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Trading stocks can seem complicated, but it is not too hard if you know what to do.
Stock market trading is an interesting place that operates 5 days a week. Intraday trading has increased exponentially over the last decade due to advancements in technology.
In recent years, many people preferring to give their trades a chance for success over the course of an entire day instead of waiting for weeks or months.
This article will go over some of the basics of what is intraday trading, that you need to know before diving into this type of investing.
#What is intraday trading
‘Intraday trading’, in the financial markets, is a form of speculative trading that typically involves holding a position for the short term; that is, for a period of less than 24 hours.
In other words, it is the practice of buying and selling financial instruments or commodities within one business day and never carrying an instrument overnight.
During this time the trader has to monitor what’s called intraday charts – they’re usually shorter-term charts with timescales ranging from 1, 5, 10 minutes to several hours.
These enable traders to see what is happening in the markets very quickly and get an idea of what trends may be forming.
The idea is to take advantage of what is called intraday movements – what is known as what is called intra-day price fluctuations that occur in the financial markets.
Intraday trading allows speculators to take advantage of what they feel are small swings in the price of a stock or commodity over these short periods.
The prices may also change quickly due to what is known as intraday volatility which refers to how much the price of something fluctuates during a day.
Intraday trading is used by what are called ‘day traders’ – speculators who believe that they can make lots of small profits over short periods of time rather than one or two large ones.
Day trading has a reputation for being quite risky. You need to be able to work well with lots of stress and have good discipline.
You also need determination. You can be a day trader if you have these qualities. Day trading isn’t easy, but if you’re successful at it, it can be extremely profitable.
You should be aware that there is a lot of competition in the ‘day trading arena.’ You will need to be at your best if you want to succeed.
Day trading means you need to work for a long time at a computer. You have to spend hours and learn new things.
The risk with this type of trading is that prices could change quickly before you get an opportunity to make your trade; so it’s important to have a strategy in place before beginning any trades.
# How does it work and why trade in this way
The intraday trading style can be defined as a “market timing” strategy based on technical analysis.
This involves the purchase of an instrument at what appears to be a low price and then quickly selling it when the asset shows signs of rising in value (trends up). This is what makes intraday trading a day trading style.
Intraday traders make use of technical analysis methods to determine what they see as buying opportunities (or chances) and what they see as short term sell opportunities for a specific asset or instruments.
These traders closely watch what they see as “high volatility” during the day. In other words, intraday traders seek what they perceive as high volatility periods to execute what they see as profitable trades.
Intraday strategies should be well thought of and also planned before implementation. This is because it requires quick movements and decisions.
The intraday trader must have what they see as “a good sense of what is happening” at that particular time.
Intraday trading strategies are based on technical analysis tools such as candlesticks charts, price action, trendlines, moving averages and oscillators.
These tools are used to identify what is perceived as potential reversals – points of support or resistance – during the day.
Intraday trading is a highly risky style of day trading. One wrong decision may cost the intraday trader a lot of money lost because he/she made a hasty move.
Intraday traders trade based on what they think the price will do. They watch how prices change and then make trades. They have to be careful because not every trade works out when you think it will.
Intraday trading strategies are high risk and difficult to control. In other words, a series of consecutive losing trades would most likely put you out of business if not careful. The intraday trader goes from one extreme to another (profiting or losing).
Intra-day trading gains significance because it gives the trader an opportunity to trade on short term price movements. Intraday trading allows the trader to trade at all times of the day.
Important: Learning never stops: Trading is a skill that grows with time and experience, so learn from mistakes early on to maximize your profits in the long run!
#The advantages of intraday trading
Some advantages of Intraday trading are:
- The opportunity to trade highly volatile stocks: Intraday trading is perfect if you want to take advantage of the high volatility that characterizes some stocks.
- Low brokerage fees and commissions: In intraday trading, your costs are dependent on what kind of platform or what type of strategy you will use for your trades. This style of trading has been popularized by the rise of online brokers, which allow investors to trade during volatile markets with little commissions.
- High liquidity: Because the intricacies of stock prices are such that they can move as much as 20% within a day, intraday traders have a lot more to do in a day than for instance forex traders or commodity traders. And because of high liquidity, millions of dollars flow through the market at any given second, and you can buy and sell your desired commodity at the same time.
- Information advantage: If you have knowledge about your chosen commodity, then you can make informed decisions.
- Short term gains: Ability to profit from both bullish and bearish price moves through intraday trades.
- Unlimited Profit Potential: There’s no limit to how much money you can make!
#Intraday trading strategies
A Trading Strategy is a pre-defined set of rules or instructions that tell you when and how to enter trades, and what prices to target (profit, stop loss, automatically close part/all positions after reaching profit targets).
It’s an effective way for traders to control their risk and protect profits while allowing them to concentrate on what they’re good at – trading.
Intraday trading strategies comprise important aspects such as Technical analysis, fundamental and financial analysis, investment risk management.
Therefore, intraday traders must be aware of all technical aspects related to trading FNO (Futures & Options) and stock market fluctuations in order to succeed at this style of trading.
Some best Intraday trading strategies are as follows:
1. Intraday trading strategies market timing –
You can forecast the direction of the market through technical analysis. You study past activity, like price and volume, to learn how the market is moving.
It includes understanding support levels, chart patterns, momentum swings, moving averages etc.
By using various forms of technical analysis traders can assess the sentiment of the market in the form of supply and demand as well as being able to make educated guesses on future price movements based on past performance.
2. Intraday trading strategies trend-trading –
Trend following, or trending, is a technical analysis investment technique that attempts to identify stocks that are currently undergoing or will undergo upward trends in the near future.
The trend follower buys as the market rises, and sells as it falls.
Trend following can be considered a type of momentum trading strategy because it relies on exploiting price movements that are rapid in nature.
3. Intraday trading strategies breakout/breakdown–
This is a special case of the trending trading strategy where a trader looks for sharp price breaks from recent levels.
Breakouts are considered bullish when prices close above resistance and bearish when they close below support.
A breakout is confirmed if an intraday chart has more than one point of confirmation such as a volume spike close to a high or low.
4. Intraday trading strategies Relative Strength Trading (RSI, Stochastics, MACD etc)-
Relative strength index is a technical indicator that compares the magnitude of recent gains to recent losses over a specified period.
This is used to determine if an asset is in overbought (overbuying) or oversold (overselling) territory and such an asset is said to be undergoing strength or weakness.
5.Intraday trading strategies Bollinger Band –
Bollinger bands are a popular technical indicator developed by John Bollinger, who was inspired by the envelope theory of financial markets.
Bollinger bands consist of a centre line and 2 standard deviations.
6. Intraday trading strategies Moving Average (MA, SMA, EMA, LOMA etc. ) –
A moving average is a technical analysis momentum indicator that shows the average price of a security over time.
You can customize the length of this moving average to reflect how fast/slow you want to see the average price change over time. The most common moving averages are 2, 5 and 10 periods.
7. Using the pivot –
The theory of pivots is that each day’s price range will be contained within two levels called support and resistance.
Traders who use intraday trading strategies try to buy when the market is near the low end of its intraday price range and sell at the high.
8. Making use of charts –
Day traders glance over their charts in only a manner too brief to make out any patterns or fundamentals, rather than for spotting momentum.
They can be alert enough just by noticing that one stock is moving significantly in a different manner from the other stocks of their portfolio.
The closer you watch over charts and more careful at taking notes, the better off will be your intraday trading strategies.
#Common mistakes to avoid when day-trading stocks
Day-trading is not for everyone. It is a high-risk endeavour that could lead to both monetary losses and financial ruin.
However, if you are willing to take the necessary time and energy to develop the skills required, day-trading can be rewarding.
One of the biggest mistakes that new day-traders make is worrying too much about the big money.
It is a waste of time to think about how much money you could earn if you hit it just right – it’s completely beyond your control. Instead, concentrate on doing the best you can with the money that you have.
When you first open your account you will most likely be trading with money that you can afford to lose. Your goal should be to use risk-minimizing techniques until your skill level and comfort with the market gets higher.
One of the largest problems facing new traders is that they don’t want to get caught in an open position when the market goes against them.
They think about how much they would have made had the position just been closed a few seconds earlier, and their stress level increases.
This emotional stress can make it difficult to make decisions in other areas of your life, and soon all you are doing is thinking about how the market could affect you as opposed to concentrating on what’s happening in the market.
One way to avoid this is to set a predetermined profit-loss point when you enter your position and stick with it.
Some other common mistakes to avoid when day-trading –
- Not having any plan or system in place before taking the action
- Basing your decisions on gut feeling instead of facts and figures. When you are new, it is important that you trade based on the technicals which include charts and graphs.
- Not understanding the value of money; since trading is a serious business, you should be prepared to lose some before earning
- Over trading due to excitement. It is important that you only trade when market offers an ideal situation.
Lack of knowledge about the system and market ignorance is not a good platform to build your success from. You have to be patient and research well before you start buying or selling stocks.
If you are new to the stock market, then start small until you develop confidence in your abilities as a trader.
In other words, if you don’t have a plan for day-trading or any investment strategy; the chances of failure are high.
#How to trade in intraday timeframes?
The most popular intraday trading timeframe used by many experienced investors is 5 minutes.
This short term allows you to monitor price movements and respond quickly when you see a good opportunity.
- Intraday trading is the act of buying and selling securities, commodities, or other financial instruments within the same day.
- The goal of intraday traders is to make small profits on a series of trades over a short period of time
- Intraday trading strategies are often used by investors who want to take advantage of short-term price movements in stocks or other assets
- One way that investors can use intraday trading techniques is through technical analysis, which looks at past prices and volume data to predict future trends
- Technical analysts may also look for signals from indicators such as moving averages and momentum oscillators before executing trade orders
- Another strategy that can be used when conducting an intraday trade is fundamental analysis – this involves assessing economic factors like company earnings reports or government policies before making investment decisions
Day-trading stocks offer an alternative to the traditional buy and hold strategy. It takes a lot of time, patience and discipline but it can produce high returns if done right.
We have outlined some common mistakes you should avoid when day trading stocks so that your trades are successful from start to finish.
However, it also comes with its own set of risks and challenges which are best researched before jumping into this type of trading strategy.
The most common mistakes made by intraday traders include overtrading, not having a clear time frame for your trades or holding on to stocks too long after they have reached their peak value.
Let us know how your experience was; we would love to hear from you!
Disclaimer – The article intends to help and educate a person about What is Intraday Trading. Trading in Futures or Options is risky where wrong trades can wipe out entire capital. Trade in the stocks after you do your own research. Take your own decision before investing.