What is Intraday Trading
Stock market earns you great returns if you are a long term investor. But even on the short term, they can help you earn profits. Suppose a stock opens trade at Rs 500 in the morning. Soon, it climbs to Rs. 550 within an hour or two. If you had bought 1,000 stocks in the morning and sold at Rs 550, you would have made a cool profit of Rs 50,000 – all within a few hours. This is called intraday trading.
Here are five things to know about intraday trading:
Five things to know about intraday trading.
- Strategy: Intraday trading is a strategy where you buy and sell your stock holding in the same trading day. Traders thus take advantage of the price fluctuations that take place during market hours. In case the trader expects the price to rise during the day, he or she would first buy a lot of securities and then sell some time during the day. The reverse, called short-selling, can also happen. To take advantage of a falling market, traders would short-sell. This is when they borrow shares and sell it in the market. Once the price falls as required, the traders buy shares at the lower price and then return them to the lender.
- High risks: Since day traders essentially take advantage of the volatility, they are exposed to great risks. This is much higher than the risks taken by a long-term stock investor. As a result, intraday traders are usually speculators, who are willing to take high risks. They usually conduct high value trades worth lakhs and crores of rupees by using margin trading. (Use Cover Orders and Bracket Orders to take advantage of high margins provided by RKSV) However, intraday traders can also make extraordinary amount of profits.
- Stock price impact: By doing so, they often affect the stock’s price trend. For example, a stock is trading at Rs 100-102 range. Intraday or day traders decide to bet on the stock and 1,000 shares each. Thus there is a sudden rise in demand for the share. This causes prices to go up marginally. As soon as it hits a certain level, traders sell their stocks. This, in turn, causes prices to fall.
- Technical analysis: Since day-traders are only concerned with the volatility in price and volume of the stock, these traders rarely look into the financial viability of the underlying company. They usually employ technical analysis. This includes analyzing historical trends in stock prices and volumes to forecast the future price. Technical analysis helps determine the right conditions to buy and sell stocks. This usually requires a lot of time and effort. As a result, day traders are usually full-time traders, closely monitoring each and every movement in the stocks.
- How to day-trade: First of all, the idea is to select stocks which have a high volume of trade. This means they are highly liquid. This could include penny stocks – shares of small-scale companies with prices as low as Rs 20. Select a maximum of two or three stocks at a time. It would become difficult to monitor more shares. Decide the price at which you want to buy and sell – your entry and target prices. Most importantly, ensure you have a stop loss order to act as a safety net. (Click here if you want to know what a stop-loss order is). This will help reduce your risks. Once you have placed your order, monitor closely and exit when the price has hit your target or stop- loss levels.
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