Intraday Trading Guide for Beginners

Intraday trading has been a massive attraction for the masses recently. The fact that thousands are taking up intraday trading as a full-time earning source establishes its importance significantly. A beginner looking to start their career as an intraday trader may be overwhelmed by the amount of information available on intraday trading. To help you better, we have assembled a guide for beginners that will help you check all the necessary factors you need to consider while trading intraday.

How is Intraday Trading Different from Regular Trading?

Regular trading and intraday trading are different in several aspects. While intraday trading refers to the buying and selling shares on the same day, regular trading does not have such time constraints. You can sell shares whenever convenient. When you buy shares in intraday trading, you do not get the ownership of these shares. In regular trading, also known as delivery trading, these shares are delivered to your Demat account , and you have complete ownership of these shares.

Intraday trading provides a unique opportunity to short sell. It means taking a position that the stock prices will fall. It gives intraday traders an edge during falling markets. It can help intraday traders make profits even when the markets are falling. Regular traders do not get the benefit of this feature.

Leverage is another key factor associated with Intraday trading. Intraday traders get the option of leverage that allows them to take higher positions than their available capital. The additional amount is financed by their stockbrokers and gives them an opportunity to increase their potential for returns on an intraday trade. Usually, regular trading does not involve leverage. However, with brokers like Bajaj Financial Securities Limited, who offer Margin Trade Financing on regular trading, you get the option of leverage of up to 3.5x even on regular trades.

Who Should Participate in Intraday Trading?

Intraday trading requires effort, time, and good analytical skills. If you are willing to spend hours analysing stocks, understanding their price patterns, and are willing to take the risk of leverage, then intraday trading is for you. Intraday traders practice something known as technical analysis that allows them to generate buying and selling signals depending on different market situations. To participate in intraday trades, you need to be swift with your timings and sharp with your execution. Timing is everything in intraday trading. A trader must time their trades as perfectly as possible to make the most of an opportunity.

Managing risk is another aspect of intraday trading. Intraday traders deal with leverage that can be a two-edged sword. In extremely volatile markets, intraday traders need to be calm and focused on their analysis rather than getting intimidated by the price changes.

Where to Place Intraday Trades?

Intraday trades can be placed on the online platform of your broker. Intraday orders are separate from other order types, and you need to place them accordingly. To place an intraday trade, you need a Demat and Trading A/c with a trusted broker. As intraday trading involves brokerage it is important to choose the right broker who will help you save brokerage on your daily trades. The standard approach in the market amongst discount stockbrokers is Rs. 20 per order brokerage for intraday trades. With Bajaj Financial Securities Limited, you have the option to save 75% of your brokerage on every order with brokerages getting as low as Rs. 5 per order with the Bajaj Privilege Club membership. This can help you save significant sums of money in the long run.

What kind of Stocks to Choose from for Intraday Trading?

For intraday trading, traders like to choose stocks that have enough liquidity. Liquidity allows an intraday trader to swiftly execute an order without affecting the market price of the asset. With intraday trading you are aware that the order needs to be squared off at the end of the market hours and if the stocks are not liquid enough then you may not find a seller, this can be an undesired result for you as an intraday trader, thus it is very important to trade on stocks that have high liquidity.

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.

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Frequently Asked Questions (FAQs)

There are no limits to earning in intraday trading. With a good amount of patience and research one can earn a lot.

Profit-making possibilities depend upon the liquidity of stocks. Therefore, it is advisable to trade in stocks that have high volumes.

Your best chance to make at least Rs.1000 is by extracting small profits from multiple trades.

Intraday trading requires a lot of patience and research. It is recommended that instead of waiting to generate huge profits from a single trade, plan multiple trades and earn small profits. Also, it is advisable to learn and adapt to the latest market trends to make the most of it.

There isn’t any limit to the number of trades you can carry out. You may however face a limitation in the amount of leverage you can use basis on the value of the trade you wish to undertake.

Yes. Demat account is mandatory to apply for an IPO in India as the shares are stored in digital or electronic form only if allotted as per SEBI regulations.

Bar chart, Candlestick Charts, Line Charts are the most popular types of trading charts.

Identifying the best time-frame is very beneficial for long-term intraday traders. While day trading can be conducted throughout the market hours, many experts consider one to two hours after the stock market opening to be the best time frame for intraday trading.

An intraday trade has to open and be closed on the same day. The timing for intraday trading is from 9:15 am to 3:30 pm daily in the Indian markets. You need to sell your share before the closing bell, i.e. 3:30 pm otherwise your trade will be squared-off without any prior intimation.

No, you cannot hold intraday shares once the market hours are over, and the positions get squared off on the same day.

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