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The stock markets are dynamic in nature and require calculated moves on the part of the trader to be able to make the right decisions at the right time. If you are a beginner who wants to learn how to start intraday trading, this intraday trading guide for beginners will walk you through the fundamentals so you can get a head start in your journey.
Key takeaways
- Intraday trading involves buying and selling stocks within the same trading day. It requires traders to make timely decisions based on market trends and set stop-loss mechanisms to mitigate risks.
- Successful intraday trading hinges on discipline. To make informed trading choices, traders should adhere to a well-defined entry and exit strategy, avoid emotional decisions, and focus on historical stock performance.
What is intraday trading?
Beginner's guide to intraday trading
Intraday trading refers to trades carried out by traders during market hours on a given day. It is based on picking the right stocks that will either increase in value or decrease in value and making the right selling decisions to capitalise on market movements.
For example, if a trader thinks the value of a stock will go up during the day, they will buy it at a lower price and then sell it at a higher price during the day to make profits. The opposite is true if the trader anticipates a decrease in the value of the stock, as they will then try to short-sell the stock, i.e., selling at a higher price after having bought at a low price.
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Difference between intraday trading and regular trading
The main difference between these two modes of trading is the approach towards the delivery of shares or stocks. For an intraday trader, whether they made a profit or a loss, squaring off the position on the same day is mandatory.
No such timelines apply to regular trading. Depending on the shares and scrip category, a regular trader can settle over a few days. Another important difference is that, in intraday trading, share ownership does not change. In regular trading, share ownership changes as the rights of the shares are transferred from the seller to the buyer and settled in the Demat account.
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Rules to keep in mind for intraday trading
Here are some of the rules you need to keep in mind while starting on your intraday trading journey:
1. Entering and exiting the markets at the right time
A good strategy is to trade with the current intraday trend, which offers a window for low-risk entry while providing a higher probability for gains if the trend continues. Capitalising on such trends can help you identify patterns and get an entryway into the right trades and stop-loss strategies.
2. Always have a stop-loss mechanism in place
This is a continuation of the first point where having a stop loss is essential as an exit strategy for a given trade. If the stock is not performing as anticipated, stop-loss can be your saviour.
If the stock performs at par with your expectations, then you need to have different target levels, like T1 and T2, so you can make exits at these different price points.
3. Be aware of past performances
While past performances do not guarantee future success or failures, broadly speaking, stocks do follow a certain historical trajectory.
Hence, as a beginner, you should choose businesses that have been able to preserve capital while also providing returns without taking on too much risk. Also, opt for stocks with a high average trading volume to ensure you can find buyers whenever you want to exit the trade.
4. Do not get emotional or impulsive
As a beginner, your main focus should be to identify and pick stocks with good historical performance and devise strategies based on these stocks.
Also, have a well-defined entry and exit strategy in place, along with a stop loss level, so that you don’t give in to your emotions when the markets fluctuate. To be a successful intraday trader, you cannot give in to your emotions mid-trade and should be in control of your impulses while trading.
5. Take small steps
Just because you made a few good trades as a beginner does not mean you become overconfident and aggressive in holding your positions. To begin with, you should focus on only one or two stocks, and eventually, as your risk tolerance increases, you should increase the volume and value.
6. Stay away from penny stocks
Penny stocks are high risk since they provide high returns but are also highly volatile. Hence, as a beginner, you should avoid trading these stocks as they can lead to capital loss if they crash.
Only after gaining significant experience and getting an idea about market trends should you opt for this category.
7. Remaining composed and calm
Since markets are dynamic and full of action, they can easily get the better of you at times and make you anxious. But to be a good trader, you always have to rely on logic and rationality. Anytime you give into your greed, fear, or any other negative emotion, there is a chance you will make a mistake.
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Alternatives to day trading
While intraday trading might look lucrative, it also comes with significant risk. Here are some other alternatives that you could explore:
1. Swing trading
This method allows traders to extend their trades for a few days or weeks, and it is ideal for those who want to diversify their trades.
2. Traditional style
This is more of an investment method where the capital is invested for a longer period in businesses that deliver real value. This method requires patience and can turn into a multi-bagger stock if the investing is done right.
3. Robo-advisors
More individuals are increasingly opting for Robo-advisors, which utilise machine learning and advanced algorithms to recommend stocks to purchase. These systems generate investment ideas tailored to the investor's risk tolerance.
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Frequently Asked Questions
Guide To Intraday Trading For Beginners
Is intraday trading good for beginners?
What is the best entry time for intraday?
The best time to enter intraday trading is usually within the first hour after the market opens, as there's often a lot of activity and price changes. Traders can also look for good entry points during major market announcements or after a brief period of stability.
Disclaimer
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Investments in the securities market are subject to market risk, read all related documents carefully before investing.
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