How Intraday Trading Works?: Intraday Trading is also known as day trading which is meant as buying and selling of stocks and other financial instruments that the trading completes within the day. You can also conclude, intraday trading as to square-off all the positions before the market closes and there is no ownership of stocks in the trades.

Up-till now it was a norm that intraday trading is used to be done with the financial firms and by the professional traders. This scenario has been changed due to the popularity of electronic trading and margin trading. Most of the traders are doing intraday trading currently.

How Intraday Trading is different from Regular Trading Account?

The only difference between the Intraday Trading and the Regular Trading is that it lies within the delivery of the stocks. In Intraday Trading, you square-off all the positions on the same day. There is no ownership of the shares. A regular trade gets settled for days if not longer. So, you get the delivery of the shares you bought while the shares you sold out move out from the Demat account.

Participation in Intraday Trading

  • The one who can take the risk.
  • Follow the markets closely.
  • Time the trades properly.

Intraday Trading promises to give the high returns and that’s why it sounds attractive to the traders. It also carries a higher risk compared to the delivery segment. If you are doing a day job and cannot give attention to the market during the trading hours then you need to avoid the intraday trading.

The one who can watch the market and can time the trades with perfection can opt intraday trading. The trader needs to have a good understanding of the market and have time to perform the technical analysis on the daily charts to make the right decisions.

Where to Place the trades?

In intraday trading, you need to trade with using the segment of having the right broker. The one which offers you with the research reports and gives support on the technical. To have the right tools is necessary for maximizing the trades for intraday trading. If you are highly frequently doing the trades for the intraday trading it is recommended to choose an account with that brokerage firms which offers low brokerage per transaction and speedy execution.

Which Types of Stocks to choose?

In Intraday trading, you need to square-off all the position on the same day before the market gets closes. For that, it is necessary to choose the stocks that have enough liquidity for executing the trades. So, in intraday trading, many of the traders recommend high liquid stocks like large-cap stocks. With this, it can minimize the chances of the trades impacting the share price of the chosen stocks.

Know More: How to Select Stock for Intraday Trading?

How to Execute the Trades?

It is crucial for intraday trading to time the markets. While trading if you take the entry or exit at a wrong position then it can be the difference between the profits and loses that happens.

Most of the experts suggest that it may be better for the trader to avoid trading in the first hour of the trading. The market tends to be volatile during the starting of the period and it is better if you have different strategies to work upon the trading.

Advantages of Intraday Trading

  1. High return potential
  2. It offers lower brokerage charges
  3. There are shorter to medium horizon available for the strategies to pay off
  4. Higher margins are offered to traders compared with investors.

It is necessary to do thorough analyses for witnessing the high risk and willing to put extra effort into the market for analyzing and daily.

How to get it start?

To start trading, the first requirement is to open a trading and Demat account. If you are already a trader in the stock market but want to start intraday trading then you need to open another account for intraday. Intraday trading is treated differently as per the Income Tax Act. Once you get the proper tools and accounts for the trading, you can start the trading by observing the daily charts to identify the price momentum. Through this you will get it how intraday trading works.

What is “value area”?

As an intraday trader, you need to predict the market direction in an early stage. The easiest way to do this is by identifying the “value area” for the selected stocks you target to trade-in. Value area is the range of the price where at least 70% of previous day trade took place and once you had observed this area, identify where the price opens for the day.

The rule states that if the price starts below the range and stays there for the first hour, then there is an 80% chance that it will rise into the area. On the other hand, if it starts above the value area and stays there for the first hour, there is an equal chance that the price will fall into the area.

This gives us the most basic intraday trading strategy if the share rise above and stays there, you may want to take a short position near the top of the value area. Similarly, if the share rise below the value area and stays there for an hour, you can take a long position near the bottom of the value area. Lastly, set a stop-loss to cover for the 20% chance of the stock not filling the value area for minimizing the loss.

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Under this blog, you will recognize how intraday trading works in the stock market.  In this blog, you will come across the different strategies for intraday trading. Trading Fuel has been more focused on the technical analysis part for the stock market but you will find the content for the fundamental part also. It provides various information based on the new strategies or concepts that are accepted in the stock market. For further any doubts, you can contact us through mails and read more from Trading Fuel.

Author

Prashant Raut is a successful professional stock market trader. He is an expert in understanding and analyzing technical charts. With his 8 years of experience and expertise, he delivers webinars on stock market concepts. He also bags the ‘Golden Book of World Record’ for having the highest number of people attending his webinar on share trading.