Day trading has come into great demand ever since the pandemic began. As most of us have been working from home, we save a lot of time on daily commutation. With markets touching lifetime highs and having spare time at our hands, many learned the skill of intraday trading and have been profitable day traders.
Although, many of you must be finding something missing in your trading regime, right? If you are an intraday trader and are looking to improve the chances of success in the stock market, then you are at the right place. In this blog, we will share with you some interesting tips and tricks about intraday trading that will not only enable you to trade confidently but also help you ace the game in the long run.
So without further ado, let us begin with a few intraday trading rules that you must follow.
The stock market is a boundaryless environment. There is no limit on how much you can make from the market, and at the same time, there is, practically, no limit on how much you can lose. Therefore, to operate successfully in such an environment, you need to function within a predefined set of rules to protect yourself from falling into the trap of greed and fear.
Here is the set of intraday trading rules which will protect you from the stock market’s unpredictability and help you become a long-term trader.
Intraday trading is all about catching the right momentum. Markets open at 9:15 AM and close at 3:30 PM. But throughout the session, there are certain times when markets pick momentum. The rest of the time, prices either do not move much or act very volatile. You can avoid such times. The best time for intraday trading is from 9:30 AM to 11 AM and then from 1 PM to 2:30 PM.
Firstly, you must have a setup that allows you to enter and exit a trade for certain reasons. Never enter into a trade randomly. With a proper setup, you can trade with confidence. You must always follow the trigger points of your setup and place buying and selling orders when it is triggered.
This is contrary to what we follow in real life. In the stock market, hope is a bad thing. Let us take an example to understand this rule. Suppose, a buy signal was triggered on your setup and you bought the shares at Rs. 550. Your target was set at Rs. 560 but the price moved up to Rs. 555 and your setup shows a sell signal there. You must exit your position at Rs. 555 and not hope for the price to reach your target against the sell signal. More often than not, you end up taking a stop loss in such scenarios. So you must avoid keeping hope as much as possible in intraday trading.
In the beginning, you must keep the quantity very small. As you gain confidence about your setup and start to make a consistent profit, you can start to scale up the position. If you begin with a large position, then the losses can be large which can deplete your capital and confidence. You must always build your capital and then scale up.
To be able to buy and sell the shares on the same day, there must be liquidity in them. Meaning, more buyers and sellers must be active in the share. Otherwise, if you buy the shares, it becomes difficult to find sellers at the target price in illiquid shares. That makes you execute the sell order at lower levels, eventually reducing your profits.
Many novice intraday traders make the mistake of carrying forward their trade to the next day by converting the position from intraday to delivery hoping that the target price will be achieved the next day. More likely, the price goes below on the next day as well increasing the loss. Therefore, if you choose to become an intraday trader, you must stick to it and square off all the trades before 3:30 PM, regardless of profit or loss.
If you have made a list of liquid shares that you regularly want to trade in, then you must scan all those shares throughout the day to look for any opportunity in them. If you have not made such a list, then you must make one. It enables you to stay focused and not feel lost during the trading session. Trading is a job that demands very few working hours but you need to be continuously present at your trading terminal, scanning for trades during those hours.
Following these rules will keep you on the right track to becoming a successful intraday trader. You can note them down somewhere to revisit these rules time and again to ensure that you are following them religiously.
Talking about the target and stop loss in intraday trading is very important as many do not understand the potential of making small wins consistently. You must never aim for huge returns in intraday trading because even a small percentage of gain gives a high return on investment in day trading.
Here’s an example to understand this.
Suppose you buy 200 shares of Company LMN at Rs. 100 per share. Since intraday trading has the benefit of margin, you will not have to pay the whole amount of Rs. 20,000 (Rs. 100 x 200 shares) for this trade. Let’s assume that Company LMN shares have a 5x margin. That means, you only need a capital of Rs. 4,000 (Rs. 20,000 ÷ 5) to enter into this trade.
Now, if you set a target of Rs. 104 and stop loss at Rs. 98, then, you have a chance of earning Rs. 800 (Rs. 4 x 200 shares) at risk of losing Rs. 400 (Rs. 2 x 200 shares).
Even with a small target of Rs. 4, you have a chance of earning 20% ROI (Rs. 800 ÷ Rs. 4,000). But you must also remember that the stop loss is very crucial. In this trade, if the price moves in the other direction, you could lose 10% (Rs. 400 ÷ Rs. 4,000) of your capital.
Therefore, setting a small target and small stop loss is important in intraday trading. Most experts make small profits consistently making the most out of high ROI. But the risk factor on intraday trading should never be neglected. Here are some dos and don’ts that will help you further brush up your intraday skills.
As intraday trading is mostly based on technical analysis, using an indicator that suits your trading setup can improve accuracy and help you avoid entering into wrong trades.
The stock charts are available in various time frames starting from 1 minute and going up to 1 month where each candle represents the selected time frame. For intraday trading, you must stick to smaller time frames, from 1 minute to 15 minutes.
You can select shares based on a 1-day time frame the previous day and while trading, you can wait for trade confirmation on a small time frame chart. This helps you catch trades with high probability. With practice, you can analyze a share on multi time frames with ease.
First 15 minutes, from 9:15 AM to 9:30 AM, the trading is mostly emotion-based. The market reacts to the previous day’s news in the beginning and later, the day’s trend starts to form. Therefore, you must wait for 15 minutes before placing a trade.
RR ratio stands for risk-reward ratio. You must always define how much risk you can take to earn a certain amount of reward. Ideally, if you plan to risk Re. 1 on a trade, then you must aim to earn at least Rs. 2 to Rs. 3 from that trade. Needless to say, you must always aim to earn more at the least possible risk.
Intraday trading is all about making small wins with smaller risks. Day trading aims to end the day in green even if it is to earn a small amount. With leverage, the return on investment in intraday trading is higher, which is what attracts many traders towards intraday. Apart from following these tips and tricks, choosing the right platform also plays a key role in your trading journey.
If you are looking to open a trading account for intraday trading, you must check out TradeSmart’s Sine platform which provides a solid trading terminal with 80+ technical indicators to help your trading setup. Apart from that, TradeSmart also provides margin trading facilities. You can check out the margin available for intraday here. You must also be aware of the fact that using an intraday margin is like playing with a double-edged sword. While you can make the most out of it if you know the right way to do it, if you make a mistake, the cost is high as your losses also magnify.
You can start intraday trading with as small as Rs. 100 capital. Intraday trading is more about catching the right share with the right momentum at the right time. Once you learn that, scaling up can be done at a later stage.
Ideally, you must aim for a 1:2 or 1:3 ratio in intraday trading. Meaning, if you risk one rupee, you should be making two to three rupees from that trade. Any ratio lower than that is not recommended for intraday trading.
Using indicators depends on one’s comfort level and the trading setup. However, commonly used intraday indicators by experts are the Relative Strength Index (RSI), Average Directional Index (ADX), Moving Averages (MA), and Bollinger Bands.
Yes. You must be aware of all the news that flows during the market hours, especially the ones that directly affect the stock market and particularly the shares in which you are trading or are planning to trade.
You can visit NSE’s website and look for the day’s top gains and top losers to pick shares with high volatility. To pick liquid shares, you can also check the list of shares with the highest day’s volume.
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