Intraday trading is a completely different ballgame compared with long-term trading or investing activities. The main ingredient in intraday trading is technical analysis and therefore, choosing the right time frame becomes an important decision point. The technical charts are available in different types such as Candlestick, Renko, Heikin Ashi, etc. and various indicators are also used on these charts to generate trades.
Typically since the stock markets are open for about 6 hours, intraday traders have to be very quick with their trades. Quick in and quick out is the approach most intraday traders follow. Their profit target is also very small. As the intraday trade initiates and concludes in the same trading session, the risk of price reversal is high. Therefore, to avoid getting trapped out of the trades, intraday traders need to trade in a selected time frame for optimum benefit.
Before we learn the best time frame for intraday trading, let us look at some of the basics.
Intraday trading includes buying and selling the stock, a future, or an option in the same trading session. Since the buying and selling are to be done in one day, there are certain rules that traders follow for intraday trading such as lower risk-reward ratio, trailing stop-loss, etc. This type of trading is all about quick momentum-based buying and selling. Since the intraday traders do not hold their positions from the start of the session till the end of the day, they prefer using smaller time frame charts to find trades.
A typical stock market trading session starts at 9:15 AM and ends at 3:30 PM. The price momentum is not the same throughout the trading session. In the beginning, the price is very volatile as many buyers and sellers try to place their bets at the same time. Later as the market stabilizes, the trend of the day starts to form. After a certain point, the prices hardly move and it kind of becomes sideways. Later, again at the closing hours, the price picks momentum since traders and investors start to place their orders or square off their positions.
Keeping all those price fluctuations that take place throughout the day, traders have concluded that the best time to trade intraday is between 9:30 AM and 10:30 AM. The reason this time frame is most suitable for intraday bets is that the day’s trend usually forms during this hour and there is no major price volatility at this hour except for days when a major event is lined up such as elections or RBI’s monetary policy meet up, etc. On such event days, the market is volatile throughout the day.
But ideally, 9:30 AM to 10:30 AM has been proven the best time for intraday traders. However, many traders do not understand the importance of trading after 9:30 AM and end up impulsive jumping in right after the market opens at 9:15 AM. But it is specifically suggested to intraday traders to not enter into trades between 9:15 AM and 9:30 AM.
Here’s why.
When the stock market opens at 9:15 AM, the prices are very volatile since many buyers and sellers are active during that time to place trades based on the previous day’s news. The first fifteen minutes of trading is all about emotion-based buying and selling since the news based on which the decisions are taken is old. Most people just react to the news and their sentiments and interpretation about the news might not be correct.
You must have witnessed that many times the prices move to extreme levels during the first fifteen minutes and then reverses from there. Well, this happens because the long-term traders and investors take the advantage of extreme price movements to enter into fresh positions. Since they have huge quantities, the price goes in their direction and many impulsive intraday traders end up making a loss.
The actual day’s trend is established after the emotion-based trading settles down and therefore, you must always wait and watch up to 9:30 AM before placing the trade.
There are certain added advantages of trading during the 9:30 AM to 10:30 AM time frame. Let us list them out for you.
The Bottom Line
It is important to note that trading during the most optimum hour is like using a double-edged sword. It provides you with an opportunity to make the most out of momentum. But at the same time, when it’s done incorrectly, you might end up making a huge loss. Therefore, you must always keep a stop-loss intact and never take the risk over your pocket size.
To add another advantage to your intraday trading, you can explore the lowest brokerage plan offered by TradeSmart. Based on the volume of your trades, you can choose between the two plans to make the most out of your intraday trading.
Volatility is good for intraday trading as it gives intraday traders ample opportunities to enter and exit trades. If the stock price is not volatile and moves sideways, an intraday trader will not be able to make the most out of it. However, an extremely volatile market is not good since the probability of stop-loss getting hit becomes very high.
You can place intraday bets starting from 9:15 AM until 3:30 PM. However, as we discussed, the best time frame to trade intraday is between 9:30 AM and 10:30 AM.
No, it is advisable not to place intraday trade orders right at the opening of the stock market. The market opens at 9:15 AM and it is advised to wait at least 15 minutes, that is until 9:30 AM, before placing the intraday trading orders. This is because the market is extremely volatile in the first 15 minutes.
Since the quick momentum is to be caught in intraday trading, a shorter time frame chart is preferred by the traders. The 5 minutes chart is most common among intraday traders. However, you can use any chart starting from 1 minute to 15 minutes. It is advised not to use charts above the 15 minutes time frame as they are very slow and stop-loss for intraday trades can be huge based on bigger time frame charts.
The market closes at 3:30 PM. If you initiate an intraday trade at 3 PM, you only have 30 minutes to close the position. The price momentum might or might not happen in the last 30 minutes of the trading session. Hence, it is not advised to trade around the closing time of the stock market.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.