If we look at the various trading styles from a bare-bones perspective, every trade is either a delivery trade or an intraday trade. The former approach is considered safer, delivery traders are not under any pressure to sell their holdings since there are no deadlines. On the other hand, intraday trading is generally perceived as a more lucrative approach, as one can also make money in a falling market if they trade intraday. However, at the same time, intraday trading involves higher stakes, and as a result, many fail at it. That said, if one does it right, it could be a profitable venture, and become a significant source of income.
Intraday Trading Tips and Strategies
A trader who practises intraday trading or day trading takes positions and exits them on the same day. Hence, they look to make profits in a short time frame, and that makes it challenging. Unlike delivery traders, they do not have the privilege of holding onto losses. If they are sitting in a losing position they have to book a loss.
To find success as an intraday trader, you must understand the technicals of the trade and adhere to trading discipline. The implementation of technical analysis lets intraday traders identify key trends and levels of the trade and predict the direction of the stock price. So, here are some tips and strategies to help you find success at intraday trading using technical analysis.
- Trade Well-defined Setups
Intraday trading is not about putting your money into any popular stock, and expecting to make profits by the end of the day. Instead, as an intraday trader, you technically analyse price charts and make a trade only if you can identify a clear trend. That lets you predetermine your entry price and target price. In case you miss your entry point, do not jump in late. Similarly, it is best to exit the trade once you have reached your target, or at the very least use a trailing stop loss to protect your gains from unexpected price fluctuations.
- Always Trade With a Stop Loss
Cutting your losses early is key to making money in the stock market, and that holds true, especially for intraday trading. That is because, as a day trader, you analyse price trends and predict the direction in which the price will move. However, after all it is still a prediction, so you can go wrong.
Intraday traders often find themselves in scenarios where they make entries when the price shows signs of moving in the desired direction but then reverses and vehemently moves in the opposite direction. To protect your capital from such reversals, it is essential to implement a stop loss in your trade. You determine the stop loss level using technical analysis and exit the trade if the price touches your stop loss. You can always re-enter if a favourable scenario reemerges or find better trading setups.
- Trade Liquid Stocks
Since day traders buy and sell their stocks on the same day, it is essential that there are plenty of other buyers and sellers in the market. You do not want to get stuck holding a stock due to the lack of demand or supply. Instead, you want to enter at your entry price and exit as soon as you achieve your target. For that, the stock you trade must be liquid; you should have no trouble converting it into cash. So, suppose you are selling your stock, there should be someone willing to buy it at that price. Hence, day trade only large-cap stocks since they are highly liquid, and it is best to avoid small-cap and mid-cap stocks.
- Understand When to Stay Out
Similar to cutting losses quickly, you can even preserve your capital by not taking any positions in the market. In fact, sometimes not trading is the best thing to do as a trader, whether you day trade or do delivery trading. Markets are unforgiving, so consider not taking positions if you cannot identify clear-cut trends and set-ups. It may be difficult to assess the stock price and predict the direction of the price in a volatile market. In a volatile market, sharp reversals are common, causing many trades to activate their stop lossesThis type of volatility is often seen when there is high uncertainty in the markets due to macroeconomic factors or during the earnings season.
To summarise, in order to find success in intraday trading, you must adhere to a set of predefined rules. At the same time, you must trade stocks suitable for day trading and know when not to risk your money in the markets. If you do not have a well-defined plan and cannot manage risks effectively, you will not find success regardless of the approach you choose to trade in the stock market.