What is Intraday Trading

If you have heard about the stock market, we are sure that you might have come across the term intraday trading. So, what is intraday trading? Intraday trading as the name suggests is trading in a day. To make it more precise, when you buy and sell the stocks on the same day, it is known as intraday trading. 

Still, confused? Don’t worry, we will try to break down all the basic details for you of intraday trading. 

If we equate it with a situation that each one of us might have faced in our lives at some point, planning a one-day trip! While the excitement is at its peak, the chances of exploring the place to the maximum reduce if the planning is not done properly. 

So, intraday trading is just like that, it’s like a one-day trip, you enter the market in the morning and exit it in the evening, thriving to make maximum profits if you did the right analysis of stock using charts and technical indicators. 

So, let us now carry this ahead and try to understand intraday trading and the various aspects related to it. 

Intraday Trading Meaning

Intraday trading, also known as day trading has a lot of its meaning hidden in its name. When an investor buys and sells the share on the same day, i.e before the market closes, it is known as intraday trading. 

So, an intraday trader is always on the lookout for gains that can happen in a shorter time frame and on a good level. If you are entering stock and exiting it the same day, then it is obvious that you will look for the maximum profit. 

When taking the intraday trading for beginners it is a little more complex than it appears to be. 

Just like when you are planning for a one-day trip, you need to do proper research of the place so that you will not miss out on any important and explorable places. 

Similarly, in the case of intraday trading, you need to do a proper analysis so that you don’t miss out on opportunities or making a profitable trade. 

So when the buying and selling happen on the same day and so quickly, then it is definite that there might be some trading platforms to assist you in that. 

You can access the trading platform only after opening a Demat account with the stockbroker. So while you choose the stockbroker, make sure you grab all the information and features of any of the best intraday trading apps

Is Demat Account Necessary for Intraday Trading?

After understanding the meaning of intraday trading, what do you think, do you require a Demat account for day trade?

Well, a Demat account is required for holding shares, and intraday trading is simply the process of buying and selling shares within the same trading day.

Hence Demat account is not essential for intraday trading. For generally, you have to end up opening one.

Well! here we talked about the trading session so what exactly is the intraday trading time in the Indian share market?

Let’s check the detail below.


Intraday Trading Books

Before you get into the detail of what intraday trading is and how to gain profit from this short-term trade, it is important to gain a proper understanding of the product.

As already discussed, intraday trading involves making a quick decision, now this requires skills and a proper mindset. Of course, your experience will help you in developing rules and strategies but as a beginner, it is also important to gain basic knowledge and understanding.

There are many sources to learn intraday trading, but if you want to get started with one of the traditional resources, here are some of the best stock market books.

 

Some of them include the best stock market books by Indian authors too that help you in understanding the trading concepts in the context of the Indian share market.


Intraday Trading Time

It is clear by now that intraday trading means the buying and selling of the stocks on the same day. But is there a time limit to it? Yes, there certainly is. So, what is intraday trading time? 

It is from 9:15 am (when the market opens) to 3:30 pm (when the market closes). Just in case you don’t execute your order on the same day, your position will be automatically squared off by the end of the market and at the market price. 

Just in case, you don’t want to square off your position and carry it to the next day, you will have to convert it to delivery trade. And there is a huge difference between intraday vs delivery (but we will discuss about that some other day).

Now if you visit a place for a single day, you must be aware of the best time to visit certain places, similarly, there are some hours of the day when there are more opportunities than the others. So, what is the best time for intraday trading?

It is often believed that the best of opportunities for an intraday trader arise in the early hours of the market. It is usually when there is a lot of volatility in the market.

So, if you are actively an intraday trader, it is important for you to keep an eye on the market during that time. 

The reasons why you should be active during the opening hours of the market are, 

  • High volatility
  • High liquidity 
  • The volumes traded were good during that time. 

So, this is the time when you can make great gains in the market. 


Intraday Trading Example

Now that we know what intraday trading is and the right time for it, let us understand this with the help of an example. 

Raghav is an intraday trader, he analyzed few popular stocks of the metal sector and picked the stock of Tata Steel company after doing his analysis. 

Intraday trading is all meant to enter and exit the position in a day. Thus, timings play a very vital role in intraday trade as you can buy/sell between 9:15AM to 3:30PM.


Let’s understand this with an example:

Jagdish is an intraday trader, he buys the 10 shares of ABC company at ₹1000 each at 9:30 AM. Due to high volatility and on the basis of his analysis he exits the trade at 10:00 AM by selling the shares at ₹1100 each thus making a profit of ₹1000

Again he bought the same share at the dip when its price dropped to ₹987 and waited for the best price till the market closed and squared off his position at 3:00PM when the share price reached ₹1090 thus making a profit of ₹103 per share. 

In this way, intraday trading gives you an opportunity to execute multiple trades in a matter of minutes and making a good profit in a short time span. 


One thing that comes in very handy when you are practising day trading is following the trend. You should always buy at a low price and sell at a higher price. 

But is this the only way to trade and earn intraday trading profit

Well, the answer is NO!

The stock market gives you an opportunity to trade and earn profit even when the market is falling. This is commonly known as going short. 

Let us understand this with the help of an example. Suppose Dhruv has his eye on a recent HP laptop.

The current price of the laptop is ₹65,000 but Dhruv has a strong feeling that the price would drop as there is a minor manufacturing flaw that will drop its price in a short time.

Now he met with one of his known dealers and one of his colleagues Karan.

On one hand, Karan is willing to buy this laptop at the CMP i.e. ₹65,000 but to its limited stock, he was unable to purchase it, on the other hand, the dealer is looking to get the best deal by selling the laptop at the right price. 

Dhruv makes use of the situation to earn profit. He asked the dealer to sell off the laptop on his behalf to Karan at CMP and promised the dealer to return the laptop within a month. 

Within a month, the laptop price drops to ₹52000. This fascinated Dhruv and he found it to be the right time to buy the laptop and returned it to the dealer. Here Dhruv received ₹65000 but had to pay ₹52000 to buy the same laptop. Hence he made a direct profit of ₹13000. 

Now you must be wondering that how this situation is related to intraday trade. Right?

Well, as mentioned in the example above, where Dhruv made a deal with a laptop dealer to sell off the laptop and then return it to the dealer within a month by buying a low price.

Similarly, in intraday trading, you can sell off the shares at a high price by borrowing them from your stockbroker and later returning it to the broker by buying them at a low price within a day.

The difference in selling and buying price is the profit that you can earn by shorting.

As in the case of going long you need to be aware of the trend, market updates, and other volatility factors before making a trade decision. In either of the case, if the market trends go against you then you have to suffer huge losses as you have the limited time to make a decision.

We hope that you are able to understand the basics of intraday trading. Let us now have a look at the strategies that can help you ace the game of intraday trading. 


How To Do Intraday Trading?

After understanding the intraday trading example, now is the point of how to do intraday trading. Well! for this you are provided with different trading platforms that help you in executing the trade online.

But what is more important is to make use of the right tools and strategies that eventually helps you in defining the right entry and exit point.

To grab the best experience of doing intraday trading, choose the stockbroker with the highly advanced interface having the following features:

  • Advanced and multiple indicators
  • Different chart types
  • Simple and user-friendly order placement window etc.

If you are new in the stock market then know some of the tricks and tips in the trading guide for beginners and make a smart and calculative decisions in day trading.

To make the best choice here are some of the indicators and strategies defined below that help you in understanding the concept of day trade and eventually picking the stockbroker with the maximum benefit for intraday trade


Minimum Amount for Intraday Trading

Before moving ahead with the strategies and other aspects of intraday trading, let’s first discuss the amount you need to trade in intraday.

Have you ever thought of the minimum amount of money you should have to trade in Intraday trading?

However, there are no specific norms for day trading amount and you can start with ₹1 but when it comes to trading in Intraday one must start with a small amount of let’s say ₹1000.

Intraday trading is risky and you will face some losses as well in the beginning.

It is therefore advisable to start small and gradually increase your investment amount to gain profits.

Other than this you can follow the right strategies, follow tips and choose the right stockbroker that further guides with the stock-picking for day trade.


Intraday Trading Strategies 

Let us begin by going back to the one-day trip that we discussed earlier. So if you are going on a one-day trip, you know that you have limited time.

Because of this reason, you will try to make the itinerary in such a manner that everything gets covered and you get the best experience. 

Different people can have different strategies like some people will choose to cover all the places in haste, while the others will choose the best ones and try to explore those properly. 

Similarly, there are various strategies that a trader follows to have maximum gains in intraday trading.

People who try to indulge in intraday trading without a proper strategy can face loss in intraday trading.

Let us quickly have a look at some of the intraday strategies that can add good gains to your portfolio. 

The intraday trading strategies, if we look in a broader sense, is a complete mix of various things including, different chart patterns, intraday trading tools, technical indicators, etc.

You need to find the right wave and then sail with it. 


1. Momentum Trading Strategy 

This is one of the most commonly used strategies in intraday trading. Momentum trading as the name suggests is similar to its name, it is trading in the stocks that are moving or have a decent momentum in the market for a single day. 

The stocks usually move 10%-20% in a day, so they possibly give better returns.

The momentum can be caused due to some news, rumours, or company happenings in general. It is very important to identify these stocks during the early trade. 

This is Jagsonpal Pharmaceuticals Ltd. on 9th June. It showed a growth of around 20%. So momentum trading can give you such huge returns in a small time. 

It is usually during the early trade that the market shows great momentum. This requires a trader to keep a close eye on the stocks so that there is no missed opportunity.

This can surely bring good profits even in some minutes but only if you are completely aware. 

You can hold the position for a few minutes, hours, or till the end of the day. But as soon as you see the momentum reversing, it is better that you square off the position. 


2. Reversal Trading Strategy

Have you heard about that one person who is always interested in going against the trend? Reversal trading strategy is exactly this. Usually, it is considered a risky option for beginners, as this is totally based on trading against the trend. 

In this strategy, an investor should be capable of identifying the pullbacks properly so that the right opportunity can be located. This is the best trading strategy for the ones who have significant market experience and a very thorough understanding of the market. 

It is a common thing for traders to look for extreme highs and lows when they are using this strategy. 

Now imagine a stock that is trading at its all-time high, so now the traders will look for pullbacks and trend reversal in this stock. 

Once they see that happening, they either take a short or long position in the market according to their market sentiment and make a good profit out of the trade. 


3. Breakout Trading Strategy

Another commonly used strategy is the breakout trading strategy. So, what an investor does in this is identifying the particular time when the stock price will either rise or fall to a specified level. 

This should be accompanied by a considerable increase in volumes as well. 

If as an investor, you see the price moving above a specified level, then you can easily acquire a buy or a long position. But what if the prices of stocks are falling? Then you take a short position and sell the stock. 

For a Breakout trading strategy, you need to be very quick with your entry and exit points. So, the bottom line of this strategy remains very good timing and alertness at the same time. 


4. Moving Average Crossover Strategy

Moving average, if explained in simple terms, is the average of the closing price of certain days, which keeps on changing with each passing day. So, it is obvious that every stock has a moving average. 

This moving average can be used to trade effectively and make great profits. So, all you need to do is have a look at whether the stocks are moving up or down the moving average. Moving average clearly specifies the trend and thus can help in the trading as well. 

If the stock prices are above the moving average, then it generally specifies an uptrend. Whereas, when the stock prices are moving below the moving average, it signals a downtrend. 

Stock prices also have a short-term moving average (usually 9 days) and a long-term moving average(26 days). They often cross each other and their crossovers can give significant signals. 

When the short-term moving average crosses above the long-term one, it usually signals a buying or a bullish trend.

When the short-term moving average crosses below the long-term moving average, it is usually a bearish trend. 

These are some of the strategies that you can use to have great profits in the stock market with intraday trading. 


Intraday Trading Indicators

There are a lot of indicators that can help you in identifying the right stocks. These are used in intraday trading majorly because it is quick and can give appropriate signals so that you can take measured and apt trading decisions. 

Let us take a quick look at the trading indicators that you can use to make profits in the market. 

1. Moving Average 

This is one of the easiest and most commonly used technical indicators for day trading. Moving average is the measure of the average of closing prices for a stretch of some days. 

It can be calculated for any duration that you want to. It is often believed that the longer the duration, the more reliable is the trend shown by the moving average. 

When the closing price of the stock is above the moving average, it is an indication that the stock prices are going to show a further bullish trend. Whereas, when the closing price of the stock is moving below the moving average, it is a bearish signal.

So, with the help of moving averages, you can easily figure out the trend and decide your long or short positions. 

From the above chart, we can easily see that the prices of the stocks move up when the moving average line is below the candles and the prices of the stocks are going down when the candles are below. 


2. Moving Average Convergence Divergence

Moving average convergence divergence, also popularly known as MACD, is a common and a great crossover signal for intraday traders. It consists of two lines, the MACD line and the signal line. 

The signal line, which is usually red in color, is obtained from 9 days EMA (exponential moving average), whereas the MACD line which is often blue in color, is derived from the difference between 9days EMA and 26 days EMA. It is the crossover of these lines which decide the bullish and the bearish trends in the market. 

Now you can set your own preference for using MACD indicator for better trend analysis?

Confused?

For example, if you want to do intraday trading, then it is better to pick the shorter time frame of let’s say 5,35,5 or 3,10,16.

A smaller time frame provides better information to the trader thus making it easier for them to do technical analysis of a stock.

Now let’s understand how to read MACD indicator.

When the MACD line crosses the signal line above, it is a bullish signal and when the MACD line crosses the signal line below, it is usually a bearish signal. Let us clearly understand this with the help of a chart. 

There are also histograms that we can easily see here, the narrower the histogram, the more are the chances of a crossover. 

In this simple way, you can easily find out the trends and invest in the market. For an ideal trade know the best MACD setting for intraday and reap the benefit by understanding the sensitivity of the information.


3. Relative Strength Index

RSI is also an important indicator when it comes to intraday trading. It can give you signals when the condition of a particular stock is oversold or overbought. 

Here when the situation is overbought or oversold, you can expect a trend reversal. The values and time frame of RSI can be set according to your own need and risk appetite. The default is set at 70-30 but can range till 0-100, where 0 is the oversold situation and 100 is the overbought situation. 

The RSI of 50 is considered to be a good buying point for intraday traders.

Here the RSI crossing the value of 50 gives a signal for the uptrend while the RSI below 50 signals a downtrend. Rest it also depends on the targets you are looking for and the risk you are willing to take. 

These are some of the trading indicators that you can use to trade in the intraday market and earn significant profits. You can learn about this indicator and their technicalities in detail in technical analysis books


How to Select Stocks for Intraday Trading?

Post learning all kinds of strategies, tools and tricks, you would need to start using them in order to select the stocks for intraday trading. This selection of stocks needs to be accurate enough that the overall return percentage at the end of the month or year, is at a decent level.

In order to select stocks accurately, you are suggested to follow some of the basic aspects, such as:

  • Keep an eye on the liquidity
  • Perform a detailed technical analysis of stocks
  • Usage of screeners
  • Checking support and resistance levels

This needs to be remembered that this is, by far, the most important step in performing intraday trading for the simple reason that it helps you to

What is Leverage in Intraday Trading?

If you are an intraday trader or are thinking of starting intraday trading, then you must have heard about leverage. Also, known as intraday margin, leverage is given by different stockbroking firms and acts just like a bank loan. 

These are the extra funds given by the brokers so that you can trade better and earn more profits. 

The leverage of different stockbrokers varies from each other. The recent rules of SEBI have caused a lot of stockbrokers to change their margin rules, but nevertheless, it is a great option for intraday traders. 

The higher the margin, the better it is for intraday traders. Let us understand this with the help of an example. 

Two friends Sana and Sameer have Demat accounts with different stockbrokers, namely A and B respectively. Sana gets a margin of 4X, whereas Sameer gets a margin of 2X. They both have ₹10,000 and want to buy stock XYZ whose current market price is 100, and they both sold it for ₹105.

Sana- 4X, so the amount is ₹40,000 and now she will be able to sell all the shares for ₹42,000, thus making a profit of ₹2000. Whereas on the other hand, Sameer gets leverage of 2X, so the amount becomes ₹20,000. So, he sells all of them for ₹21,000. Thus making a profit of ₹1000. 

As we can clearly see that because Sana is getting more leverage, she is making more profits. 

So, intraday leverage or intraday margin is an important concept and is acceptable for great profits. 

But this concept is now being changed after SEBI comes with the new margin rules.

So let’s learn how this margin rule is going to impact your intraday trades.

SEBI New Margin Rules for Intraday Trading 

As per this rule, the intraday traders would be able to reap the leverage of up to 5 times from their broker.

So, let’s say if you are having an account with the stockbroker offering you the leverage of 20x that means with ₹1000 you were able to make a trade of ₹20,000 thus increasing your profit, but with the new margin rule, the trader would be able to trade with the limited amount

The complete concept of margin funding and its impacts on traders’ profit is explained in the table below:


What is the Benefit of Intraday Trading?

Intraday trading no doubt has the potential to give you good returns if done keeping in mind the proper technical analysis. But apart from this, what are the other benefits of intraday trading? Let us have a quick look at these benefits. 

  • Demolishes overnight risk- In intraday trading, the trader has to square off the position before the market closes, this further removes the overnight risk. So, an investor does not have to worry about the stock for the entire night. 
  • Good returns- Intraday trading is usually done on stocks that have good momentum and have the potential to give higher returns than delivery trading. 
  • Better Margin/leverage- Usually the stockbrokers give better leverage when it comes to intraday trading. So, this is the case that becomes more profitable as you get better resources to trade and ultimately make profits. 

Intraday trading brings a lot of laurels and profits when intraday trading mistakes are avoided. So, keeping that in mind, let us look at some of the intraday trading tricks as well. 


Is Intraday Trading Profitable

So, in the end, the whole discussion comes to the point, is intraday trading profitable, or is intraday trading good for beginners, and also is intraday trading safe

Intraday trading as we discussed is capable of giving great returns, but there are certain things that you should keep in mind before stepping into this zone. Given below are some intraday trading tips

  • Keep an eye on the market. The news, rumours, and everything related to your stock. 
  • Do not pick up a lot of stocks to watch in the beginning, this might cause a hindrance in your analysis. 
  • Study the trends and learn intraday trading & do technical analysis for better results. 
  • It is best if you follow the trend because as a beginner it is always better to sail the tide. 
  • Do not come under the influence of anyone just because a person decided to buy a stock and earned profit. It totally depends on your risk appetite as well. 

Intraday trading is fun and gives you an opportunity to learn a lot, not just about the market but also the sectors surrounding it. 

It requires you to stay on your toes so that you can sky-rocket your profits. So, we hope that you will also start your journey towards better profits now. Choose the best broker for intraday trading and start your journey today.


Conclusion

Intraday trading is thus meant for the one who is a risk-taker and enters the stock market with the intention to earn profit in a short time. But as already known, every shortcut way of earning money involves too much risk.

It is therefore important for you to understand the volatility of the market and enters into the trade at the perfect time. The above-given information and strategies might help you in accomplishing your trading goals and in making the best use of the stock market trade.

If still, you want to enter the market with the objective of making a profit but do have not much risk appetite, then you can follow the positional trading strategies.


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