When you buy or sell stocks within the same day, it is known as Intraday trading. A trader who wants to earn profits from the movement of the indices does intraday trading. Traders who want to invest in a stock for a longer period do not prefer this. The fluctuations in the price of the shares are used at an advantage in favorable market conditions to earn profits.
If you want to do intraday trading in the stock market then you need an online trading account. You can open an account via a broker or through an online share market app. Electronic trading and margin trading has brought intraday trading for retail investors as well. If you want to start doing intraday trading then this basic guide can be of help to you.
What is the difference between Intraday Trading and Regular Trading?
The only difference between Intraday Trading and Regular Trading is taking the delivery of the stocks. When you do intraday trading, you square-off the stocks on the same day. This means that the ‘sell order’ offsets the ‘buy order’. Here this is no chance for transfer of ownership.
Whereas, in regular trading, the trade gets settled over a span of a few days. Here, you can only ge the delivery of your shares which you have bought, when the shares you have sold, move out of your demat account.
Who are the Participants in Intraday Trading?
Intraday trading attracts traders by promising high returns. But it is important to note that it also involves a high amount of risk. Hence, if you are someone who has a day job that requires your complete attention, then you may want to avoid intraday trading. As a beginner, it is not advised to start intraday trading at the start itself. This is because you need a proper understanding of the market, need to time the market precisely, have a risk-taking capacity and also know how to use the software for share market trading.
Where can you place Intraday trades?
For this, you need to have a trustworthy and experienced broker to help you to place the trades. This is because to place the trades correctly, you would require research as well as technical support. In addition to this, you would also require to have the right tools to maximize the trade. As the frequency of transactions is high, you may want to choose an account that has low-brokerage per transaction and also offer speedy execution as time is of the essence.
What kind of stock should one choose?
When it comes to intraday trading, it is mandatory to square-off the position before the market closes. Hence you should choose stocks that have high liquidity such as large-cap stocks.
When should you execute the Trade?
For intraday trading, timing the market is all that matters. If you take a wring position at the wrong time then it can lead to losses. Experts suggest that it is not ideal to take a position in the first hour of the trading itself. During this hour, the market trends are volatile. You can make use of daily charts to understand the movement of the stocks.
Why should a Trader do intraday Trading?
Listed below are the few benefits of Intraday trading.
- The level of margin available to traders is higher than the investors.
- The return potential is high
- Brokerage charges are low
- For the strategy to pay off the horizon is short or medium.
How to Start intraday trading?
First, you need to open an online demat account. Then you need to sign up for the right tools and start practicing on them. These tools also help you with taxes as there are different taxation rules for intraday trading as per the Income-tax Act. Next up, you need to start analyzing the daily charts to understand the trends.
Understanding the Value Area
For you as an intraday trader, it is important to pick up the market direction as early as possible. There is a simple way to do this. You need to identify the ‘value area’ of the stocks you are planning to target. This is also known as the ‘The 80% rule’.
A value area is the range of the price of the stock where a minimum of 70% of the previous day’s trade took place. Once you have spotted this area, you need to observe at what price the stock opens for the day. If the price opens below the range and stays so for the first hour, then there is a high chance it will rise into the area. Here you might want to take a short position.
If the price opens above the value area and stays so for an hour then there is an equal chance for it to fall into the area. Here you might want to take a long position.
When it comes to trading in the Indian share market, no matter the type of trade it is important that you understand the market, its volatility, liquidity and the risks involved. If you are beginner, then you might want to follow the tips shared and start on a strong foot.