Day Trading Tips, Strategies & Basic Rules

In simple terms, trading stocks within a single day is more dangerous than investing in the stock market for a longer period. Many traders, especially beginners, end up losing money in this type of trading because the stock market can change rapidly and unpredictably. Experts recommend that traders, especially those starting out, should not risk more than two percent of their total trading money on a single trade. This helps manage the risk involved in intraday trading. It’s crucial, particularly for beginners, to learn the fundamentals of this type of trading to avoid losing money. Ignorance can be more risky than the changes in the market itself.

Tips for Intraday Trading

Here are some helpful suggestions for trading within a single day in the Indian stock market that can assist investors in making wise choices:

Choose Two or Three Liquid Shares

Intraday trading means closing your trades before the trading session ends. To do this successfully, it is advisable to select two or three large-cap stocks that are easily traded. It’s not recommended to invest in mid-size or small-cap stocks because they may have low trading volumes, which can make it difficult to sell them quickly. This means you might have to hold onto these stocks for a longer time, which is not ideal for intraday trading.

Develop an Informed Short-Term Trajectory Beforehand and Stick to it

Following are the essential points  of a short term trajectory:

1- It’s important to decide your entry level and target price in advance. Often, people’s mindset changes after they buy shares. This can lead to selling them even if the price goes up slightly. Unfortunately, this means missing out on the chance to make greater profits due to further price increases.

2- When you reach your target price, it’s advisable to take your profits. Allowing uninformed greed to influence you may result in holding onto a stock longer than necessary, which raises the risk of a price drop. If you decide to stay invested, it’s important to readjust your stop-loss price to align with your new expectations.

Stop loss is a useful tool that automatically sells your shares if the price drops below a specific limit. It is particularly beneficial for investors who have engaged in short-selling. Stop loss helps minimize losses in situations where the price unexpectedly rises beyond their expectations.

Realign your strategy for intraday trading

Value investment focuses on fundamental factors, while day trading emphasizes technical aspects. Day traders often choose to hold onto shares if the target price is not met, hoping that the price will eventually rebound and allow them to recover their investment. However, this approach is not recommended because the stock may not have strong investment potential and was purchased solely for a short-term duration.

Research Your Wishlist Thoroughly

It is recommended for investors to create a wish list of 8 to 10 stocks and conduct thorough research on them. It is important to stay informed about corporate events like mergers, bonus dates, stock splits, and dividend payments, as well as understanding their technical levels. Utilizing the internet to find resistance and support levels can also be advantageous. Additionally, it is essential to study the fundamental concepts and terminology of the stock market.

Don’t Move Against the Market

Even professionals with advanced tools cannot accurately predict market movements. Sometimes, despite all the technical indicators suggesting a bullish market, there can still be a decline. These factors only offer indications and do not guarantee anything. If the market moves against your expectations, it’s important to exit your position to prevent significant losses. Intraday trading allows for higher leverage, which can lead to decent returns within a single day. However, it’s essential to be content and satisfied with your profits to succeed as a day trader.

Time the Market

Experts often recommend individuals avoid trading during the first hour, once the markets open.

Exit the Position under Unfavorable Conditions

When trades yield profits and the price is expected to reverse its trends, it is wise to take those profits and close the position. Similarly, if the conditions are unfavorable to the position, it is recommended to exit immediately instead of waiting for the stop-loss trigger to be activated. This approach helps traders minimize their losses.

Invest Small Amounts that Won’t Pinch

Beginners often become overconfident when they make some profits through day trading. However, it’s important to remember that even experienced professionals find it challenging to predict market trends accurately. In such unpredictable situations, beginners can easily lose all their investments. That’s why a crucial tip for intraday trading is to invest smaller amounts that one can afford to lose. This approach ensures individuals don’t face financial difficulties if the market doesn’t work in their favor. It is recommended that traders don’t risk more than two percent of their total trading capital on a single trade to maintain proper risk management.

Map Resistance and Support

During the first 30 minutes of a trading session, the stock price tends to fluctuate within a certain range, known as the opening range. The highest and lowest prices observed during this period are considered as the resistance and support levels. It is recommended to buy shares when the price goes above the high of the opening range, and sell them if the price falls below the low of the opening range.

Always Close All Open Positions

Traders may feel enticed to keep their positions if they haven’t reached their desired targets. However, this is a significant mistake, and it is vital to close all open positions, even if it means accepting a loss. Failing to do so exposes traders to the risk of overnight events, such as a market crash in the USA or Europe.

Spend Time on the Actual Monitoring and Execution

Day trading is not suitable for professionals who work full-time jobs. Traders need to be able to consistently monitor market movements from the opening bell to the closing of the market session in order to make timely and informed decisions.

Monitor Intraday Trading indicators

To secure profits in intraday trading, conducting thorough research is crucial. In this process, it is important to follow specific indicators. While some may consider intraday tips as infallible, it is important to note that they are not completely accurate. Intraday trading indicators serve as helpful tools when employed alongside a comprehensive strategy aimed at maximizing returns.

Intraday Time Analysis

In intraday trading, daily charts are widely used to track price movements within a single day. These charts are a popular technique that highlights the price changes from the opening to the closing of the daily trading session. There are various ways to utilize intraday trading charts. Here are some of the commonly employed charts when trading intraday in the Indian stock market.

Know more about intraday trading time analysis.

FINAL CHECKLIST:

Select two or three highly traded shares that are easily bought and sold.

Create a well-thought-out plan for short-term trading and adhere to it.

Adjust your approach specifically for intraday trading, rather than long-term investing.

Conduct thorough research on the stocks in your wish list.

Avoid going against the overall market trend.

Time the Market:

Exit the trade when conditions are unfavorable.

Invest a small amount that won’t cause significant financial strain.

Identify resistance and support levels.

Always close all open positions.

Dedicate time to monitor and execute trades effectively.

Keep an eye on intraday trading indicators.

Analyze intraday timeframes.

How to Choose Stocks for Intraday Trading

To be successful as a day trader, it is essential to have the skill of selecting suitable stocks for intraday trading. Many individuals struggle to make profits because they fail to choose the right stocks to trade. Improper management of day trading can have severe consequences on one’s financial stability. The allure of quick and significant profits can be enticing for traders. However, without proper understanding and knowledge, intraday trading can be risky. Intraday traders always encounter inherent risks present in the stock markets. Factors such as price volatility and fluctuating daily volume greatly impact the selection of stocks for daily trading.

To strike a balance between risk and higher returns, here are some advanced strategies to consider for intraday trading:

Opening Range Breakout (ORB)

Both professional and amateur traders commonly employ this intraday trading strategy. To fully capitalize on its potential, it is advisable to combine it with the effective utilization of indicators, accurate evaluation of market sentiment, and strict adherence to rules. The Opening Range Breakout (ORB) strategy offers multiple variations, such as trading on significant breakouts from the opening range or placing trades based on the breakout of the opening range itself. The time frame for executing trades typically spans from 30 minutes to three hours.

Demand-Supply Imbalances

A valuable tip for novice intraday traders is to seek stocks that exhibit significant imbalances between demand and supply, and consider them as potential entry points. In the financial markets, prices decrease when there is insufficient demand for larger supplies, and vice versa. Users should learn to identify these points on the price chart through research and studying past market movements.

Opt for 3:1 Risk-Reward Ratio

Traders, especially those new to the market, should grasp the concept of the suitable risk-reward ratio. It is advantageous for beginners to identify stocks that offer a potential risk-reward ratio of at least 3:1. This strategy enables them to limit their losses on unsuccessful trades while providing the opportunity for significant gains, even if they experience losses on a majority of their trades.

Use Relative Strength Index (RSI) and Average Directional Index (ADX)

By combining these two intraday trading strategies, traders can identify potential buying and selling opportunities to generate profits. The RSI (Relative Strength Index) is a technical indicator that measures the momentum by comparing recent gains and losses, identifying overbought and oversold stocks. On the other hand, the ADX (Average Directional Index) is useful for determining strong price trends. Typically, when the RSI crosses the upper threshold, it suggests a selling opportunity, and vice versa. However, when traders combine the RSI and ADX, they look to buy when the RSI surpasses the upper limit and sell when it falls below. The ADX serves as a trend identifier, assisting traders in making informed buy or sell decisions.

Conclusion

Intraday trading involves completing trades within the same day. Many traders aim for smaller profits in their trades. The key tip for successful intraday trading is to align with the market trend, as it can lead to profitable outcomes.

Intraday traders consistently encounter risks inherent in the stock markets. Factors such as price volatility and fluctuating daily volume impact the selection of stocks for daily trading. It is advisable for traders to limit the risk to less than two percent of their total trading capital per trade, in order to effectively manage risks. However, the temptation to pursue higher profits can lead traders to take on more risk than recommended.

To strike a balance between risk and higher returns, here are some tips to follow:

Opening Range Breakout (ORB):

This popular intraday trading strategy is utilized by both professional and novice traders. To maximize its effectiveness, it is recommended to combine it with the use of indicators, accurate market sentiment assessment, and strict rules. ORB offers various approaches, such as trading on significant breakouts from the opening range or placing trades based on the opening range breakout. The ideal time frame for these trades typically ranges from 30 minutes to three hours.

Mapping Resistance and Support:

Within the first 30 minutes of a trading session, stocks typically fluctuate within a certain range known as the opening range. The highest and lowest prices observed during this period are considered as the resistance and support levels. It is advisable to buy when the share price surpasses the high of the opening range and sell if the price falls below the low of the opening range.

Demand-Supply Imbalances:

A valuable tip for beginners in intraday trading is to look for stocks with significant demand-supply imbalances and use them as entry points. In the financial markets, price decreases when demand is low for higher supplies, and vice versa. Traders should learn to identify these imbalances on price charts through research and analysis of historical movements.

Opt for 3:1 Risk-Reward Ratio:

Traders, particularly beginners, should understand the importance of a suitable risk-reward ratio. Initially, focusing on stocks that offer a potential risk-reward ratio of at least 3:1 can be beneficial for earning profits in share market investments. This strategy allows for small losses while providing the opportunity for significant gains, even if most trades result in losses.

Relative Strength Index (RSI) and Average Directional Index (ADX):

Combining these two intraday trading strategies can help traders identify buy and sell opportunities to generate profits. The RSI is a technical momentum indicator that compares recent gains and losses to determine overbought and oversold stocks. The ADX is useful for identifying strong price trends. In most cases, if the RSI crosses the upper limit, it suggests a selling opportunity, and vice versa. However, when the RSI and ADX are combined, intraday traders buy when the RSI crosses the upper limit and sell when it falls below. The ADX serves as a trend identifier to assist traders in making buy or sell decisions.

Also Read: What is Intraday Trading

Intraday trading involves settling trades within the same day. Many traders aim for smaller profits in their trades. The key tip for successful intraday trading is to align with the market trend, as it can lead to profitable outcomes.

FAQs

What is the best strategy in intraday trading?

There are multiple intraday trading strategies available, including Momentum trading, reversal trading, breakout trading, Gao & Go trading, and Moving Average crossover strategies. These strategies are widely recognized and popular among traders.

What is the most profitable intraday trading strategy?

When implemented accurately, trend following strategies are considered the safest and potentially most profitable trading strategies available. These strategies excel when applied over extended periods, as trends typically require weeks, months, or even years to form and may persist for considerable durations, including decades.

What time is best for intraday?

According to numerous stock market analysts, the optimal time for intraday trading is typically between 10:15 a.m. and 2:30 p.m. During this time frame, the morning stock volatility tends to decrease, making it an ideal opportunity to execute intraday transactions.

Is intraday trading profitable?

Similar to other trading strategies, intraday trading carries its own investment risks. Initially, it may not generate positive outcomes, but with patience and thorough research, it can lead to favorable results. An adept trader takes into account market conditions and stock volatility to ensure profitable trades.

How can I earn Rs 500 a day in intraday trading?

Instead of aiming for significant profits in a single trade, intraday traders find motivation in accumulating small profits through multiple trades. By focusing on trending stocks and high-volume shares, they can quickly generate profits.

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