28 Feb, 2025
5 mins read
Intraday trading is one of the most dynamic and fast-paced ways to trade in the stock market. Unlike traditional investing, where you hold stocks for the long term, intraday trading requires you to buy and sell stocks within the same trading session. This method is preferred by traders looking to capitalize on short-term price movements. But how exactly does intraday trading work, and what do you need to know before getting started? Let’s break it down.
Intraday trading, also known as day trading, refers to buying and selling financial instruments within the same trading day. The goal is to take advantage of market fluctuations and make quick profits. Traders use technical analysis, market trends, and chart patterns to make informed decisions.
For example, if a stock opens at ₹500 in the morning and a trader expects it to rise to ₹520 by midday, they may buy at ₹500 and sell at ₹520, booking a profit of ₹20 per share. Since positions must be squared off before the market closes, intraday trading requires speed, discipline, and strong decision-making skills.
To start intraday trading, follow these steps:
Open a Demat and Trading Account: You need a brokerage account that supports intraday trading. Ensure the broker provides a fast and reliable trading platform with real-time data and tools for technical analysis.
Choose Liquid Stocks: Pick stocks with high liquidity and volatility to ensure smooth execution. Stocks from large-cap companies or those with high daily trading volumes are ideal for intraday trading.
Use Trading Platforms: Most brokers provide advanced tools, real-time charts, and indicators. A trading platform with a user-friendly interface and fast order execution is crucial for success.
Set a Target and Stop-Loss: Determine your profit target and stop-loss limit before entering a trade. This helps in minimizing potential losses and ensures you stick to a disciplined trading strategy.
Monitor Market Trends: Keep an eye on news, technical indicators, and market sentiment. Significant economic events, earnings reports, and global market trends can impact stock prices.
Square Off Positions: Ensure you close all trades before the market closes to avoid penalties. If a position remains open, brokers may automatically square it off, which can lead to unintended losses.
Intraday trading revolves around technical indicators and market movements. Here’s how it typically works:
Relies on Price Movements: Traders analyse historical data and real-time price changes to predict short-term trends. Market volatility plays a crucial role in determining the success of an intraday trade.
Use of Indicators: Moving averages, Bollinger Bands, and RSI (Relative Strength Index) help traders identify entry and exit points. These tools help in predicting potential reversals or breakout trends.
Leveraged positions: Brokers offer margin trading, allowing traders to take larger positions with limited capital. However, excessive leverage can amplify both profits and losses, making risk management essential.
Speed of Execution: Since intraday trading involves quick buying and selling, execution speed is critical. Delayed execution can impact profits, especially in highly volatile stocks. Choose brokers with low latency.
To ensure smooth trading and compliance with SEBI guidelines, traders must follow these rules:
No Overnight Holding: All positions must be closed before the market closes. Failing to square off a position can lead to auto-liquidation by the broker.
Margin Requirements: Brokers provide leverage, but you must maintain a sufficient margin balance. SEBI has set margin rules to prevent excessive risk-taking.
Circuit Limits: Stocks have upper and lower circuit limits to prevent excessive volatility. This prevents stock prices from rising or falling beyond a certain percentage within a day.
Risk Management: SEBI regulations encourage traders to use stop-loss orders to minimize losses. Proper risk management strategies can protect your capital in case of unfavorable market movements.
Intraday trading offers several advantages, including:
High Returns in Short Time: Traders can capitalize on small price fluctuations and make quick profits, sometimes within minutes or hours.
No Overnight Risk: Since trades are squared off daily, there’s no overnight market risk, reducing exposure to global market events that could impact stock prices the next day.
Leverage Opportunities: Traders can trade larger volumes with a lower capital investment, allowing them to take bigger positions than their actual funds would allow.
To succeed in intraday trading, keep these tips in mind:
Start Small: Begin with limited capital and increase your exposure gradually as you gain experience and confidence.
Follow Market Trends: Stay updated with economic news, corporate earnings, and global market trends, as they influence stock prices significantly.
Set Stop-Loss Orders: Always protect your capital by using stop-loss orders to limit potential losses in case the trade goes against you.
Avoid Overtrading: Stick to a trading plan and don’t trade on impulse. Overtrading can lead to unnecessary risks and higher brokerage fees.
Use Reliable Trading Platforms: Ensure your broker provides real-time data, seamless execution, and access to technical indicators to aid in decision-making.
Let’s take a real-life example:
Suppose you buy 100 shares of Tata Motors at ₹620 in the morning. The stock price rises to ₹640 by midday due to positive news about the company’s electric vehicle expansion, and you decide to sell your shares, booking a profit of ₹2,000 (₹20 x 100 shares). However, if the stock price drops to ₹610, you should exit at your stop-loss level to prevent bigger losses.
If intraday trading seems too risky, you could consider these alternatives:
Swing Trading: Holding stocks for a few days to capture medium-term gains and avoid the rush of daily trading.
Positional Trading: Investing based on long-term trends, ideal for those who prefer steady gains over time.
Options Trading: Using derivatives to hedge risks and make strategic bets on stock price movements.
Investing: Buying and holding stocks for wealth creation over time, suitable for those with a long-term perspective.
Intraday trading offers quick profit opportunities but comes with significant risks. Success depends on a well-planned strategy, discipline, and continuous learning. If the high-paced nature of day trading isn't for you, alternative methods like swing or long-term investing may be better options. The key is to stay informed, follow risk management practices, and trade wisely.
The best time is usually between 9:30 AM and 11:30 AM, as volatility is high, providing more trading opportunities.
A 9-day and 21-day moving average strategy works well for short-term trades, helping traders identify entry and exit points.
Intraday trading involves buying and selling within a day, while regular trading allows holding stocks long-term for potential appreciation.
Use online courses, follow expert traders, and practice on paper trading platforms before risking real money in the market.
Yes, but it requires experience, risk management, and discipline to be consistently profitable.
Government officials and their family members are not allowed to undertake intraday trading as it is considered speculation.
Calculate your Net P&L after deducting all the charges like Tax, Brokerage, etc.
Find your required margin.
Calculate the average price you paid for a stock and determine your total cost.
Estimate your investment growth. Calculate potential returns on one-time investments.
Forecast your investment returns. Understand potential growth with regular contributions.
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