Intraday traders often have to enter and close multiple orders within a single day. This is far from easy. Market conditions change within an instant and traders have to be on their toes. Having a plan of action makes things simpler, especially knowing when exactly to enter and exit a trade. Find yourself struggling with this? The following intraday trading tips could help.
Before you start trading, get your stock selection right. An intraday trader can potentially do well in bullish, bearish, and sideways markets. But it helps to follow the right set of stocks.
Look for stocks that are liquid—that is, which are in demand among buyers and sellers. This will help in closing your intraday position quickly. Also important is some degree of volatility. This will lead to price swings that you can profit off. Stocks that follow the market could be good picks too. For instance, fluctuations in crude oil prices have a direct impact on stocks in the oil and gas sectors.
Point of entry
Once the stock wish-list is ready, figure out when to enter a trade. Beginners could study the support and resistance levels on daily charts to identify price patterns. Look at charts from the previous week too. Watch for continuing trends, upcoming reversals, testing of the support and resistance levels… If a stock has been moving sideways, check if a price breakout is imminent. Keep an eye on the news as well. Stocks that are in the news cycle tend to be more volatile.
Start analysing the market from the end of the first hour. This crucial period sets the tone for the day. By this time, the overnight volatility has settled down but not excessively. Now, use your research to make your first trade. For instance, if a stock on your list has crossed the support price, you could buy it up with the intention of selling it as the resistance point nears.
Check on the market every 30 minutes for new developments. This will enable you to decide on your subsequent trades and modify your open positions.
When to exit
The point of exit should be clear before you enter a trade. It helps to set up a profit target and a stop loss trigger at the outset. The triggers work as safeguards, ensuring that your trades square off on favourable terms. Otherwise, if you forget to close a position on time, the trading portal does this for you automatically at market close—and the conditions at the time may not always be in your favour.
To set a profit target, use a simple risk–reward ratio of between 1:1.5 to 1:3. Experiment with the numbers, but ensure that the profit potential outweighs the risk—else the trade is not worthwhile. What about the stop loss? Aim not to lose more than 2% or 3% per trade. An effective exit strategy will help you manage risk while maximising returns.
There is no way to predict which trades will be the big winners. Your aim should simply be to succeed with more of your trades and keep booking profits from time to time. While there is no substitute for practice on the markets, it helps to open an account with a broker like Kotak Securities. They provide a range of charting tools that can inform your analyses. The better your research and understanding of the markets, the more effective your entry and exit plans will be.