Is Intraday Trading Safe?

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Is Intraday trading safe or not, is one of the mind-boggling questions that a beginner level trader mostly asks before placing his or her feet into the sea of the stock market.

Let’s try to answer this question while analyzing different factors that play a direct or indirect role in a trader’s trading routine.

Intraday Trading involves buying and selling of financial securities within the same trading day. It is a highly volatile market and a very challenging one to that.

An intraday trader needs to be attentive and on his toes every single minute of his trade to make sure that everything goes according to how he planned and strategized, and as soon as the trends begin to reverse, he has to be spontaneous enough to exit the trade and close his position.

To a beginner, intraday trading may look like a safe and quick way to make profits, and that is why it attracts many traders, but there is much more to intraday trading than what appears on the surface.

Intraday trading has very high returns on investment, but along with the high returns come high risks. Intraday trading is not safe, especially for novices.

Although there are no overnight risks, however, there are high risks due to the extreme volatility of the market.

The prices may swing widely, beyond expectations, and may lead to unanticipated losses in intraday trading.

Knowing the Intraday Trading Time of your stockbroker is one of the steps for playing safe in stock market which can help you to frame strategies.

Intraday trading is at the top of the risk spectrum and is not safe. For intraday trading to become safe, one needs to have a complete understanding of what is intraday trading to gain expertise in the trade. 

Is Intraday Trading Safe Review

The intraday traders have to continuously monitor their multiple screens and use technical analysis of stocks through tools and softwares to predict correct moves and act accordingly.

It takes a long time for intraday traders to develop the skills to analyze the price-volatility patterns. Plus, you need to be using one of the best intraday trading apps at your side with all kinds of technical analysis features. 

They study the intraday charts and intraday patterns, recognise movements based on price elasticity, trading range and cup depth.

Since intraday trading is not safe and involves large amounts of risks, in order to be successful at intraday trading, risk management techniques are of paramount importance.

Intraday fluctuations increase the levels of risks and the entire capital may be lost in a single trade itself!

The thumb rule is to risk only 1% of the available capital on any individual trade.

The calculation is done by studying the size of the trade and the difference between the entry price and the stop-loss price, compared to the total available capital.

It is imperative to use only an insignificant part of the total capital on any single trade so that there are no huge losses and longevity is maintained.

Since it is quite established that intraday trading is not safe and involves a lot of potential risks, risk management techniques are to be used by the intraday traders to keep their capital safe.

These risk management techniques are not only to be used by novices but also by seasoned intraday traders, as intraday trading never gets too safe!

The following factors are to be kept in mind to avert risks in intraday trading.

1. Thorough research:

Thorough research needs to be done by an intraday trader before entering into a trade. He must be well aware of the sector or index he decides to trade-in, and also of the specific security.

Technical analysis helps in predicting the movement of the prices of the securities and fundamental analysis of the company is also important.

If the trader has done his research, he remains aware of what is to be expected and takes actions accordingly and is also prepared for any unforeseen events.

2. Follow an effective strategy:

Strategy plays a crucial role in intraday trading. The success or failure of a single or a set of intraday trading strategies totally depends on the market.

A strategy may be working for the market conditions today, but may not work according to the next day’s market conditions.

An intraday trader has to be very flexible and adaptable. He needs to keep practising the strategies and working on his skills, and constantly adjust to the new scenarios and adapt his strategies accordingly.

The intraday trading strategy to be used also depends upon the traders’ personal trading styles, along with being dependent on the market conditions.

Some traders are very active and do many trades a day, with large position sizes, catching even the small price movements; while there are others who trade only on specific news events or only on tendencies that they have well researched.

So, a strategy that works for a very active trader may not work for a less active one and vice versa.

3. Choose the stock wisely

To remain as safe as possible in intraday trading, it is advisable to trade in liquid stocks; the ones which trade in high volumes.

The intraday traders should also trade in stocks that have a strong correlation with the major sectors and indices, and to avoid unpredictable stocks like the small-cap stocks which trade in low volumes and their price movement is hard to predict.

Trading should be done in only 1-2 large-cap liquid stocks and volumes should be kept constant to stay safe in intraday trading.

4. Be mindful of how much to risk

Going by the volatility of the intraday markets, an intraday trader must only risk as much as he is willing to lose. Due to the wide swings in the market, the entire capital can be swept in one trade.

So, to be safe in intraday trading, the trader must keep a cushion and not get carried away by the market situations and end up losing all that he earned or had.

5. Book profits regularly

In order to stay safe in intraday trading, a trader has to let go of his greed.

In the anticipation of making further profits, a greedy intraday trader may end up losing all the profits he made from the previous trend. Profits should be booked as soon as the predefined targets are met.

For instance, if the trader puts in ₹100 for a target of ₹120 and sets a stop loss at ₹90, if the price goes up to ₹140, he must take the profit and raise the stop loss to ₹135. This will help in reserving profits and avoiding risks and losses.

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6. Use of Stop-loss:

This is the most efficient risk management technique in intraday trading. Before entering into a trade, the trader must define his escape strategy and set a stop loss to limit his losses and avoid large losses.

As an example, if the shares of a company are bought at ₹100 and a stop loss is set at ₹75, the shares will be automatically sold as soon as the share price reaches ₹75 or falls further below.

This helps in keeping a part of the capital safe and avoiding larger losses if the share price goes below ₹75.

As a bottom line, risk management is as equally important in intraday trading as trade management or profit management.

Intraday trading is not safe and along with making profits, the primary objective of an intraday trader is to reduce losses.

Of course, the safety of intraday trading increases with the experience of the trader as he keeps on learning from his own experiences, but there is never a time when intraday trading becomes risk-free as it always remains subject to volatility of the market.

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If you wish to learn more about Intraday trading or the share market in general, here are a few references for you:


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