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How to do intraday trading

As the name suggests, intraday trading is the method where buying and selling (or vice versa) of shares and stocks takes place on the same day. It is also called as ‘Day trading’ by many traders - and is different from delivery trading, which involves holding shares for more than one day.

Key Points

  • As the name suggests, intraday trading is the method where buying and selling (or vice versa) of shares and stocks takes place on the same day.
  • In online trading platforms, when an intraday transaction is made, it has to be explicitly specified that it is an intraday transaction while placing the order. However, while buying, there is always an option to change it to ‘delivery trades’ later, before the market closes.
  • Unless one is ready to devote enough time, is prepared to self-learn and is mentally set to take risks and accept losses, intraday trading is not the best option.

Let us try and understand how it works with an example.

Assume that you buy 100 stocks of the company Tesla Motors during open market hours. On an intraday trade, you’ll need to sell these Tesla Motors stocks, before the market closes. Similarly, if you had shorted (or sold before buying) the stocks, you would have to buy the same number of these stocks before the market closed.

In online trading platforms, when an intraday transaction is made, it has to be explicitly specified that it is an intraday transaction while placing the order. However, while buying, there is always an option to change it to ‘delivery trades’ later, before the market closes.

In most of the trading platforms, the stocks bought under intraday trading are automatically squared off if they are not transacted as per rules before the day ends.

Guidelines and tips

There are plenty of things you should keep in mind before you begin intraday trading. In addition, we also have some items that you ought to have in good supply before you begin:

  • Good amount of knowledge of basics
    Knowledge is power. It is extremely important to keep oneself informed not only about the basic trading processes, but also the newest stock market news and events that could affect stocks and shares.
  • Surplus funds
    It is better to estimate how much capital goes into trading online, while keeping in mind the expenses of one’s daily necessities. Setting aside a surplus amount of funds to trade (which one is also ready to lose) is always the right step.
  • Starting small
    In the beginning, it is definitely advisable to start with a small number of stocks to trade with. This makes finding opportunities easier.
  • Being realistic about profits
    Successful traders always move fast without having to think fast. This is because they tend to develop a trading plan in advance along with realistic approaches about profits.
  • Logical decisions
    As a trader, greed does tend to makes its way through, but it is necessary to stay calm and make logical decisions instead of emotional ones.

Intraday trading steps

An intraday trader actively performs buy and sell transactions, sometimes even multiple times during the day, but ensures not to carry any of the open positions to the next day.

  • Conducting a complete self assessment

    For successful intraday trading, one requires a mixture of basic trading and financial knowledge and traits as well as dedication to a trading lifestyle. Unless one is ready to devote enough time, is prepared to self-learn and is mentally set to take risks and accept losses, intraday trading is not the best option. Hence, the first step is to conduct a self assessment on all the points mentioned above to start of with intraday trading.

  • Putting together adequate capital

    It is impossible to generate profits consistently in online trading. Discontinuous and comprehensive losses are part of its game. For instance, a day trader can suffer seven loss making trades in a row and can only recover with a profit on the ones after.

  • Understanding the working of markets

    It is important for an intraday trader to build a solid foundation of information about how the markets function. This should include simple details like exchange trading hours, impact of news events, margin requirements, and so on.

  • Selection of an appropriate trading plan/strategy/tactic

    The trading world has become extremely dynamic. Its strategies can constantly make money for long periods and even then fail at any point of time. It is advisable for beginners to enter the trading world with at least two established trade strategies, in order to act as backups of each other in case of failure. Once the trader’s experience increases, it is then recommended to move on to larger and more complex strategies.

  • Brokerage Charges

    Due to the frequent involvement of transactions, intraday trading can result in high brokerage costs. Hence it is advised to do a thorough research before the selection of a brokerage plan for trading. If a trader intends on completing about one or two trades per day, then a per trade basis brokerage plan would be suitable. However, if the trader’s daily trading volume is higher, it’s appropriate to go unlimited brokerage plans that help in reducing the effective cost. And finally, aspiring traders should make sure that they remain cautious of websites and courses that promise full-proof day trading success or endless profits.

Wrapping Up

  • Intraday trading refers to the act of closing a transaction on the stock market within the same trading day.
  • Always do your research, and have surplus funds before you begin intraday trading.
  • You’ll also need to have a fair understanding of brokerage charges and a good understanding of the markets.
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