Intraday trading as the name suggests refers to the trading system where you have to square-off your trade on the same day. Squaring off the trade means that you have to do the buy and sell or sell and buy transaction on the same day before the market close. Intraday Trading is also referred to as Day trading by many traders. This involves taking advantage of market volatility to make immediate money. It also helps traders prevent overnight losses caused by events that surface after the markets have closed. Many people consider intraday trading as speculation-based gambling and not as a value investment. However, one can make money in the stock market by following simple day trading rules and anticipating market moves.
In online trading platforms when you are making an intraday transaction, you have to explicitly specify that it is a Intraday transaction while placing the order. However in case of a buy transaction you always have the option to change it to delivery later before the market close. In most of the online trading platforms positions bought under intraday trading are squared off automatically if not done by you before the market closure.
Difference between buying stocks on Intraday basis and Delivery Basis
- If you have bought 50 stocks of some company on delivery basis, these stocks will be transferred to your Demat Account (usually it takes 2-3 days to complete the transfer) and you can do whatever you want with the stocks.You can keep them for 5 years or sell them the next week.
- In Intraday trading stocks are not actually transferred to your account and you have to square off your position before the market close on same day (sell same no. of stocks)
Intraday trading techniques
When it comes to analyzing stocks, charts play an essential role. Depending on the duration, traders can use 1-minute, 5-minute, 15-minute, 30-minute, 1-hour, or 4-hour charts. For intraday traders, 5-minute and 15-minute charts are recommended. Candlestick charts should be used to get a better indication of open, close, high, and low of the stocks. Focus on company-issued press releases as stock prices tend to react to news announcements. Some investment strategies that can be used are:
- Scalping: Selling almost immediately after a trade becomes profitable.
- Fading: It involves shorting stocks after rapid upwards move.
- Use stop loss & save profit
High volatility of stocks may lead to increase in the number of losses. This is why placing a stop loss while opening a position in the stock market is crucial for avoiding huge losses. For long positions, stop loss can be placed below the recent low, and for short positions, it can be put above the recent high. Accordingly, profits marker can be set to get the risk to reward ratio as 1:2 or 1:3, depending upon the volatility of the market.