How Intraday Trading Works

Intraday trading is an exciting way to capitalize on daily price movements in the stock market. Unlike traditional investing, intraday trading involves buying and selling stocks within the same trading day to lock in quick profits. 

However, it requires a solid understanding of market dynamics, technical analysis, and disciplined strategies to succeed. In this blog, let’s explore how intraday trading works, provide essential tips, and outline strategies to help beginners navigate this fast-paced world confidently.

What is Intraday Trading? 

Intraday trading, also known as day trading, involves buying and selling stocks within the same trading day. The goal is to capitalize on short-term price fluctuations in the stock market to earn quick profits. Unlike delivery trading, where stocks are held for the long term, intraday trading focuses on completing all transactions before the market closes.

How Intraday Trading Works?

Intraday trading involves buying and selling stocks within the same trading session to profit from short-term price movements. Here’s a breakdown of how it works:

1. Stock Selection: Traders select stocks that are highly liquid, meaning they can be bought and sold easily without significant price impact. Volatile stocks are often preferred as they provide ample opportunities for intraday price fluctuations. 

2. Setting Up a Trading Account: A demat and trading account is required to execute intraday trades. Brokers typically provide a margin facility, allowing traders to take larger positions with smaller capital.

3. Placing Intraday Orders: Orders are marked as “intraday” to ensure all positions are squared off before the market closes. Common order types include; Market Order, Limit Order, and Stop-Loss Order. 

4. Analyzing Price Movements: Traders use technical analysis, charts, and indicators to identify trends and entry/exit points. Popular tools include moving averages, Relative Strength Index (RSI), and candlestick patterns.

5. Profit and Risk Management: Target Price – Traders set a target price to lock in profits. Stop-Loss – A stop-loss order is used to minimize potential losses if the trade moves against expectations.

6. Squaring Off Positions: All trades must be closed before the market closes for the day. Any open positions at the end of the session are automatically squared off by the broker.

7. Settlement and Profit Calculation: The profit or loss is calculated based on the difference between the buy and sell prices, minus brokerage fees and other charges.

Steps to Start Intraday Trading

Starting intraday trading involves careful preparation and the right tools. Follow these steps to begin your journey:

Step 1: Learn the Basics

Understand key concepts like market orders, stop-loss, margin trading, and settlement processes. Familiarize yourself with stock market terms and trading platforms.

Step 2: Open a Trading Account

Choose a reliable broker offering intraday trading services with competitive charges. Ensure the account supports margin trading and provides access to real-time market data.

Step 3: Build a Watchlist

Select liquid stocks with high trading volumes to ensure easy entry and exit. Include stocks that show consistent intraday price movements.

Step 4: Select the Right Time for Trading

Focus on market opening hours (9:15 AM – 10:30 AM) for high volatility and trade opportunities. Use mid-session time (10:30 AM – 2:30 PM) for more stable trends.

Step 5: Develop a Trading Strategy

Choose strategies like momentum trading, breakout trading, or scalping based on your goals. Use technical indicators like moving averages and RSI for precise entry and exit points.

Step 6: Use Stop-Loss and Target Prices

Set stop-loss levels to minimize potential losses. Determine target prices to lock in profits and avoid holding positions for too long.

Step 7: Start with Small Capital

Begin with a small amount to minimize risks as you learn and refine your strategies. Gradually increase your capital as you gain experience and confidence.

Step 8: Monitor and Execute Trades

Stay updated on market news, trends, and announcements during trading hours. Monitor your trades closely and stick to your pre-defined plan.

Step 9: Review and Improve

Analyze your trades to identify mistakes and areas for improvement. Keep a trading journal to track performance and refine your strategies over time.

How to Make Money in Intraday Trading?

Earning profits in intraday trading requires a combination of skill, strategy, and discipline. Here’s how you can improve your chances of making money in intraday trading:

• Choose the Right Stocks: Focus on highly liquid stocks that are actively traded, ensuring easy entry and exit. Select stocks with high intraday price volatility to capitalize on short-term movements.

• Use Technical Analysis: Leverage technical indicators like moving averages, Bollinger Bands, and Relative Strength Index (RSI) to identify trends and entry/exit points. Study candlestick patterns and support/resistance levels for precise decision-making.

• Develop a Trading Plan: Set clear rules for entering and exiting trades. Define your risk-reward ratio and avoid impulsive decisions.

• Apply Risk Management: Use stop-loss orders to limit potential losses in case the trade moves against you. Avoid risking more than 1-2% of your total capital on a single trade.

• Trade During Optimal Times: Focus on high-volatility periods, such as the first hour of market opening (9:15 AM – 10:30 AM). Monitor mid-session trends for steady opportunities.

• Follow Market Trends: Align your trades with the broader market direction to increase the probability of success. Avoid trading against strong market trends.

• Practice Discipline: Stick to your trading plan without letting emotions drive your decisions. Avoid chasing losses or overtrading to recover from setbacks.

• Start Small and Scale Gradually: Begin with small positions to minimize risks as you build confidence and expertise. Increase your trade size only after achieving consistent success.

• Learn Continuously: Stay updated with market news, economic events, and stock-specific developments. Analyze your trades to learn from successes and mistakes, refining your approach over time.

Risks Involved in Intraday Trading

Intraday trading offers opportunities for quick profits but also comes with significant risks. Understanding these risks is essential for managing them effectively:

• High Volatility Risk: Stock prices can experience sharp and unpredictable movements within a single day. Sudden market events or announcements can lead to significant losses if not managed properly.

• Leverage Risk: Intraday traders often use margin trading to amplify positions, which can magnify losses as well as gains. A small adverse price movement can lead to substantial losses due to high leverage.

• Emotional Decision-Making: The fast-paced nature of intraday trading can lead to impulsive decisions driven by fear or greed. Emotional trading often results in overtrading or exiting positions prematurely.

• Limited Time to React: All trades must be squared off within the trading day, leaving little time to recover from unfavorable moves. Intraday traders must constantly monitor the market, adding to the pressure.

• Brokerage and Transaction Costs: Frequent buying and selling increase brokerage fees and other transaction costs, which can eat into profits. Ignoring these costs may lead to underestimating the actual profitability of trades.

• Liquidity Risk: Some stocks may lack sufficient liquidity, making it difficult to execute large orders without impacting the price. Trading illiquid stocks can result in unfavorable fills or delays.

• Knowledge Gap: Lack of experience or inadequate understanding of technical analysis can lead to poor trading decisions. Intraday trading requires a steep learning curve to master strategies and risk management.

• Overexposure to Market News: Traders can get overwhelmed by reacting to every piece of market news or data, leading to erratic decisions.

• Potential for Complete Loss: Without proper risk management, traders can lose their entire capital in a short period.

Boost Your Trading Potential with Streetgains

Intraday trading can be a rewarding way to capitalize on market movements, but success requires knowledge, discipline, and effective risk management. By understanding how intraday trading works and following proven strategies, you can make informed decisions and navigate the challenges of this fast-paced trading style. 

As a SEBI-registered research analyst firm, Streetgains provides actionable insights, expert strategies, and real-time market analysis to help you excel in intraday trading.