Intraday trading often looks like a high-risk game where only the trader who takes the highest risk wins. This is far from the truth. Intraday trading for beginners is a lot more about basic rules such as identifying the right stock, putting stop losses, booking profits, and monitoring positions.
Here are some genuine intraday trading tips for beginners.
Let us take a simple example. If your intraday corpus is Rs2 lakhs, don’t commit 50% to the first trade. Always start small, say, you allocate about 10% of your corpus and then try to understand the nuances of intraday trading. Once you start seeing profits, it gives you the requisite confidence. Additionally, the profit corpus allows you to take higher risk. You must increase your positions gradually and only after you feel comfortable and are able to manage the risk.
Tip 2 for beginners: Don’t spread your stock list too thin
If you try intraday trading in 50 stocks, it is just not feasible. You need to track charts, levels, supports, resistances, volumes, news flows, announcements, etc. It is humanely impossible to do that for 50 stocks. Ideally, keep your stock universe limited to 10-12 stocks that are liquid and show clear chart patterns and price reaction. You trade momentum in the market so you need to look at technicals, fundamentals, and news flows.
Tip 3 for beginners: The market knows all, so don’t try to confront the trend
If you are bullish on a stock and its price is consistently falling, what should you do? Should you take a contrarian view and buy the stock? In intraday trading, it is advisable to stay on the right side of momentum. If the market is moving contrary to your view, it is trying to give you a message. A smart intraday trader reads the message and modifies the strategy accordingly. This logically means that averaging positions is best avoided. The trend is your friend as long as you are an intraday trader, so always play along with the momentum. Don’t worry about your personal view.
Tip 4 for beginners: Always be an intraday trader by choice
What does this mean? Quite often, traders take a long position and then decide to take delivery saying they are confident on the long-term prospects of the stock. However, this is not your job as an intraday trader. Instead of sticking to the discipline of being a better intraday trader, you are trying to become an investor by default. One of the most important intraday trading tips is that you must keep your investor hat outside when you trade intraday.
Tip 5 for beginners: Before all else, protect your capital
The similarity between a small trader and a George Soros is that they both trade with finite capital. Hence, this capital needs to be protected. You need to set capital loss limits at three levels. First, be clear as to how much you are willing to lose in a trade, and at that point, just close your position. Second, set a limit on losses you will incur in a day. If that point is reached, just shut down the trading terminal for the day. Third, keep limits on the overall capital depletion you can handle. At that point, get back to the drawing board and review your intraday trading strategy.
3 basic strategies beginners in intraday trading need to keep in mind
- You must only take losses that you can afford to take. If a single trade or a handful of trades are going to make a deep impact on your trading capital, it is not a good strategy. Risk capacity is the key element here.
- An intraday trader has to do extensive research. You need to keep a tab on intraday trading levels, shifting volumes, news flows, key announcements, global macros, etc. Intraday trading is not like opening your charts and starting to trade. It is suggested to be your own chartist. Don’t rely on others’ views for chart levels. Intraday charts are based on some basic principles, and this is a basic intraday trading rule for beginners.
- A clear part of your strategy must be to avoid overtrading. When you overtrade, you are adding on to your transaction costs and reducing your net profits, you will be unnecessarily exposing yourself to a handful of trades.