern. Stocks with high daily transaction volume are better suited for intraday trading. The liquidity of the stock is another feature to ensure in your trade.
Clear expectation and tolerance: With only one day to complete a trade, you are left with a very small window. You must be clear about your buying and selling time. Assuming that you have identified the stock with profit potential, you must decide on the target profit or maximum loss limits. You should exit for the day once either of the two limits is reached.
Maintain stop-loss: Stop-loss is a tool available in a trading platform that automatically triggers a sell order if the security falls below a certain price. Intraday traders must always keep a stop-loss active on their trade. The stock market can turn very volatile in a matter of minutes. Stop-loss saves you from financial loss even if you are offline or not paying attention to the real-time market movements.
Trade within your limits: Multi-tasking is not recommended for a new intraday trader. You should start with one or two stocks and monitor their movements. Similarly, start with small volumes so that losses, if any, remain within tolerable limits. Only seasoned intraday traders handle large numbers of stocks and money.
Controlling emotions: People talk about market sentiment all the time, but there is no room for sentiments in intraday trades. An intraday trader is always objective about all aspects of the trade. The trade must have specific profit and loss levels, and the trading strategy shouldn’t be altered in panic or optimism during the course of the trade.
It can be concluded that intraday trading requires a hawk-eyed oversight of the stock's price movement and ice-cool veins to keep emotions in check. Besides, you have a thorough understanding of the stocks you trade, and a clear vision of your profit goals, loss tolerance and risk appetite. By keeping these basics right, you can grow in confidence and gain the expertise needed to become a seasoned intraday trader.
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