What is Intraday Trading?
The simple meaning of Intraday trading is buying-selling of stocks or securities listed on the stock exchange on same day. The main purpose of intraday trading is to earn profit by buying and selling stocks or securities on the same working day.
How to do you Intraday Trading?
Before invest your money in intraday trading, it is very important to have basic knowledge of stock market and what are the advantages and disadvantages of intraday trading, how to manage risk in intraday trading, etc.
Choose Highly Liquid Stocks:
For intraday trading, liquidity in the stock is the first point, because trading without liquidity is impossible. Stocks of mid-cap and small-cap companies can be easily bought and sold. Furthermore, due to market volatility, these stocks experience high fluctuations. Stocks with 52-week highs and lows should be analyzed carefully over different time frames, as this provides the right confirmation while trading whether a trader should take a short or long position in the stock.
Volatility:
When selecting stocks for intraday trading, choose stocks with medium to high price volatility. Generally, when trading intraday, avoid stocks that fluctuate more than 3% in a single day. If the market moves in the opposite direction to the economy, significant losses can occur.
Strong Correlation:
For intraday trading, select stocks that are included in the best stock exchange indices, as these stocks have good liquidity and volatility. This means that as the index price fluctuates, the stock’s price also increases linearly.
Since the stock exchange’s benchmark index includes shares of top-listed companies, it is assumed that except in times of economic uncertainty, the ups and downs will be the same. If this rule is followed correctly, good profits can be made from intraday trading.
Higher Trade Volume:
Intraday traders can predict price fluctuations for a particular stock or security by analyzing its trading volume index. A high trade volume index indicates high demand and supply within that company. In such a situation, profits can be made through both buying and selling.
Benefits of Intraday Trading:
The following are main advantages of intraday stock trading –
Low Risk:
Intraday trading involves buying and selling shares on the same day, reducing the risk of significant losses. However, in normal trading, the principal or investment amount remains locked for a considerable period of time, as stock prices can fluctuate significantly, which can lead to significant losses for the investor if the stock market falls.
Low Commission Charges:
Stockbrokers charge nominal fees for intraday stock trading because the transaction fee for transferring the security to the investor’s name is waived. Trading charges, stock transaction tax, platform service tax, etc. are all included in the brokerage fee, and investors benefit from these deductions.
Generally, the brokerage fees for intraday trading in stocks is only one-tenth of standard trading.
Higher Profits:
Intraday trading is known for high returns with low investment, meaning substantial wealth creation for investors. Investors should only apply the right trading strategies. Capital appreciation, meaning profit-making, can be a little easier in a rising stock market. In particular market conditions, intraday traders use the strategy of short selling to generate profits.
Liquidity:
An advantage of intraday trading is that the total invested funds can be withdrawn at any time with just one click. It is not blocked by any stock or security purchase. This ensures liquidity to meet the trader’s individual needs.
Capital Gains Through Market Fluctuations:
Traders can make substantial profits through intraday trading in both bullish and bearish markets, but this is only possible if they have adequate market knowledge and use the right trading strategy. Capital appreciation in a bullish market requires buying and selling stocks and securities listed on the stock exchange at the right levels. Short selling can be used to generate profits through intraday trading when the stock market is in a downtrend.
Associated Risks:
To earn a good return on their capital, an investor must have a thorough understanding of the intricacies of the stock market. If a beginner trader wants to profit from intraday trading, they must have the right knowledge, otherwise they could suffer significant losses. In such circumstances, it is crucial to select the right company’s stock, which requires knowledge of analyzing financial records.
You should know that market volatility plays a key role in intraday stock trading. Unexpected stock market fluctuations can cause significant losses for investors. Technical analysis in the stock market relies on past market performance, so it is wrong to say that the market can be predicted 100% of the time.
Alternative Trading Methods:
Intraday traders in the stock market can gain expertise by adopting one of the following strategies:
1. Standard Trading:
Using this trading method, investors can invest value in the stocks of different companies. The Standard Trading Method is used for long-term investing on a commercial basis, allowing investors to profit from both capital appreciation and dividends.
In short, this trading is done through a brokerage firm, where a small portion of the total profit is deducted as payment. Dividends are also received from the invested stocks.
2. Moment Trading:
Momentum trading is mostly used for capital appreciation. Investors purchase stocks or securities that are expected to provide high future returns, and whose prices fluctuate due to the ups and downs of the stock market. Direct or indirect momentum investing strategies can be used, selecting stocks of companies that are underperforming in the stock market but have strong fundamentals.
3. Swing Trading:
Swing trading, like instant trading, involves using the right strategies to generate significant profits through short-term stock trading. Under such conditions, volatile stocks are targeted and profit is booked by selling them when the stock price rises.
Tips to Follow for Profitable Intraday trading :
Stock Market Research:
Market percentage scenarios, stock fundamentals and knowledge of micro and macro economics, Current account Deficits, Currency fluctuations and other economic factors should be analyzed immediately.
Don’t Overtrade:
As we know that the stock market does not move on a fixed pattern, sometimes none of our strategies work and we also hit stop losses in our trades, in such a market, either you should avoid trading or do only equity trading.
