What Does It Mean By Intraday Trading?
Intraday trading, also known as day trading, is a type of extremely short-term trading strategy where a trader buys and sells securities on the same day. Squaring off all open positions prior to the market closing on the day the securities are purchased is a requirement of intraday trading. During intraday trading, no ownership of the securities is changed.
Before the invention of electronic and margin trading, intraday trading was predominantly performed by financial institutions and experienced traders. However, now even investors with minimal experience and knowledge can choose to engage in intraday trading.
How To Start Intraday Trading?
You must open a DEMAT account as well as a trading account before you can start trading stocks. If you are an experienced stock market trader and would like to try it, you can keep trading separate by opening a new account. It is simpler to keep track of everything when you have separate accounts. Additionally, tax calculations are simplified by maintaining a separate account as intraday trades are taxed differently.
After that, you can register for the appropriate intraday trading tools. You can get some tools to help you with intraday trading after you have created an account. You should take some time to study daily charts before you start trading so that you are familiar with the trends in price movement. Some tools can provide technical analysis which might also be helpful when you start intraday trading.
What Strategies Can be Used For Intraday Trading?
* Momentum Trading: Momentum trading is all about making rapid investment decisions based on news reports. Intraday traders analyze these reports before the market opens, deciding whether to buy or sell a stock as they anticipate market trends. They act fast, taking advantage of news-driven shifts. The duration of holding security depends on how quickly the market is moving, ranging from minutes to hours or the entire day. This strategy is powerful but demands speedy action and daily trend tracking for success.
* Breakout Trading: In the world of trading, timing is everything, especially for intraday traders. Breakout trading focuses on identifying key points when stock prices either rise above or fall below a specific level. If prices keep rising above the threshold, investors go long and buy the stock. Conversely, if prices drop below the threshold, investors take short positions and sell. The strategy is based on the idea that when prices break these thresholds, they become more volatile and tend to continue in that direction.
* Reversal Trading: Reversal trading, a high-risk strategy, goes against market trends. Experienced traders use analysis to capitalize on price reversals for profit. This strategy is not advisable for Intraday beginners, as it demands substantial market knowledge and experience. Identifying pullbacks and their strength is challenging. One technique in reversal trading is focusing on daily pivot points to trade daily low and high pullbacks.
What are the Advantages of Intraday Trading?
* Quick Earnings: Day trading provides the opportunity for almost instant earnings. When you close a trade, your trading account immediately reflects the resulting profit or loss. You have the flexibility to reinvest these profits back into your trading capital or withdraw them to your bank account.
* Mitigates Overnight Risk: With day trading, you avoid the uncertainty of overnight market changes. Stock prices can fluctuate significantly between the market's close and open due to news and other factors, but day traders do not hold positions overnight, minimizing this risk.
* Profit in Bear Markets: A significant advantage of day trading is the ability to profit in both rising and falling markets. Instead of purchasing a stock, day traders can engage in short selling, profiting from declining stock prices.
What are the Disadvantages of Intraday Trading?
* Extreme Volatility: Intraday trading involves rapid market movements, such as 1-minute, 3-minute, or 5-minute charts. If you prefer more stable and predictable markets, you might consider other trading styles
* Time Commitment: Unlike long-term trading, intraday trading demands constant vigilance. It is not a trading style where you can set your targets stop losses and then divert your attention elsewhere. Staying actively engaged with the price action is essential for effective risk management and profit generation.
* High Risk: Intraday trading offers high rewards, but it is also highly risky. Success requires sharp observation and market knowledge. Intraday traders mainly use two approaches: price-action analysis (identifying entry and exit points through support and resistance lines) or technical indicators like RSI, MACD, DMA, and SMA. Conducting thorough research is essential to mitigate intraday trading risks.