Stock market investments, especially intraday trading, require in-depth knowledge of the market, keen observation, and calculated moves to make the right/profitable buy and sell decisions. However, if you are a newbie, it might be challenging to understand and execute successful intraday trading.
If you are wondering how to do intraday trading, keep reading. Here, we present a comprehensive guide for intraday trading for beginners. You’ll learn everything you need to know before participating in intraday trade such as what is it, how it differs from regular trading, important rules, alternative trades, and more. Let’s dig in.
A brief introduction to intraday trading
Before we dive deep and learn about how to do intraday trading, let’s understand what is intraday trading. Intraday trading, also known as same-day trading or within-the-day trading, requires traders to buy and sell stocks within the same day. In other words, intraday trading refers to a trading approach where traders participate in trading activity such as buying and selling of stocks within the same trading day. It is basically scouting stocks that will either go up or down in the market. If a trader thinks the price of a stock will move up as the day wears on, he will likely buy at a low and sell at a high price later in the day.
Conversely, if the stock price is slated to fall, traders might opt for short sell which means they will sell it in high and buy low. Thus, intraday trading for beginners requires a sharp understanding of market movements and the ability to seize the opportunity at the right time.
How does intraday trading differ from regular trading?
Before learning about intraday trading for beginners, you should know the difference between regular trading and intraday trading. Taking the delivery of stocks is different for each of these trading. Regular trading allows traders to invest for a period and settle trades in a few days based on the category of the scrip. On the other hand, intraday trading does not allow traders to remain invested for a period of time. They must square off their positions before the market closes on the same day of the investment whether they make a profit or loss.
Another difference between regular and intraday trading is the ownership of shares. The ownership of shares is not changed in intraday trading, whereas, in regular trading, the ownership of shares is changed during the delivery of stocks. When a trader buys a stock in regular trading, the ownership rights of the seller are transferred to the buyer and the shares are maintained in a DEMAT account.
Most of the time, beginner traders face hurdles while trading and can also incur losses as they do not have much idea of the right kind of trading tools and strategies. That is why, in the next section, we will discuss some strategies and rules for intraday trading in detail.
Rules of thumb for intraday trading
If you are a beginner and do not know how to do intraday trading efficiently, read on. Following a few guidelines can make intraday trading a breeze.
Enter and exit at the right time
The most important rule of intraday trading for beginners is to enter and exit the market at the right time. To identify the right entry time, a trader must follow a prevalent trend in intraday trading. Traders can identify low-risk entry points and earn higher returns when the intraday trend continues. One should always observe the market to identify these trends or patterns.
On the other hand, the right time to exit the intraday market can be identified by closely looking at two conditions. First, when one has reached the target point for profit and when one has reached the maximum limit for loss. In both these scenarios, a trader can consider exiting the market.
Have a stop-loss in place
It is important to have a stop-loss in place for intraday trading. This exit strategy will be helpful if your expectations from a trade do not materialize. However, experts advise that an intraday trader should have a stop-loss strategy in place even when the expectations are met. An intraday trader should have different target levels like target 1 and target 2 and a stop-loss strategy helps them to exit the intraday trading market at different price points or when different target levels are reached. The method helps traders to have realistic expectations, make strategic decisions, and avoid significant losses in intraday trading.
Consider historical returns
There is a pattern that stock movements generally follow. Be it intraday trading or regular trading, stock price movements or stock performance patterns tend to repeat itself time over time. Therefore, observing the historical performance of a stock can give useful insights about the future movement of the stock price. Hence, another vital rule of intraday trading for beginners includes finding names that are capable of preserving capital and ensuring good returns with minimal risk at the same time.
It would be wise to choose stocks for intraday trading after analyzing their trends and characteristics. Also, you should opt for liquid stocks with higher average daily volume.
Don’t get impulsive
Keeping your emotions under check is one of the golden rules for beginners in intraday trading. If you want to excel in your intraday trading or want to know how to do intraday trading, you should learn to avoid making impulsive trading decisions. It is true that intraday trading is a fast-paced trading approach that demands quick moves to make a profit. However, your market moves must be backed by factual analysis and observation, rather than hasty and impulsive decision-making driven by emotions.
Start small
As a beginner, you should always start small. Unlike regular investments, intraday trading tends to be more volatile or high-risk high-return in nature. Therefore, one must not invest a lump sum just because the market looks promising. As intraday trading is risky, there is a distinct possibility of not making any profit at all. Therefore, one must start small and understand the market first. Also, remember to evaluate your risk tolerance or risk appetite and only invest the amount of money you can afford to lose.
Avoid penny stocks
Penny stocks tend to have higher return potential in intraday trading. However, these stocks are also highly volatile and can lead to significant capital loss. Intraday traders often invest in these high-risk stocks for higher gains. But as a beginner, you should avoid penny stocks unless you have a strong risk appetite and become comfortable with market strategies.
Remain calm
Lastly, another crucial rule for intraday trading for beginners is to remain calm. Intraday trading involves constant and keen market observation that can often cause anxiety. The constant and dramatic market fluctuations can evoke anxiety even among seasoned professionals. Keep a vigilant eye on the market without getting bogged down by fear, excitement, and other emotions.
Alternatives to day trading
Intraday trading can be beneficial, but it also comes with risks. If you are a beginner in trading and do not know how to do intraday trading without experiencing significant losses, here are some alternative options for you.
Swing Trading
Swing trading is a popular alternative to intraday trading. Swing trading allows investors to invest for a short term i.e. some weeks or days, which is beneficial for beginner traders. Another plus point of swing trading is that it helps investors to diversify their portfolios.
Traditional Style
It is a method of investment and not trading. The traditional style refers to long-term investments in that an investor understands a company’s real value. These investments are usually decided based on company fundamentals and can offer higher returns. This method needs patience and expertise for efficient management of investments.
Robo-advisors
It is not a trading alternative to intraday trading. Using robo-advisors is another popular investment method. Nowadays, many investors prefer robo-advisors that use various sophisticated algorithms and machine learning to suggest names of stocks one should invest in. It is primarily beneficial for beginner and risk-averse investors as it offers various ideas for investment.
Conclusion
Clearly, intraday trading is an interesting prospect for individuals who like fast-paced trades. However, before you participate in intraday trading, you should learn the basics of intraday trading. This blog post has discussed everything about intraday trading, including how to do intraday trading, difference between intraday trading and regular trading, and important rules for beginners to start with intraday trading. Traders would do well to keep themselves updated about the market and follow the thumb rules for a successful intraday trading experience.
