Intraday Trading Knowledge 3, Intraday Trading Guide for Beginners

When's the Right Time to Invest in stocks?

Intraday means ‘within the day’. Hence, intraday trading refers to trading stocks and ETFs during regular trading hours within single day. You can buy or sell shares within a short span of time, without having to undergo the tedious process of availing physical share certificates. Intraday trading works on the concept of price movement. You buy shares when the price is low and sell them when the price rises, The difference in both the prices amounts to the profit earned.

To begin with, Traders use real-time charts to identify the intraday price movement. Along with price monitoring, there are several other tools that help in making your initial trades successful. Here is a guide of moves and strategies that will help you profit:

Enter and Exit intraday trading at an Ideal Time

A great tip for intraday trading is to trade with the prevalent intraday trend. It allows low-risk entries and potential for greater profit if the trend continues. Such trends provide useful entry and stop-loss strategies. An intraday trading strategy must have entry and exit signals, i.e. when to get into a particular position and when to withdraw. Once the system generates an entry signal and the position is taken, the exit position has to be decided. You can exit if either of the two conditions is met—you have achieved your desired profit or maximum loss is reached. Once the desired profit is achieved, it is advisable to exit the trade. You must set profit and stop-loss targets before the trade and must not let impulsive behaviour get the better of you.

Choose stocks after historical research

The main aim of intraday trading should be to create the best stock picking strategy which preserves capital and, at the same time, controls risk. Start by trading a single stock and learn the characteristics, trends and risks associated with the stock. Once you’ve understood the behaviour of stocks, you will have a better understanding of the best-performing stocks.

Choose highly liquid stocks, i.e. stocks with a high average daily volume. These stocks can be bought and sold in sufficient volumes without causing much impact on prices. Also, trade in stocks that have good correlation with major indices and sectors. Avoid unpredictable stocks, which tend to trade in a volatile manner.

Have a per-defined target

New traders may feel discouraged with their ability to reap profits and may fail to do important things necessary to succeed in day trading. It is important to have a day trading plan to avail of the numerous opportunities in the Stock Market. Beginners need to use trading strategies to take advantage of these opportunities. Set profit and stop-loss price targets before you trade so as to limit your potential loss and to prevent yourself from being too greedy. Also, conduct trade in a disciplined manner. Don’t let impulsive behavior get the better of you. Instead, stick to your day trading plan and don’t expect to get rich in a single trade.

Pick the intraday market direction

You can pick an intraday market direction using the ‘value area’. The value area is the range where almost 70% of the previous day’s trade took place. If the market opens below or above this value area, and remains in this area for two consecutive half-hour periods, then the market has an 80% chance of filling the value area. This parameter helps in gauging the market direction. Once you get used to the concept of value area and the 80% rule, trading can be profitable.

If the market opens higher than the value area, enter a short position closer to the top of the value area. Similarly, if the market opens at a value lower than the value area, enter in a long-term position towards the bottom of the value area.