Intraday trading is all about closing your trading positions the same day. You can buy in the morning and sell the shares before end of the day. Alternatively, you can also sell in the morning and buy back the shares before end of day. In fact, intraday trading is one platforms where you can actually sell shares without having delivery in your demat account.
Here is how to do it.
Intraday trades are squared off the same day, so they do not, in any way impact your demat account. You can define the order as a Margin for Intraday Square-off (MIS) order and you can get intraday trading limits up to 5-10 times the transaction value, based on the volatility of the stock. That sounds great, but then why 70% of the intraday traders end up losing money? The reason is that they do not follow the 5 simple steps that can actually help them make money in intraday trading.
Measure your risk – Put risk management first
That is a basic rule you must follow in intraday trading. Set limits to the losses that you are willing to take. Ask yourself: How much are you willing to lose in a trade? Ideally, it should not be more than 2-3% of your capital. How much are you willing to lose in a single day; it should never be more than 4-5% of your overall capital or 20% of profits till date. How much of your overall capital are you willing to lose; not more than 20%. At that point, just get back to the drawing board and rethink your intraday trading strategy all over again. When it comes to intraday trading, take care of the risk and the returns will be taken care of.
Trend is the friend – Always be on the side of momentum
Take the case of 2 traders, Trader A and Trader B who traded Bajaj Finance ahead of its results. Trader A had a view that since the stock had rallied over 15% in the last one month, it must be ripe for a correction. So he tried to short sell the stock and gave up after his stop loss got triggered twice. Trader B bought with 20% of his allocation and decided to wait for a dip to buy more. What is the difference in their approach? While A is trying to outsmart the market, B is playing conservatively on the side of momentum. When you trade intraday, don’t think like a contrarian long-term investor. Gauge whether the momentum of the stock is up or down and just trade accordingly. Going with the flow of momentum is critical in intraday trading.
Technical Charts – Get to grips with supports, resistances and break-outs
Of course, there are numerous intraday trading decisions you can take with technical charts and we will not go into all of them. As an intraday trader, you need to develop the ability to read some basic technical charts on your own. Use supports levels to put buy orders and resistance level to put sell orders. Watch out for decisive break-outs above the resistance and below the support with volumes. These basics of technical analysis can go a long way in improving your intraday trading performance. It is always better to be a self driven intraday trader rather than depend on experts for trading calls and ideas.
Play both ways – Not just the long side but short side too
If you want to make money in intraday trading, you need to be prepared to trade the market both ways. When you are going to close trades intraday, there is no difference whether you buy first or sell first. The advantage is that you buy when the momentum is favourable and sell when momentum is unfavourable. As Jesse Livermore put it, “In trading there is no bull side and bear side. There is only the right side.” Just play the market both ways depending on which way the wind is blowing.
Maintain a trading diary – The more you record, the less you forget
A trading diary is the secret weapon of every successful intraday trader. It is not just a record of your trades and the logic of the trades, but also a learning process. You must spend an hour each evening reminiscing the day’s trades, identifying what went right and what wrong. It is these useful insights that will gradually become your habits and eventually help you become a more successful intraday trader.