Intraday trading is growing in popularity in the Indian share market. The idea is to buy a stock in the morning and sell it off for a marginal profit by day end. But executing the trades is not as simple it sounds. Intraday trading for beginners as well as for the seasoned players should be a well-thought-out plan.
To be successful in online share trading, especially in intraday trading, you must have patience and discipline. Without these two virtues, you may end up either quitting before time or make hasty and wrong decisions. Listed below are five tips to help you to kickstart your intraday trading dreams.
- Choosing the right stock: In intraday trading you have to make profits within the timeframe of a single business day. Thus, it becomes important to select the right stocks to trade in. The easiest way to spot a good stock is to assess its liquidity. If the money in a particular trade is not enough, you might not be able to sell at the end of the day and have to take delivery instead. It is best to avoid small and mid-cap stocks as they might not have that kind of liquidity.
- Freezing entry and exit prices: In intraday trading, there is no time for hesitation or a bad guess. You have to ensure that everything is pre-determined in order to execute your trade efficiently. Fix the entry and exit prices for any stock before investing your money. This way you will know why you purchased the stock and will not regret the decision.
- Setting up stop loss: This step is crucial for day traders. When you have established a stop loss point, you do not have to worry about losing by a huge margin. For example, you may buy a stock whose price does not rise as expected. Then, a stop loss will be triggered when the prices fall below that level, and you can sell off your position to avoid a bigger loss. But if the chosen stock does well, you can always go back and adjust the stop loss point. The usual strategy advised to beginners is to adopt a 3:1 ratio where you set your stop loss three times lower than your entry price.
- Choose the correct platform: Select a trading platform that allows for quick decision-making. It should provide you with market insights and trends as well as offer easy buying and selling options. Your chosen platform should be able to execute a trade at the click of a button as the entire game is time-critical. Also, look for platforms with low brokerage charges. Paying a large brokerage will eat into your profits.
- Intraday trading rules: It is prudent for new traders to follow some unwritten stock market rules. Here are a few that experts have formulated from years of experience.
- Do not buy or sell stocks when the market opens as it is most volatile at that hour. As the day progresses, the market will settle down. Old hands feel that the best time to buy is around noon.
- Invest small sums and get a feel for how the market works. This will help you gather experience and not lose bigger amounts.
- Close your positions at the end of the day, whatever the results may be. Do not take delivery of stocks.
- Keep an eye on both the global and business news of the day to understand which way the market may swing. Big political announcements, business mergers, and reports of bankruptcy can change market behaviour. So, be aware of what is happening around you.
Intraday trading cannot be learned in a day. It takes practice and years of discipline to get a hang of the market and intraday trading techniques. These five tips will give you a head start in understanding the nuances of this rather tricky business. And, if you need extra help or guidance, open an account with established brokerage firms like Kotak Securities.