A Complete Guide on Intraday Trading

Intraday trading is the process of purchasing and selling securities on the same day. This type of trading attracts investors to make a profit from short-term price movements without holding securities overnight.

If you are a beginner and are willing to do intraday trading, this blog can help you by explaining what is intraday trading, how to start, and its benefits and limitations.

What Do You Mean by Intraday Trading?

Intraday trading is the process of buying and selling securities listed in a stock exchange on the same day. Using this transaction process, you can realise capital gains on purchased securities and reduce risks by investing money in them for a long period.

In intraday trading, all the positions are closed before the trading hours end, which is 3:30 PM. As a result, there will be no transfer of ownership after this time.

However, intraday trading also involves risks. According to the Securities and Exchange Board of India (SEBI), almost 70% of the individual intraday traders have incurred losses on the cash equity segment in FY23.

How to Start Intraday Trading?

Now that you have understood the intraday trading meaning, let us dive into the step-by-step process of starting it:

• Choosing a Brokerage Platform

First of all, you need to choose a brokerage platform to conduct intraday trading. You can open a Demat account with PL Capital Group – Prabhudas Lilladher for free. PL offers real-time data and fast execution of trades.

• Make a Strategy

Create a clear trading strategy by considering your investment goal, risk tolerance, and profitability target.

• Choose Securities

Choose stocks that are highly liquid and have high trading volume. This helps you to enter and exit positions easily.

• Track the Timing

Monitor the markets within the trading hours, since intraday trading depends on timely decision-making.

• Technical Analysis

Evaluate the price charts, technical indicators, and patterns to find out the appropriate entry and exit points. You can get expert insights on trading strategies, investment opportunities, and market trends, using the PL Capital platform.

• Place Buy/Sell Order

If you are anticipating an increase in the price, you can select the ‘buy’ order and choose ‘intraday’. On the other hand, if you are expecting a price decrease, you can do short selling by choosing ‘sell’ and selecting ‘intraday’ to buy it back at a lower price.

• Set Stop Loss

Although it is not mandated by the SEBI, it is highly recommended that you place a stop-loss order to automatically sell the stock if its price falls below a predetermined level.

• Exit

Square off your position from the trade before the auto square-off time, which is typically between 3:15 PM and 3:25 PM, to avoid forced conversion to delivery.

How to Choose Appropriate Stocks for Intraday Trading?

• Liquidity

Intraday trading depends on liquidity, as it is impossible to trade without it. Here, small and mid-cap stocks make the buying and selling process easy, but can also be volatile due to market movements. Evaluating the 52-week high and low may provide you with crucial insights and help you determine appropriate long or short positions.

• Strong Correlations

You must purchase stocks for day trading which have a high correlation with a benchmark index of reputable stock indices. Hence, substantial price movement in stocks can occur when the index value starts fluctuating.

Since the benchmark indices include stocks of top companies in a stock exchange, fluctuations can be assumed to move in an upward direction.

• Volatility

Intraday stocks typically have moderate to high price volatility. It is recommended to avoid stocks with price movements of more than 3% in intraday trading, since the risk of substantial losses rises if the market or the stock experiences a dip.

• Higher Trading Volume

Intraday traders may utilise a stock’s trade volume index to measure potential price volatility. A high trading volume index indicates either strong demand or high supply. These scenarios offer opportunities for profit by both buying and selling transactions.

What are the Benefits of Intraday Trading?

• Lower Risk

Since you can purchase and sell stocks on the same day in intraday trading, the risk of incurring substantial losses is very low. However, in the case of delivery trading, wherein the principal is kept locked in for a considerable period, the price can change significantly.

• Higher Profit Potential

Intraday trading can help you create massive wealth if you apply accurate investment strategies. This can help you achieve capital appreciation easily. In adverse market conditions, you can use the short-selling method to earn profits.

• Lower Commission Charges

Stockbrokers charge lower fees from traders for intraday trading in stocks. Stock transaction tax (STT), services tax, trade fees, and other charges are all-inclusive in brokerage fees, which makes it a cost-effective option.

• Capital Gains From Market Fluctuations

You can gain from both bullish and bearish markets by implementing appropriate strategies. In bullish markets, trading stocks can lead to gains, but in bearish markets, short-selling can provide you with opportunities to profit.

• Liquidity

The most important benefit of intraday trading is its liquidity. This allows you to recover funds quickly without holding the asset for the long term. This feature also helps you to meet other investment needs.

What Risks Are Associated with Intraday Trading?

• Lack of Overnight Ownership

In intraday trading, you cannot own the stocks you have traded after the day ends.

• Market Volatility

Since market volatility plays a crucial role in intraday trading of stocks, you can incur losses in case of fluctuations.

You can use the PL Capital platform to get insights into the market. PL provides you with the market research with data-driven analysis.

Intraday Trading vs Delivery Trading: Key Differences

What are the Alternative Trading Methods for Intraday Trading?

• Momentum Trading

You can use momentum trading for capital appreciation. You invest in stocks with a higher potential for growth, but market fluctuations suppress the prices. Here, you can use relative or absolute momentum investment strategies, in which you can choose company stocks underperforming either in a relative or absolute sense.

• Delivery Trading

Delivery trading is the opposite of intraday trading, which involves buying and holding securities like stocks, bonds, or commodities for a longer period while expecting a long-term price appreciation.

• Swing Trading

The purpose of swing trading is to capitalise on price movements within a broader trend. With this method, you typically hold positions for days or weeks and buy near support levels and sell near resistance levels. This attempts to make a profit from anticipated price movements within the timeframe.

Tips to Follow for Intraday Trading

• Research

Conduct thorough research and analysis of the current market scenario, the country’s debt status, company fundamentals, and currency movements.

• Performance Evaluation

Always keep track of your results, wins and losses, which will help you analyse what you have done and what needs to be done. In addition, evaluating past performance can also help you make better trading decisions over time.

• Invest the Extra

Intraday trading involves a lot of risks. Therefore, you should do intraday trading when you can afford to lose.

• Avoid Overtrade

You should not overtrade while doing intraday trading, since the stock market does not always follow a predictable pattern.

Final Thoughts

Intraday trading helps you make a profit from short-term market movements and constant monitoring of prices and order execution during the trading session. Understanding how intraday trading works with systematic research makes you navigate changing market conditions.

However, you also need to be aware of the market volatility and other risks while doing intraday trading.

Start intraday trading using the trading platform of PL Capital by opening a Demat account for free.

Frequently Asked Questions

1. How does intraday trading work?

Intraday trading works when a trader either purchases and sells the stock on the same day or sells and then purchases it again.

2. What is the right time for intraday trading?

The appropriate time for Intraday trading is between 10:15 AM and 2:30 PM, since the morning volatility is often seen from 10:00 to 10:15 AM.

3. What is the difference between intraday trading and delivery trading?

Delivery trading and intraday trading are different based on the duration of holding. In intraday trading, you have to square off your positions within the day. Consequently, your sell order cancels out your buy order, and there is no transfer of share ownership. Delivery trading takes a lot of days or weeks to settle.

4. Is intraday trading appropriate for beginners?

Intraday trading provides opportunities for quick gains by capitalising on short-term price movements. Beginners can become successful if they have market knowledge and know different trading strategies.