Intraday Trading 101: What You Need to Know

Intraday literally means “in the day.” In the financial world, the term intraday is shorthand used to define securities that trade on the markets in regular business hours, such as stocks and exchange-traded funds (ETFs), and their highs and lows in the day. Intraday price movements are particularly significant to short-term or day traders looking to make various trades over the course of a particular trading session, settling all their positions when the market closes.

Intraday trade background on wood blocks.

Moreover, intraday trading includes buying and selling of stocks in the same trading day. Here stocks are bought, not with an aim to invest, but for the purpose of gaining profits by binding the movement of stock indices. Therefore, the fluctuations in the prices of the stocks are bound to gain profits from the trading of stocks.

An online trading account is utilized for the purpose of intraday trading. While doing intraday trading, you need to identify that the orders are particular to intraday trading. As the orders are squared off before the end of the trading day, it is also called as Intraday Trading.

The Basic of Intraday Trading

Intraday VWAP concept with businessman work on paper.

Intraday is frequently used to allude to the new highs and lows of a security. For example, “a new intraday high” means a security got a new high compared with all other prices in a trading session. In some cases, an intraday high can be equal to the closing price.

Traders pay close attention to intraday price movement by utilizing real-time charts in a try to profit from the short-term price fluctuations. Short-term traders usually use 1-, 5-, 15-, 30- and 60-minute intraday charts when trading in the day. Usually, 1 and 5-minute charts are used for scalping, and 30- and 60-minute charts are used for intraday trading hold times of numerous hours. Volume weighted average price (VWAP) orders are frequently used on an intraday basis to rise trade implementation efficiency by giving an order exposure to a variety of prices in the trading day.

Intraday Trading Tips

Intraday risk red word on keyboard.

Intraday trading is more risky than investing in the regular stock market. It is significant, particularly for novices, to know the basics of such trading to avoid losses. Individuals are recommended to invest merely the amount they can afford to lose with no facing financial problems.

See also: Understanding Risk Tolerance

Intraday Trading indicators

Once it comes to reserving profits in intraday trading, you will need to do many researches. For the same purpose, you require to follow certain indicators. Often intraday tips are supposed to be the Holy Grail; this, though, is not completely exact. Intraday trading indicators are beneficial tools when utilized with a complete strategy to maximize returns.

Intraday Trading Strategies

Intraday red and white triangular warning road sign with a warning of rising prices ahead concept.

Determine Entry and Target Prices

Before placing the buy order, you need to determine your entry level and target price. It is common for an individual’s psychology to change after buying the shares. As a result, you may sell even if the price sees a nominal rise. Because of this, you might lose the chance to take advantage of higher gains due to the price increase.

Intraday short Selling word concept on white background.

Using Stop Loss for Lower Impact

Stop loss is a trigger that is utilized to automatically sell the shares if the price drops lower a specified limit. This is beneficial in limiting the possible loss for investors because of the fall in the stock prices. For investors who have utilized short-selling, stop loss lessens loss in case the price increases beyond their expectations. This intraday trading strategy ensures emotions are removed from your decision.

Avoid being an Investor

Intraday trading, as well as investing, requires individuals to buy shares. Nonetheless, factors for both these strategies are different. One kind adopts fundamentals while the other considers the technical details. It is common for day traders to take delivery of shares if the target price is not met. You wait for the value to recover to earn back your money. This is not suggested because the stock might not be worthy of investing, as it was bought only for a shorter duration.

Don’t Move against the Market

Even expert specialists with advanced tools are not able to foresee market activities. There are times when all technical factors portray a bull market; nevertheless, there might still be a drop. These factors are only indicative and do not provide any assurances. If the market moves versus your expectations, it is significant to exit your position to avoid huge losses.

See also: The Origins of Bull and Bear Market

Intraday Trading Advantages and Disadvantages

Intraday trading can be likened to sprint which is full of eagerness as opposed to long term trading which is like marathon which requires many persistence and patience. Intraday trading is the term which is used in the context of the stock market; it refers to act of buying and selling the stock similar day by the person doing trading. Therefore in case of intraday trading, there is no open position left as far as a trader is concerned. Let’s look at some of the pros and cons of intraday trading.

Benefits word written in notebook.

Pros of Intraday Trading

  • The most important advantage of intraday trading is that it needs little capital on the part of the trader. So for instance if a person has $1000 and you want to purchase oracle stock which is trading at $100, now if you only purchase it and keep it then you will be able to buy 10 stocks and you will profit only when price increase while in case of intraday trading you can buy it 10 times and sell it 10 times and if the trader has purchased at low price and sold at higher price than even if the price remains at $100 at the end of the day you will make profit.
  • Another advantage of intraday trading is that one can leverage the capital to make maximum profits because in the case of intraday trading it can be completed by paying small margin. So for instance in the above case if broker gives 10 times margin then a trader can purchased 100 stocks of oracle and suppose the price increases to $101 then or she will earn $100 and not $10. Therefore due to leverage the profit of intraday trader increased by 10 times.
  • Another advantage of intraday trading is that it removes the all-night risk connected with stocks so if in the above example if you are the trader holds your position all-night and CEO of oracle leaves then the price of oracle stock will drop resulting in loss for the positional trader which is not the case with individual doing intraday trading.
Disadvantage words.

Cons of Intraday Trading

  • The largest disadvantage of intraday trading is that it is not long term in nature as the time frame of intraday trades is 1 day only and in the case of stock markets history is filled with examples where long-term investment has given far superior returns as compared to short term trading.
  • Another drawback of intraday trading is that utilize of leverage can outcome in more losses for the intraday trader, so in the above example if the price of oracle drops to $99 then intraday trader will lose $100 as likened to investor who will lose only $10 and therefore leverage in case of intraday trading is a double bordered sword.
  • Another disadvantage of intraday trading is that it needs the constant attention of the trader and also transaction prices are high due to frequent buying and selling which is not the case with long term investment where the investor will pay brokerage only 2 times one at the time of purchasing stocks and other at the time of selling stocks.

Intraday Trading Rules

There are certain golden Intraday Trading rules that must be followed, in order to make profits in day trading.

Plan word business concept.

Have a Consistent Trading Plan

Becoming an intraday trader is not a piece of cake. An investor cannot be a day trader and a day trader cannot be an investor. There should be a plan before the start of each trading day and journals of profits and losses should be kept to keep a track of whether or not the strategy worked. Intraday trading needs lots of discipline and making and subsequent a trading plan is a critical part of that discipline.

Trade with the Current Day Trend

Intraday markets are like rollercoaster, going up and down periodically. It is very significant for an intraday trader to go with the current market trends. An intraday trader must follow the activities and go along. Once the market is bullish, an intraday trader must select the stocks that have the possible to go up and when the markers are bearish, you must search for stocks that might go down.

Avoid Overtrading

A common mistake done by the day traders is to take positions continuously of the day, daily. There are times when markets do not trend. A disciplined intraday trader goes gently when the market is uneven and even not trader when the market is horizontal and does not trade until the market is stabilized. Ensure that the range of movements of prices is high adequate so that the rewards surpass the potential risk.

Market Positions with Limit Orders rather than Market Orders

A market order is an order to buy or sell instantly at the current market price and it is occupied as long as there are willing purchasers and sellers; the price of implementation is not a factor in this case. However, in a limit order, the maximum buying price is set for a buy order and a minimum selling price is set for a sell order; so if the market does not reach the limit price, the order is not implemented.

Final Thought

Even though venturing into stocks for intraday trading, do not blindly depend on others advice. You must to conduct a detailed research and develop an understanding before purchasing any stock.

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