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?

Intraday trading has several advantages and is a unique way to participate in the stock market. An intraday trader gets an option to avail the best of leverage. This allows them to take larger positions than their available capital and in return improves their chances of making better returns.

The return-on-investment opportunity for intraday traders is high due to leverage and this excites most people about intraday trading.

Intraday trading allows a trader to not only benefit from rising stock prices but also from falling stock prices through an option called short selling.

Intraday traders are not impacted by scenarios of gap ups and gap downs which impact stock prices when the markets open the next day.

If you are consistent with your strategy and manage risk and leverage well then intraday can be a good source of earning a small income regularly.

How to Get Started?

To get started with intraday trading you need a Demat and Trading A/c. You can create one quickly by clicking here. Once you have a Demat and trading A/c you can identify the stock you want to trade in. You can then do your analysis with the help of various technical tools such as different types of indicators. Based on your analysis you can then take a position and monitor it closely.

It is always recommended to use a stop-loss order while trading on Intraday. A stop-loss order is an order opposite to your current position. For example, if a trader has bought shares at Rs. 100 and expects the prices to increase, they will also put a stop-loss order around Rs. 97 just in case the share prices start moving in the opposite direction. If the market turns volatile and the share prices start dipping this stop-loss order will prevent heavy losses. It also helps if you are not in front of your screen during the trade and it moves opposite to your preferred direction.

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.

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