What are Pre-Requisites Before Starting Intraday Trading

Intraday trading looks attractive and also looks high adrenaline. However, there is a lot of preparation required because the more you sweat in peace, the less you bleed in war. Here we look at some of the requirements for intraday trading? We are not just talking about technology and research. We are also talking about the requirements for intraday trading in terms of order placement and risk management. Let us take a very comprehensive view of the 12 major requirements for intraday trading.

What are the requirements to begin intraday trading?

Here let us look at some of the most important requirements for intraday trading in the Indian context, and perhaps applicable to all asset classes.

  1. Your intraday trading performance will be as good or as bad as the list of stocks you select as your universe and as your focus list. Stocks must be liquid, they must react to the news, they must be high beta and they should also indicate a decipherable trend.

  2. Never get into a position without doing your due diligence. Don’t get carried away by tall claims made by the management. Do dealer checks, check with the market grapevine, talk to well-meaning friends, etc.

  3. There is nothing like getting a feel of the stock. Start buying in small quantities and try to spread your trade on volatile days. You have 6 hours at your disposal so make the best of these six hours to maximize your trading profits.

  4. Check if stock prices are stable or constantly fluctuating a little too much. Be wary of stocks where there are substantial volume changes. Feel free to hold back your trade decision if you find too many red flags.

  5. The golden rule is that you need high beta stocks. That is stocks that move with the market. Look at stocks that are positively correlated to the indices because they are easier to trade in volatile markets. These can reduce your risk in the long run.

  6. A golden requirement for intraday trading is the stop loss. Don’t get tired of hearing this because that is how important it is. Remember to always have a predetermined stop-loss strategy. Stop-loss may trigger and give a loss, but it is better than losing capital.

  7. Just as you protect your losses, you must protect your profits too. It is just the other side of the argument. Profit is what is booked. All else is book profits. Have a strategy to churn at every opportunity to keep your capital continuously released and your profit book showing accretion. That can be a big boost to your confidence as a trader.

  8. Stocks with low liquidity are always best avoided. Remember to buy shares with high liquidity only. It is not just about volumes but having enough buyers and sellers when you need to exit quickly. Also, look at the bid-ask spreads. Too wide spreads are an indication that the stock is inefficiently priced.

  9. There are two ways to look at the first hour. Some ask you to avoid the first hour as it is too volatile. The other view is that most opportunities arise here. The best way is to spread your trades. Don’t go overboard in the first hour.

  10. Start investing what you can afford to lose. There is a difference between luck and skill and in the early stages, it is very difficult to spot the difference. Typically, you must never try to be two times lucky. If something is too good to be true, then it is probably not true and it applies in stock market trading.

  11. A fairly elementary rule is to not forget to square off your trades. Don’t wait till 3.00 pm to square off the trade. You never know what the close will be like. Also, if you don’t close the intraday position by 3.15, your broker will close it at the best price available. Avoid such situations and remember the buck stops with you for the trade.

  12. When you smell a rat, think with your feet. This is the last and perhaps the most important prerequisite in intraday trading. If you feel that some news flow like budget or monetary policy is negative, don’t wait for stop-loss or next to one hour. When you smell the trend getting unfavorable, just run with whatever small profit or loss you have.

How to start intraday trading?

There are five important steps for you to start intraday trading and when you commence intraday, don’t forget these steps.

  1. The first step is to open your trading account. Even if you are only trading intraday, you need a trading account and a Demat account. Get your KYC done and open these accounts.

  2. Once the accounts are opened, you must activate the trading account with your user name and password and ensure that you change the password for security.

  3. The third step to intraday trading is to put a few small test orders and check the process flow. It must flow smoothly from end to end.

  4. The fourth and very important step is to set your maximum loss tolerance limits for trade, for a day, for a week, for a month, and overall, as a percentage of capital.

  5. Lastly, keep some checks for an intraday trade. Never do intraday without research news flows and charts. Also, never put an intraday trade without stopping losses and profit targets set in advance.

What is intraday trading?

Intraday trading is the buying and selling of stocks on the same day, in such a way that your net position at the end of the day is zero. Intraday trading can either entail buying and then closing the position by selling or you can even sell first without delivery and cover by buying the shares back. In an intraday trade, the net position at the end of the day is zero. Any profit or loss in intraday trading is credited or debited respectively to your trading account on the same day.

Frequently Asked Questions Expand All

It is hard to project potential returns in intraday trading. Your focus must to fine tune the stock identification and trading process and manage your risk through stop losses. Returns will automatically follow. Don’t expect each of you trade to be right, because the best of intraday traders only get 60% of their trades right.

It may look like intraday is about trading instinctively, but that is not the case. You need detailed study of the company, its market date, its F&O data, technical charts and news flows before taking any position in the stock.