How Does Intraday Trading Work?
As the name suggests, intraday trading is the method by which the buying and selling (or vice versa) of stocks and securities takes place on the same day. This is also known as "day trading" by many traders and is distinct from supply trading, where stocks are held for more than one day.
Let's try to understand how it works with an example
Suppose you buy 100 shares of Tesla Motors during business hours. In an intraday trade, you must sell those Tesla Motors shares before the market closes. Similarly, if you sold (or sold before buying) the shares, you would have to buy the same number of shares before the market closed.
In the case of an intraday transaction on online trading platforms, it must be expressly indicated at the time of placing the order that it is an intraday transaction. However, when buying, there is always the possibility to later switch to "delivery operations" before the market closes.
On most trading platforms, stocks purchased intraday are automatically cleared if they are not traded before the end of the day according to the rules.
Guidelines And Tips
There are many things to consider before you start day trading. Plus, we also have a few things you should have on hand before you start:
- Good Basic Knowledge
Knowledge is power. It is extremely important to keep up to date not only with basic trading processes, but also with the latest stock market news and events that may affect stocks.
- Surplus Funds
It is best to estimate the amount of capital invested in e-commerce while keeping an eye on expenses related to daily necessities. Setting aside an excessive amount of money to trade (that you are willing to lose) is always the right decision.
- Start Small
In the beginning, it is definitely advisable to start with a small number of stocks to trade. This makes it easier to find opportunities.
- Be Realistic About Earnings
Successful traders always move quickly without having to think quickly. This is because they tend to come up with a business plan in advance with realistic profit estimates.
- Logical Decisions
As a trader, greed tends to prevail, but it is necessary to stay calm and make logical decisions rather than emotional ones.
Intraday Trading Steps
A day trader actively trades buys and sells, sometimes even several times a day, but ensures that none of the open positions are carried over to the next day.
- Complete A Self-Assessment
Successful day trading requires a combination of basic financial and trading skills and characteristics, as well as a dedication to a trading lifestyle. If one is not willing to invest enough time, if one is willing to learn on their own, and if one is mentally willing to take risks and accept losses, day trading is no good. is not the best option. Therefore, the first step is a self-assessment of all the above to start day trading.
- Raise Sufficient Capital
It is impossible to consistently profit from online trading. Intermittent and widespread losses are part of their game. For example, a day trader might suffer seven losing trades in a row and only recover with one of the following wins.
- Understand How Markets Work
It is important for a day trader to build a solid foundation of information about how the markets work. This should include simple details like exchange trading hours, news impact, margin requirements, etc.
- Choose An Appropriate Trading Plan/Strategy/Tactics
The commercial world has become extremely dynamic. Your strategies can consistently make money for long periods of time and even fail at any time. Beginners are advised to enter the world of trading with at least two trading strategies in place to act as a mutual backup in case of failure. As the trader's experience increases, it is recommended to move on to broader and more complex strategies.
- Brokerage Fees
Because of the frequent trades involved, day trading can incur high brokerage fees. Therefore, it is recommended to do thorough research before choosing a brokerage plan to trade. If a trader intends to make one or two trades a day, a per-trade brokerage plan would be appropriate. However, if the trader's daily trading volume is higher, it is worth opting for unlimited brokerage plans that reduce the effective cost. Finally, aspiring traders should be wary of sites and courses that promise total day trading success or unlimited profits.
Tips And Tricks for Intraday Trading
When you buy a stock, it's up to you to decide what to do with it. You can keep it for the next decade if you wish, or sell it the same day. Both options have their own advantages, but if you plan to close your position on the same day, there are some days trading tips you should know.
As the name suggests, intraday trading is the buying and selling of stocks on the same day. Basically, you buy stocks every day, find a reasonable price to sell them, and then take your profit. Although it may seem like the easiest way to make big bucks, the adage “all that glitters is not gold” still applies. Some hidden complexities might distract you from this seemingly simple endeavour. Learn how to day trade here [link to article #82], then take a look at some steps below that might help you trade well.
Portfolio: Trading is an example of planning and execution. You must have a clear vision before you do anything. Create your portfolio according to your requirements and your financial strength.
Indicators – Trading charts show stock behaviour over a period of time, as well as various indicators that help predict how a particular stock might perform in the future. Include them in your calculation before you buy a stock, as they might help you understand how it might perform throughout the day.
Control – Day trading can be as volatile as possible. Manage to control your greed and fear once you get into this business. It is not always necessary for you to make a profit and the same applies vice versa. It can be a quick trade, but it still requires patience.
Update: Daily analysis and research is required for intraday trading. The movement of market dynamics should be reflected in the strategy used by a trader. It's not wise to use the same strategy everywhere. So, update what you are working on with market trends and then implement it.
Rumours: The media can get chaotic. And the stock market too. Don't always pay attention to rumours going around you until you know for sure. They can confuse you in unexpected ways. The best way to deal with rumours is to stick with your strategy until you know for sure.
One-Day Trading: “What you have is today.” There is no future in intraday trading. Don't plan for the future without taking action. What you buy is what you would sell today. Plan around the unique day at hand.
Profit - Don't always expect a profit from trading. Trade has never been a fair deal. If one wins, the other must lose.
Over Trade: Happiness is the key to a healthy life. Appreciate your wins, but don't fall behind by winning big. If you made a lot on a given day and there's still time before the market close, that doesn't mean it's the right day to invest all your money. The market never works that way. Accept what you have achieved and learn to be content.
Tips and tricks for intraday trading
It is advisable to look for liquid stocks for intraday trading. Since the trader has to weigh his position at the end of the day, it is better to go for large cap stocks. Otherwise, you may need to hold onto the stock due to lack of trading volume. Here are some additional tips and tricks for day traders.
Use of Stop Loss
Stop Loss is a feature that allows you to automatically sell a stock if the price drops below a certain level. It is beneficial for the traders as it minimizes the potential loss that could occur.
Set Your Goals
Accounting for your profits is just as necessary as minimizing your losses. Don't let greed control your decisions. At the same time, don't let fear stop you from pulling the trigger on trading. Search for a specific amount to trade on a specific day. Don't bet all your money at once.
Before you buy your shares, pay attention to all the technical details, such as dividends, stock splits, bonus dates, mergers, etc. It is advisable to add 8-10 stocks to your wish list and research them thoroughly.
Know when to Exit
Do not try to go against the current of the market. Even people who have been trading for over a decade cannot explain or predict the state of the market. When the market moves against your expectations, you need to know when to get out.
Also Read: What is Intraday Trading - Learn how to do Intraday Trading!