Intraday trading is commonly understood as the process of buying and holding securities for less than a day. The idea is to capitalize on the small intraday price fluctuations to make a profit. However, the average investor may not fully understand the nuances of intraday trading or you may even be wondering how you can start intraday trading. Here is a quick overview of intraday trading and a few pointers about how to start trading in India.
Understanding How Intraday Trading Works
Intraday trading is essentially when you buy and sell stocks on the very same day. The intention behind intraday trading is not to invest, but to leverage the movement of stock indices to profit off of it in the short term. In order to carry out intraday trading, you will require an online account and are expected to make it clear that the orders are for intraday trading. The main advantage of intraday trading is that when it is done right, you can get great returns without having to hold on to any particular investment for too long.
What are the Indicators for Intraday Trading
Intraday trading indicators are basically tools that you can use to improve your gains. Some key indicators are as follows:
- Moving Averages: This is one of the standard indicators. When you look at a stock chart, the line that links the average closing rates in a certain period of time represents the moving averages. This indicator is more stable over a longer period and can help you understand the underlying movements for prices.
- Bollinger Bands: Bollinger bands are representative of 3 lines: the upper and lower limits and the moving average. All these together can help you understand the underlying movements of prices a bit more in-depth as compared to solely moving averages.
- Momentum Oscillators: From time to time, the movement of prices is totally independent of the market trends. At such times, the momentum oscillator can help you understand stock movements better and can be helpful in predicting the direction the stock price is going to move in.
- Relative Strength Index (RSI): An integral component of intraday trading, the RSI is calculated on the basis of a 0-100 scoring scale. The calculation takes place in index form and increases or decreases in tandem with the stock prices. It is recommended that you sell a stock if the RSI reaches 70 or buy it if it touches 30.
Pointers for Intraday Trading
- Opt for liquid shares while trading, i.e, those for which there is significant demand and supply. Hence, it is wiser to choose a few large-cap shares as they offer greater liquidity.
- While trading, decide your target price and entry level. Without knowing these factors, you could lose out on the chance to make the most of your sales by selling when your stocks are at the highest possible price.
- Use the stop loss mechanism to sell shares automatically once they reach a certain price. By determining your stop loss, you can save on a lot of money while conducting intraday trading.
- Be prepared to sell your stocks once the target price is reached rather than waiting and getting greedy. If you see a chance that the stock might rise further, your target price can then be readjusted but ensure that you keep the target price as a key tool in your arsenal. Given that intraday trading can often be speculative, giving too much into phantom price movements could cause you significant losses.
- It is advisable to not go against the market unless and until you are 100% sure about your decision. Predicting the market can be tricky, and if it happens to move against your predictions you could be at risk of loss.
To Sum It Up
Intraday trading is a risky endeavour but it can also be very rewarding. As with any type of trading, extensive research, practice and patience are all key in finding success. While you require a trading account and Demat account as a trader, intraday trading is largely focused on futures and options which do not necessarily call for a Demat account. However, having one can give you access slew of opportunities for your trading career and you can easily open a Demat account online.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account