Intraday Trading – Basics of Day Trading
As a trader in the stock market, one can buy or sell shares from the secondary market to achieve short term goals. The market goes up or down and so does the share price. Traders cash in on this market volatility to make profit. But losses also happen while trading. Intraday trading simply refers to buying and selling of shares within one day itself. You should understand intraday trading meaning before you start trading. Now let us learn what is intraday trading.
Though there are chances of making good profits, Intraday trading is risky as well. As a trader, you have to square off your position before 3.10 pm which means if you have bought a certain quantity of stock, you have to sell it and if you have sold a certain quantity, you have to buy it. If you do not do so, your position will be automatically squared off. Technical charts based on several time intervals like 1, 5, 15, 30 and 60 minute are used to take the right decision to buy or sell. One has to understand his or her risk appetite well before getting involved in intraday trading. A trader has to monitor the stock market constantly or else he or she would face losses. There are many strategies that can be used to reduce loss. One of them is stop loss strategy by which one can fix a level wherein if the price of the stock goes below that level, the stock will be sold off to contain loss.
Important points to note about intraday trading:
Pick stocks that are easy to sell: (High liquidity)
Choose a stock that has high liquidity and only then you can easily sell your stock at any point of time. If there are no buyers for your stock, you might face loss. This is a very important thing when you pick a stock for intraday trading.
Pick stocks with high Trading Volume:
The stocks that have good trading volume simply mean that more traders are interested in the stock and hence you can sell or buy these stocks without any difficulty.
Be updated with stock market news:
As the markets are volatile, you should always be aware of what’s happening in the market or else you may face loss. Have a habit of reading about stocks and the market regularly.
Take expert guidance:
If you are unclear about your decision, take the help of market experts. Never take any decision based on rumors alone.
Use stop loss strategy:
When there is huge volatility, stop loss will help you in avoiding losses. It is by this strategy wherein you can limit your loss. For example, if you expect the stock price to plunge below 100, you can fix 98 as the stop loss. This simply implies that your stock will get sold or bought automatically when the price reaches 98 reducing your loss. If in case, you have not used stop loss and the price plunges even further to 85, your loss will be high.
Do analysis before trading:
A stock must be analyzed on technical and fundamental basis before you begin to trade. Research is an inseparable aspect when it comes to trading.
Avoid trading in penny stocks:
Penny stocks are illiquid and trade at very low prices and witness high fluctuations. These are associated with high risk as well. One has to avoid trading in these stocks.
Emotions play a major role in decision making and as a trader you should be able to control the emotions of fear and loss. Greediness is another emotion which may make you lose money.
Choose stocks that are sensitive to news:
Intraday works on the principle of expectation and reality. Let us understand what is intraday trading with example. You think the quarterly result of company A will be very good and so expect the price of the stock to increase. You buy stock A at around 9.40 am in the morning and as per your expectations, the quarterly results are good. This pushes the stock higher; You can sell the stock before 3.10 pm on the same day and make profits.
One has to know intraday trading definition before venturing into trading of stocks. Hope now you got to know what is meant by intraday trading by reading this article.