What is Intraday Trading?
Intraday trading is the act of placing an opening and closing trade in a single trading session in an attempt to capitalize on short-term market moves. Securities that are typically traded intraday include:
In addition, intraday represent the lows and highs that an asset encountered all through the day. Price movements related to intraday are especially relevant to interim or day traders who seek to make various trades during one trading session.
Who can participate in intraday trading?
The primary answer is persons who can handle higher levels of risk and are able to be at their computer to monitor their trades.
- People who are able to engage in challenging activities, and have sufficient time to monitor the markets closely and time the grades can embark on this trading.
- Notably, intraday trading can bring in high returns, and for that reason, traders find it quite attractive. However, this form of business also entails a higher risk in comparison to the delivery segment.
- It is also important to have a sound understanding of technical analysis to make appropriate trade decisions.
Bonus tip: The main objective is to make profits by taking advantage of movements in the stock market.
Intraday trading strategies
Investors utilize multiple intraday strategies, including the following:
- Scalping trading: It aims at making lots of small profits on trivial changes in price throughout the day.
- Range trading: This mainly uses resistance and support levels to establish buying and selling decisions.
- News-based trading: It generally grasps trading prospects from the sharp volatility surrounding news events.
- High-frequency trading tactics: These exploit complex analysis to make the most of short-term or minor market failures.
- Reversals: Looking to go the opposite direction after a stock make a strong move
Selecting the right stocks for intraday trading
For an intraday trader, determining the suitable stocks may appear challenging. However, that should not hinder you from surveying platforms that promote the creation of wealth within the stock market. The following are certain principles that will facilitate the process:
Stock volume
One of the main things to look for in intraday tarding is the equity shares’ volume. Volume is signified by the amount of shares that are being transacted during a specific time-frame.
You might not discover the best stocks that are highly in demand by just viewing charts. Acquiring more insights about stock volume is of great importance. Share volume enables you to shortlist the shares which are being bought in large quantities. You can find good stocks on high relative volume by using live scanners like Trade Ideas.
Level of resistance
Resistance level characterizes a price that an equity stock lacks to rise above it. The underlying cause for this performance could be a tremendous supply rate related to the equity share at a given price level. As an intraday investor, you’ll want to look for levels of resistance and support to be broken for possible opportunities.
Top losers and gainers
Top losers and gainers scanners can proivde you with a list of stocks that are either breaking out or breaking down. Such lists offer traders the opportunity to select the appropriate stock that matches their requirements.
Note: Intraday trading can be extremely risky which is why we highly recommend practicing in a simulator first with paper money as well as getting a trading education.
Pros of Intraday Trading
Can be taken up as full-time employment- Owing to the amount of profit and the period taken to earn it, traders often gain interest in taking-up intraday trading as full-time employment. This makes the trader the boss of their own decision, an aspect that offers a handful of opportunities to meet daily financial requirements.
Take advantage of the volatile market– Active traders engaging in intraday trading can make huge profits during volatile market conditions. Industry-related information or any macro-economic factor can have an immediate impact on the share price. In such an instance, punters can follow the trend and spot their trade to earn a decent profit within a few hours.
No need to lock-in funds for a long time– To operate from a safe point, you need to invest your funds for medium or long term. However, in intraday trading, traders do not have to engage their capital for more a day, offering them a higher level of liquidity to make frequent trades.
There is no overnight risk– This means that traders do not hold positions overnight, thus in case a word breaks out overseas, there are no risks faced.
Earnings are compounded much faster– Traders have the benefit of taking previously made money and using it again for the next trading day to earn more as more capital is used optimally.
Cons of Intraday Trading
Not all trades are suitable for day trading- Although most people desire to go into day trading, the conditions in the market are not ideal.
Intraday trading is tedious and requires split-second timing- It does not accommodate itself well to people who are slow in making commitments and decisions. To be a successful day trader, one must be able to analyze the market swiftly, and when a high-profitability trader presents itself, you must execute your trade with confidence and speed. You must be able to manage the trade, maintain flawless discipline, and manage risks.
Intra trading can be emotional- Compared to other types of trading, day trading can be nerve-wracking. Upon viewing their profit and loss statements, traders can have the pressure of tie limitations.
Day trading can be very boring and tedious- As the market moves fast, traders are faced with the challenge of dealing with the emotions of greed and fear as well as making quick decisions. What most people don’t realize is that a majority of time traders are sitting and waiting for high-probability setups. This can lead to boredom and poor decision making.
Thought nugget: The greatest problem with boredom is that it makes it difficult for traders to concentrate for long periods. This leads to distraction, and traders begin checking their e-mails, paying bills, and making phone calls. This, in turn, makes them miss out on high-probability trade as they were not paying close attention.
High returns- high risks- Intraday trading offers high returns but also tags along with high risks. Traders with a balanced or conservative portfolio must limit their intraday trading, which is 10-20 % of their share market portfolio.
Final Thoughts
Intraday trading entails trading shares on a single day, which is, buying and selling or selling, then buying the same shares. Intraday trading is not for everyone but those who do become successful will have a rewarding career.
For this reason, traders must carefully weigh the advantages and disadvantages as well as judge their suitability.