Top Intraday Trading Strategies
Follow these simple intraday trading
strategies to place better trades:
2. Decide the entry
and exit price
3. Always set a
stop-loss level
4. Book profit when
the target is reached
5. Always close all
your open positions
6. Do not challenge
the market
7. Research your
target companies thoroughly
11. Process-of-choosing-stocks-through-intraday-trading
13. Booking when target price is reached
14. Make-profit-through-intraday-trading
Intraday
trading, also known as day trading, is about buying and selling shares on the
same day to book profits. In this market order, you don’t plan to take delivery
of shares. In other words, if you place an intraday order to buy or sell
shares, you take advantage of the price movements on that particular trading
day and square off your position before the end of market hours. The aim of
intraday traders is to earn quick short term profits.
Many intraday traders tend to lose their money relying blindly on online tips.
We don’t want that.
What you need is a strong intraday trading strategy, not merely tips for
intraday trading.
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1. CHOOSE LIQUID STOCKS
What would happen if
you wish to sell your stocks but there are no buyers in the market?
As you know by now,
intraday trading involves buying and selling a set of shares on the same day
before market closing, squaring off open positions. However, for the
stock-exchange to execute these orders there must be enough liquidity in the
market.
Thus the first intraday
trading strategy is to avoid small-cap and mid-cap stocks that may not be
liquid enough. Otherwise, there is a high probability that your squaring off
order may not get executed, forcing you to take delivery in-stead. Liquidity is
the most important criteria you must check before selecting a particular stock
to trade in.
Stocks with high
liquidity trade at huge volumes which allows intraday traders to buy or sell
larger quantities at ease
Further, avoid investing all your trading money in a single stock. Experts recommend diversifying your intraday positions across a handful of stocks. Diversification will help you balance your intraday trade strategy and minimize your risk
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2. DECIDE THE ENTRY AND EXIT PRICE
Have you ever
regretted a decision you made immediately after executing it?
Many stock investors
and traders suffer from buyer’s fallacy. They fall prey to misleading notions.
This is when the buyer immediately starts having second thoughts and starts
doubting their play. The trader suddenly feels that the stock selection was not
as good as s/he believed while entering the trade position.
To avoid making such
trading mistakes, all you need to do is follow the second intraday trading strategy
to decide the entry and exit price before taking a position. This ensures that
you have an objective view.
You must know how to strategically plan your entry and exit without letting your emotions rule your decisions.
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Click here to excited offer on amazon3. ALWAYS SET A STOP-LOSS LEVEL
Let’s understand this
with an example.
Say you are an
intraday trader. ABC Ltd is trading at Rs. 1,000/- per share and you expect the
share price to rise further today. You decide to buy 100 shares of ABC Ltd by
investing Rs. 1,00,000/-(1,000x100=1,00,000/-).
But instead of going
up, the price goes down to Rs. 900 per share. Within a matter of hours, you
bear a loss of total Rs. 10,000/- (Rs. 900x100=90,000/-shares).
When you invest in a
share, the share price can either go up or down. It is quite possible that the
share you purchase and take a long position in falls on the day you trade
instead of rising.
Therefore, it is
important that you decide how much loss are you ready to bear if the trade goes
against your position. This acts as a safety net and helps minimize your
losses. Most experts would suggest this is the most important strategy for
intraday trading you’ll ever get. Hence the third intraday trading strategy is
to research intraday calls, which are buy and sell recommendations, and set a
stop-loss level.
A stop-loss will help
you manage your risk and must be followed by all traders. As the name suggests,
it helps you stop your losses.
Continuing with the same example, if you had set a stop-loss at Rs. 990, the losses would have been limited to Rs. 1,000/- only (Rs. 10 x 100=1,000/- shares).
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4. BOOK PROFIT WHEN THE TARGET IS
REACHED
Greed is every
intraday trader’s enemy. Why, you may ask? It is because it only takes few
minutes for the market to switch sides, especially if the market is too
volatile.
The fourth successful intraday
trading strategy line in the high leverage and margins that traders enjoy.
Leverage and margins help amplify profits (as well as losses). But the trick
lies in not getting greedy once that target is reached. Don’t wait for the
stock price to increase further if it has reached your target price.
Avoid falling into the
trap, where you feel that the price will keep rising (or falling, if you
short-sell). You must make trade decisions based on facts and strategies and
not on how you feel a stock will perform.
If there is good reason to believe that the price is likely to move in the right direction, then adjust the stop-loss accordingly.
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5. ALWAYS CLOSE ALL YOUR OPEN POSITIONS
The fifth intraday trading
strategy is to always close all your open positions. Many intraday traders
choose to take delivery of the shares if the stock price target they set at the
start of the day isn’t met.
This may not be a good
strategy. After all, the stocks were bought for intraday trading basis market
trends and technical analysis of the stock movements. They may not be good
enough for a long-term investment.
Imagine what would
happen if a leading company declares bankruptcy post market closing and the
stock opens with a gap down the following day. Investors holding the stock at
the end of the day might not get a chance to exit their position and would thus
have to take a hit on their portfolio.
Whereas, for an
intraday trader, a company specific information released during the day can be
processed during the same day. Intraday traders will have a chance to deal with
the information impact in real time.
Post the market hours,
the news would not affect intraday traders as they might have already squared
off their position. It helps us eliminate overnight risk without blocking any
capital.
So before converting to
delivery, look at the intraday calls and the fundamental strength of the stock.
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6. DO NOT CHALLENGE THE MARKET
The sixth intraday
trading strategy it is near to impossible to predict market movements. Often,
you may find that all the factors are indicating towards a bullish market. As
usual, you may expect your target stock to rise. But, the market decides to
disagree and the stock price does not rise.
Bottom line: Do not
get married to your analysis. Fluctuation is the very nature of the stock
market. If the market is not supporting your analysis, sell and exit your
position as soon as it hits your stop-loss level. Holding on to the hopes that
the market will act as you predicted it to can increase your losses.
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7. RESEARCH YOUR TARGET COMPANIES
THOROUGHLY
The Seventh Intraday trading
strategy is - once you have identified a set of stocks to trade by going
through professional intraday calls, make sure to research them thoroughly. In
other words, do your own homework! Start with understanding how technical
analysis can help you make better trading decisions.
Find out when any
corporate events are scheduled for. These include acquisitions, mergers, bonus
issues, stock splits, and dividend payments among others. These events could
turn out to be as important as being up-to-date with the technical levels.
For example, momentum
trading helps traders identify strong the trend is in a given direction and its
capacity to sustain itself.
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8. TIMING IS CRUCIAL
Profits in intraday
trading depends heavily on the time factor. The eighth intraday trading strategy.
One of the best intraday trading strategies is not to take a position within
the first hour of trading for the day. This is because volatility tends to be
high at this hour. This leads to heavy rush and noise in the first market hour
which ultimately leads to huge price fluctuations. Many experts prefer taking
an intraday position between noon and 1pm.
To sum it up, to make the best of intraday trading, you must first learn how to make the right move in the right time. The best way to master this skill is by being attentive to details, and trying to understand market’s mood in the morning, noon, and close to closing.
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9. CHOOSE THE RIGHT PLATFORM
The ninth intraday
trading strategy is to choose the right trading platform.
Intraday traders make
frequent multiple transactions and accrue gains daily. As such, it is important
for you to choose the right platform, one that allows for quick
decision-making, execution, and charges minimal brokerage.
Generally, to execute
an intraday trade, the intraday trade has to pay a brokerage which includes
Securities Transaction Tax, SEBI Regulatory Fee, Transaction Charges, Stamp
Duty, and GST on brokerage.
This might eat up a certain percentage of your intraday profit.
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10. INTRADAY TRADING RULES
As we mentioned
before, to become a successful intraday trader, you must be disciplined. What
better way to become disciplined than by following rules?
The tenth intraday trading
strategy successful intraday trading is to follow intraday trading rules. If
you are new to trading, then you probably just want to skip all the rules and
fast-forward to making profits. We know, intraday trading is thrilling but is
equally risky at the same time. You don’t want to lose your money in the first
month itself, right? Hence, market experts recommend a few basic intraday rules
for individuals.
For starters, they
generally advice new traders to refrain from buying and selling stocks when the
markets open for the day. That’s because company stocks are usually volatile in
the first hour of the day.
Secondly, experts feel that new traders should invest in small amounts to test the waters. In order to beat the volatility of stock markets, it is also handy to have a predetermined intraday trading strategy and stick to it.
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11. OF CHOOSING STOCKS FOR
INTRADAY TRADING
The eleventh intraday
trading strategy intraday traders often decide to pick stocks depending on the
volume of trading. Generally, it is better to pick stocks when the volume of
trading is high. That’s because if the trading volume is high, prices usually
move upwards too. Volume is nothing but the number of times a company’s stock
is traded at a particular time.
Technical analysis is
often used to identify short term trends and indicators. It helps traders
understand the current market mood based on which you can strategically decide
when to enter or exit a position with maximum gains.
A stock’s resistance
level is a handy indicator too. Buying a stock when it breaks its resistance
level and moves upwards is usually a good time to pick stocks.
Being up-to date with daily news and market events is very important for intraday traders. In most cases, company’s stock prices rise on the back of good news. It is also handy to keep a tab on the top gainers and losers of the week. They can tell you how different stocks have been performing over a particular time period.
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12. INTRADAY TIME ANALYSIS
The twelfth intraday
trading strategy is to do an intraday time analysis. Intraday traders
frequently use daily charts to gauge how different stocks are performing on the
same day.
Daily charts are the
most commonly used charts which help traders to figure out short-term stock
price movements. Some of the popular daily charts used by traders include the
hourly charts, 15-minute charts, five-minute charts and two-minute charts. It
all depends on what time period the trader wants to analyze.
Most of the new
intraday traders treat charts as generic time-based information. Do not make
such mistakes. In fact, your first step before trading should be to learn how
to read these day charts and interpret them correctly.
These charts come with
a lot of sub-divisions, which when analyzed thoroughly, can help you decide a
strong trading strategy. They help traders to analyze the short and medium term
time trends.
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13. LEARN TECHNICAL ANALYSIS
Though this might not
sound like an intraday strategy, but learning the basics of technical analysis
is a must if you are want to understand the game of trading intraday.
Don’t jump into the
water just because it sounds fun and thrilling. You must have some basic
understanding about the various technical indicators. These indicators which
will make you smarter traders and ultimately bring more profits.
For example, the
Relative Strength Index (RSI) is another technical tool that can help evaluate
which way the stock prices can move. If the RSI of a stock is above 30, it sets
off a potential ‘buy’ signal as it suggests that the stock is undersold. If it
is above 70, it indicates that a stock has been overbought and sets off a
potential ‘sell’ signal.
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14. A LAST WORD
The secret to become a
successful intraday trader lies in your own temperament. How you take charge of
your emotions and stick to your trading strategies with tactical adjustments
when required.
Once you master your trade play, you can even consider becoming a full-time day trader.
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