Intraday Trading Guide for Beginners

When to Execute Intraday Trades?

Intraday trades are executed during market hours and usually, intraday traders wait for the first hour before they take a trade. The first hour can be volatile and intraday traders may find it difficult to find the right price to enter the trade.

Why Should You Participate in Intraday Trading?

Anyone can participate in intraday trading with a trading account. It has many unique benefits and advantages.

• The return-on-investment opportunity for intraday traders is high because of leverage and this gets people excited about intraday trading.
• An intraday trader gets an opportunity to avail the best of leverage. This allows them to take larger positions than their available capital and in turn improves their chances of making better returns.
• Intraday trading allows a trader to not only benefit from rising stock prices but also from falling stock prices through an option that’s known as short selling.
• There’s a short to medium range for strategies to work out.

How to Get Started with Intraday Trading

First and foremost, to begin intraday trading, you need to have a Demat and Trading A/C.

1. Pick the correct stocks –

   It’s very important to select the right stocks. As intraday trading entails buying and selling of stocks within a single trading session, ideally you should choose stocks with high amounts of liquidity which makes buying and selling easier (For example - large cap stocks and mid-cap stocks).

2. Set a stop loss –

   It’s always advised to use a stop-loss order while doing Intraday trading to prevent any significant amount of loss in case the stocks moved against your expectations.

3. Do thorough research before starting –

   Before entering the market, you need to make time and diligently understand the market to make sense of it. Have a constant tab on the news and current affairs as they impact the market significantly. You may also make use of software that analyses and detects important stories related to the market.

What is 'Value Area' and Why Does It Matter?

Among various strategies that traders deploy to analyse their trades, ‘value area’ is one of them. It is an area where 70% of the previous day’s trades occurred. Share prices hover throughout the day. You can plot the area on a chart where most of the volume was observed and highlight this section. The value area rule says there is an 80% chance of the share prices surging back to the value area if the prices have opened below the value area and stay there for the first hour. If the share prices open above the identified value area and persist below for the first hour of the day, they are expected to fall to the value area.This provides a very simple strategy for intraday traders. They can analyse the value area and take a position accordingly.

However, it is important to remember that there is a 20% chance of the stock prices not behaving in the desired way. To cover this aspect, intraday traders use a stop-loss order. This restricts losses in case the share prices are not moving the desired way.

What are the Strategies you can use for Intraday Trading?

As a beginner, before you start intraday trading, you need to be well-versed with a few strategies. Here’s an overview of some of the simplest and the most common strategies designed for intraday trading for beginners.

• Trend-Following Strategy: This is one of the easiest strategies in the intraday trading guide for beginners. As the name implies, the trend-following strategy involves taking positions in an asset matching that of the current trend. For instance, if a company’s stock is going through a bullish trend, you need to take a long position in that particular stock. Once your target level is achieved, you can square off your position immediately.
• Breakout or Breakdown Strategy: A breakout is when the price of an asset rises past its resistance level. On the other hand, a breakdown is when the price of an asset falls below its support level. You can use the support and resistance information of an asset to plan your intraday trades. For instance, if an asset breaks out of its resistance level, you can consider taking a long position. Alternatively, if the asset breaks down out of its support level, you can consider shorting it instead.
• Reversal Strategy: A reversal is when the price of an asset that’s trending in a particular direction suddenly switches and moves in the opposite direction. For instance, if an asset that’s been rising suddenly starts falling, it is said to have reversed trends. The reversal strategy involves initiating a position in an asset at the point of reversal. Doing so will allow you to take maximum advantage of the ensuing price movements. This particular strategy forms a major part of the basics of intraday trading for beginners.

Now, no matter what kind of strategy you use for intraday trading, it is always advisable to have a proper risk management plan. This will ensure that the losses, if any, are limited. Also, remember to use technical indicators to confirm your hypotheses before executing any intraday trading strategies.