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Intraday Trading Explained

11 Sep 2023

Are you one of those traders who have bought some stocks on the advice of someone else and waited for months and years to recover the cost? Such a herd mentality is not the way to be a successful trader or an investor. As per the experts, stock market trading can be quite risky, but one can act smartly to earn some quick bucks. Traders who are new to trading always have a question as to how to earn money from/in stock markets. As usual, the road to making money is never simple (unless you have won a lottery or inherited huge sums), and you require a certain degree of skill and acumen to win over the stock market. There are several strategies that seasoned investors apply, and techniques of trading they follow. Intraday trading is popular with a number of traders who tend to profit from intraday trading. What is intraday trading? The only way to find out is by doing some due diligence. Going into the activity of trading is no easy task, and if you wish to be successful in your trading activities, especially intraday trading, you must have adequate knowledge on your side. 

One has to admit that there is an aura of mystery around the stock markets, and many do have an assumption that they can earn a lot of money by trading in stocks. To start with, traders who are new to stock trading need to start with intraday trading or day trading as it is popularly known. To achieve success in intraday trading one needs to be aware of some simple practical and psychological intraday trading tips which one can acquire with experience. As with any trading techniques you try, intraday or day trading requires patience. Besides patience, which is a prerequisite for all investors, whether intraday traders or long-term investors, a fair amount of research must be done in advance of trading. The first thing to do is to understand intraday trading meaning. Once you know this, you have a head start on your trading activity. 

Let us now have a look at some tricks and strategies that can be implemented by intraday traders when trading in the Indian stock market.

How to do intraday trading? Understanding Intraday Trading

So, how does intraday trading work? As per the experts, intraday trading is not ideal for everyone as it needs the traders to have a practical approach. Emotional factors too play a very important role in earning profits from intraday trading. If you are wondering how to make money in  intraday trading in the shortest time possible, it is important to understand that there are no shortcuts and one can earn a good deal with research and experience. You must do your background work thoroughly well before you venture into intraday trading as this is a short-term trading strategy. It requires traders to step into the markets quickly and make rapid exits at the end of the same trading day. 

At first glance, how to do intraday trading may be a little scary to new investors. It seems like a risky prospect to even experienced traders as it involves going into trades and closing these within a day. How to do intraday trading is something you have to grasp using strategies and tactics that have been tried and tested by serious and expert traders. You also have to keep one important thing in mind. Day trading does not help one get rich overnight. Many of the traders start intraday trading with an assumption that they can generate good money by making profits with just a single trade. But this is practically not possible and is not real as well. Experienced traders will attest to this. If you wish to earn a good intraday earning, then as a trader you need to study and dedicate yourself and learn with experience. Intraday traders need to put in efforts for months so that they can understand the markets to generate profits. 

Nuances of the Intraday Share Market

In the most literal terms, intraday stands for “within a day”, or “the” day. The day, of course, implies the trading day. In the world of trading and finance, intraday translates to a shorthand word used to explain about securities which are traded on the markets during normal business trading hours. Securities may be composed of ETFs (exchange traded funds) or stocks. The word “intraday” is also significant as it implies the high points and the low points that any asset has crossed throughout the day of trading. Price movements that are reflective of intraday trading are mainly significant in relation to day traders, or traders who are at the markets to earn short-term gains. In intraday trading, several trades can occur over the span of a single trading session. Traders are very busy and will see that trades are settled with all their positions squared off when markets shut. 

Is intraday trading profitable? Understand that Profits and Losses are a Part of Intraday Trading

The first thing that comes to a trader’s mind before they engage in any trading activity is whether trading will be profitable. The question of profit is valid, but this should not be the only thing to stress on while making trades and undertaking day trading. The key to profitable trading is knowledge and a good understanding about the market, price movements and the sector where trading is taking place. Traders who study markets can generate good profits in intraday trading. Traders can start with reading markets and keep themselves updated with both domestic and international markets. They can also read about company updates, government updates and so on. These are those factors, which will affect the direction of stock markets and this is what the trader needs to concentrate on. Traders also need to dedicate time to studying the stocks and shares of individual companies. Having a good grasp of which stocks are liquid enough to offload within a day is a good way to ensure that intraday trading works for investors. You may start with a few trading days that make you run into losses, but this should not put you off. Rather, you should learn from your experiences, and note why and where you faltered. 

Have a Practical Approach to Profit from Intraday Trading

You may have heard that intraday traders in India, or anywhere else for that matter, make huge profits from a single day of trading. That may be true in many cases, but you should be aware of the fact that traders make profits by undertaking several reliable strategies and make precise notes on daily price fluctuations in the markets. The intraday stocks always move based on the market sentiment and hence if you have to make profits in intraday, the trade has to be based on the movement of the stock market. For example, if the market is bullish, then buy and sell a few times to earn small profits rather than waiting for that big move. Similarly, if the market is bearish, you can short sell and buy at the lower levels to gain some small profits with 2-3 trades. Market sentiments always rely on the news, and you may earn rewards if you keep a track of news and events that may affect sentiments of the market on a particular day. 

Reduce your Losses

Intraday trading is all about generating small profits with multiple trades. This helps reduce the losses and generate daily profits. One way the traders can reduce the losses is to wait for the right time to trade rather than trading at every move in the stock’s price. You can also reduce your potential for loss by starting out small. Several investors who first venture into day trading think they will earn huge returns in a single day. They enter trades with a lot of enthusiasm. Therefore, based on this assumption, they tend to invest too much. Too much invested means just as much lost if your trades go plunging. Is intraday trading profitable? It may not be at first, but with a good deal of patience and research it can be. 

Never wait to generate huge profits in just a single trade; instead plan multiple trades and earn small profits. Many times, traders tend to overtrade, and they end up in losses. When it comes to intraday trading, no one has the control over the movements of stocks, and hence if the trader waits too long and the direction of the stock reverses, the trade then enters into a loss.

Another important aspect to remember during intraday trading is to use stop losses. Stop loss helps to minimise your loss in case of sudden reversal in the direction of the stock.  One also has to be careful not to use the margin amount that is provided by the broker. This is part of the amount of a trade that a broker lends you to trade in a stock. It acts as a kind of loan and has to be paid back from your profit. If you do so, the trade has to be squared off before the closure of the market irrespective of loss or profit. If the trader just uses the money, he/she can opt for the delivery of shares bought if the trade gets to loss.

Trading Strategies for Intraday Trading

Intraday trading strategies are dependent on the trader who uses them to make profits. As with any trading plan, the goals of the trader and the unique personality traits of investors matter. Here are some common strategies adopted for intraday trading: 

  • Range Trading - This kind of trading makes the use of resistance and support levels to decide to purchase and sell securities. 
  • Scalping - Scalping is a common strategy which is popular with intraday traders. It involves attempts at making small gains and profits based on small price fluctuations throughout the day. 
  • High-Frequency Trading - these are advanced trading methods that make effective use of algorithms to take advantage of short-term or small inefficiencies in the markets. 
  • Trading Based on News - This is a typical trading strategy that uses certain news events to influence trades throughout a particular day. 

 How to do intraday trading so you gain from it?

The most glaring advantage that intraday trading gives you is the benefit of trading in the day. This means that positions remain unaffected by the probability of negative news that may occur overnight. In many markets, the negative news of the previous evening or night may have a negative impact on the day’s trades of the subsequent day (the day after the news breaks). Such news is inclusive of crucial earnings and economic reports, not to mention broker downgrades or upgrades occurring before the opening of the markets or after they close. Another key advantage of intraday trading is the great access you get to margin benefits. Hence, you stand to have better leverage as a trader. Intraday trading can educate novice traders too, and even if you fail a few times, learning on your feet can help you make gains with practice. There are silver linings with this method of trading, but you must beware of storm clouds, as you have to close your trades within a day. 

How to do intraday trading so you gain from it?

To conclude, traders always need to use just 50% of their money while trading in intraday, and the rest of the money has to be kept as a backup. Till one gains experience, it is advised not to use the margin amount. Intraday is not about getting rich overnight, instead earning profits every day for the rest of the month. You must remember that intraday trading involves speculation to some extent. 

Day trading operates in contrast with long-term trades, which have the capacity to let you make value investments and hold securities for a long time before you decide when to make gains. Intraday trading requires you to think on your feet with a presence of mind. Hence, if you wish to indulge in intraday trading, you must have the mindset for it at the start. There are literally thousands of stocks that a day trader may choose for trading. The first step to make day trading work for you is to pick the correct stocks and figure out what to trade. When a trading opportunity has been identified, you are all ready to begin. The rule of thumb in intraday trading may be to make the most of the trading opportunity, but it must be noted that opportunities can be made the most of only if you have done your research and with information on your side.

Related Articles: 20 things you need to remember when you trade intraday | Best Intraday Trading Tips and Strategy | How to Make Profit in Intraday Trading | How to decide whether a stock is fit for intraday trading 


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