A Brief Introduction To Intraday Trading Strategies
Let’s begin with what intraday means. Intraday means within the same day. So it refers to buying and selling of the stock in one single trading session. In intraday trading, you have to book profits within the same trading session and not park your money for a long time. The concept of compounding returns over a couple of years doesn't work here. Intraday trading requires you to possess a sharp sense of how the market may behave and take action accordingly and make money in a couple of hours.Intraday trading strategies require you to closely monitor price movements in a day, daily volume of stocks, and many more. There are many more indicators that an intraday trader needs to keep in mind which we will discuss in the next section.
How to start day trading
We will understand this by explaining a range of topics under intraday trading. Usually, an intraday trader only needs a trading account as a trader buys and sells the stock within the same day. If a trader wants, he or she can have a Demat account as well because it may happen that you are not able to book a profitable position on the same day and may have to stay invested longer.Difference between trading and Demat account
Demat account is used to deposit the shares. Shares are credited to your Demat account after you buy them and debited from your account when you sell them. A trading account is used to hold transactions: which is buying and selling of stocks.Who should engage in intraday trading stocks?
Intraday trading is suited for those persons who can take a lot of risks because it is not necessary that you will be able to book profits on the same day. Then, following from that, to be able to book profits within the same day you should have the knowledge for it and follow the stock market closely.What knowledge is essential for intraday trading?
Consider this part as one of the most important parts of an intraday guide for beginners. These factors are extremely technical in nature. If you don’t understand them, take your time, do some homework and then get to beginning intraday trading.Trading volume: To begin with, you will need to have an idea of stocks that are showing maximum activity. The activity could be buying or selling orders. You need to understand what a high or low trading volume means for you, is the traction that the stock is getting negative or positive, and then make a decision.
News developments: When you are a trader, you should have an idea of things and at times even before they happen. Say there is a new development in the company that you expect on the basis of your experience and research and expect the stock price to go up by the end of the trading session, you can buy the stock when the session opens and then book profits. A good example of this is earnings. If you know well about a company and have been tracking it for a while, a lot of times you may be able to foresee if the company is going to project healthy earnings or not. You can then transact in that particular stock accordingly well before in time. For example, many people are delved too much deeper into the banking sector that they keep tracking renowned bank’s share prices such as SBI Share price and ICICI share price.
Daily average: A chart that has the daily closing price of the stock can be used to plot a daily moving average of the closing price of the stock. So a 30-day DMA would have the closing price of the past 30 days and then a line plotted to find out the daily moving average. This is done to give you a better understanding of the movement of stock prices. To get started, you can check some FMCG company’s details and daily average such as the renowned ITC; you can check ITC share price and daily average to see how much the stock has traded around these levels in the past 30 days.
Relative Strength Index: Shortened as RSI, this index tells us if a stock is overbought or oversold. The index oscillates between 0 to 100. If RSI is above 70 then it is overbought and if it is below 30 it means it is oversold.
Momentum oscillators: These range between 0 to 100 and are used to determine the momentum of a stock. It measures the amount by which a security’s price has changed over time. It Helps to find out historical trends in stock price and understand future trends as well. It is a complicated intraday trading indicator.
Bollinger Bands: Another complicated intraday indicator is Bollinger bands. Bollinger bands are a combination of the daily moving average line, and two other lines above and below the DMA line. These two lines help to indicate if the stock moved away, how much and in which direction from its daily moving average.
Stop Loss: Stop-loss is more of a financial metric that you need to set for each stock you are trading in. It is a lower limit you set for a stock’s price, below which you absolutely need to sell the stock. If the price of the stock falls below the stop-loss limit, you should sell the stock. However, do consult professionals and advisors before you set stop loss to stocks.
Caution points:
Conclusion
If you would have gauged already, stock trading requires a lot of patience, knowledge, meticulousness, research, and risk appetite. Traders are naturally expected to have a higher risk appetite than investors. The proverb, “look before you leap” works in the stock trading world as well. Be aware, keep your eyes open and avoid blindly trading to maintain a good portfolio.
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