Five Intraday Trading Tips You Should Know
What is Intraday Trading
The act of buying of stocks or other financial instruments and selling those within the same trading day is known as intraday trading, otherwise known as Day Trading. Day traders use the volatility or the short term price movement in the market to their advantage. You can trade multiple times during the course of the trading day, but the trader has to close all the positions before the market closes at the end of the trading day.
There is a massive growth in intraday trading as more and more people see it as lucrative way to make money and achieve financial freedom. It is easy to become captivated by the idea of quick profits and many people get carried away and lose money big time. Hence it requires a lot of discipline and experience to minimize losses and maximize earnings.
Intraday trading is done by individuals as well as financial institutions or brokerage firms. Real-time news and data, a smartphone or PC, and price charts are essential tools for intraday trading.
Intraday trading for beginners
The prices of shares tend to fluctuate during the day. With intraday trading, traders make use of these price fluctuations to earn profits. It is very important for the trader to have a strategy in order to be successful with intraday trading, and the tools and techniques used for day trading are different from long term share trading and investment techniques. You need to set aside a certain amount of money, time, and have a lot of patience and discipline to start day trading.
Here are top five intraday trading tips that that will help you start day trading.
Choose the right stock: It is very important that you pick the right stocks for day trading. Liquidity of the stock is very important. Pick a stock with adequate liquidity so that large quantities can be bought and sold without significant price impact. Speed and timing are important and high volumes make it easier for your orders to be executed in time.
Volatility of the stock is another factor to consider while selecting the stock. Select ones with mid to high volatility or fluctuation in price. Traders will benefit only if price on their stock moves a lot, and also as expected. Statistics show that the average movement of a volatile stock is about 3%.
Watch the indications and trends carefully and look for correlations while selecting a stock. See which way the market is moving (up or down) on the day that you are trading and follow the trend.
Set the stop loss level: Riskand the reward derived from the risk is an integral part of intraday trading. Deciding how much loss you can take is important and stop loss orders are placed to minimise your loss if the trend suddenly turns negative. The stop loss orders are placed at a price lower than your purchase price so that the stocks will be sold if the price falls to the set level. This will help reduce your losses.
It is also important to decide how much loss you can take without being significantly impacted. If you set the stop loss much lower than your purchase price, then the bigger your losses if the market moves in the opposite direction. If you set it too close, you can get out with minimal loss.
Set an entry and exit price: Onceyou have decided on which stock to buy and set your stop loss level, the next thing to do is to figure out the right entry price and set a reasonable exit price. Calculate the reward level and risk level and use those as a reference point for setting the entry and exit price.
Meeting target and booking profit: As soon as you have achieved your target, book the profit. You have already set your stop loss and your entry and exit prices. Stick to the plan, there is no place for second thoughts.
Timing in day trading: As a beginner, it is important for you to know what the best time to buy and sell is during the few hours for which the market is open. There might be a lot of volatility as soon as the market opens and just before it closes. So it might be in the best interest of the beginner not to buy or sell during this time, although expert day traders might find these times of high volatility to be the most profitable also. Beginners might find that about half an hour after opening and atleast one hour before closing as the best time to buy and sell respectively.
Points of Note:
The success of a day trader or a successful intraday trade is the best convergence of a lot of variables. What we have discussed above is a starting point, but it is not everything. The points below are worth considering.
- Choose the right platform. Identify a good brokerage firm that offers all the services and resources that you will need to day trade.
- Never trade on blind speculation. Do your research and make good use of all available resources. Do not hesitate to ask Nuuu for help, we are here to advise, assist, and guide you.
- Nuuu can handle your day trading for you as your brokerage firm.
- You are trading in a very short period of time and there is no room for error.
- Discipline is the key in trading, particularly in intraday trading. It is especially difficult to sell and exit if there is a bull run. But remember that the trend can turn in the opposite direction at any time.
- It is always good to be cautious. At the end of the day, it’s your hard earned money.