How To Make Money In Intraday Trading

The definition of intraday trading is very simple, buying and selling stock on the same day is called intraday trading. You buy the stocks and you sell those stocks, all in one day, and have hopefully made a profit out of the trade. But it is not as simple in practice. If you think of day trading as a simple and easy way to make money, you could not be farther from reality. Intraday trading needs to be taken very seriously, it can make or break you. If done correctly, intraday trading can be a very satisfying and profitable career.

Tips on How to Make Money from Intraday Trading

Here are a few points to help reduce your chances of losses and improve your chances at being successful in intraday trading.

Understand the Markets: This is among the fundamental requirements for becoming a day trader. A trader’s knowledge base must be very broad. From very basic knowledge like trading procedures, trading hours, and holidays, to complex details like how different news and events both local and global can affect the markets, the trader needs to understand how the market behaves or might behave every minute and every hour of the trading day.

Do Your Research: Research becomes an integral part of the trader’s life. Information is power. You have to start research even before you start day trading. You have to research to identify the stocks that you want to invest in, the volume, liquidity, and volatility of the stocks you identified, to monitor the performance of the companies, to be updated on the news and events that might affect the market, on the economic outlook, etc. The list might seem endless but necessary.

Select the Stocks: Selecting the stock for day trading is important. With intraday trading, you have to buy and sell the stocks on the same day. You may not be able to sell the stock on time if the stock does not have enough liquidity. Select stocks with adequate liquidity, that are trading in larger volume, and one that has enough, but not too much, volatility so as to ensure profits. Once you have selected the stocks, trade only in those stocks. It is better not to make impulsive stock selections based on sudden trends during day trading session.

Set Entry and Exit Prices: Once you research and select the stocks, decide on the price at which you will buy the stocks and the price at which you will sell. You can use a market order or limit order to buy and sell the stocks. With market orders, you can buy or sell the specified number of stock at the best available price at the particular point in time. The order volume will be executed in full but the buying price may be slightly higher than your desired price and the selling price may be slightly lower than your expectation. This difference in price is known as slippage.

On the other hand you get a better price for the stock if you use limit order to trade and thereby reduce losses. Limit order buys stocks at the set price or lower and sells stocks at the set price or higher. But the downside is that the buy or sell order volume might not be completely fulfilled at the set price. Limit order will help with precision trading.

Set Stop Loss: Stop loss is an order to buy or sell a stock when the price reaches a certain point known as stop price.  If the price of a stock goes below the purchase price of the stock and it reaches the stop point, the stop loss order becomes a market order and the stocks are sold at the next available opportunity. Setting stop loss will help mitigate losses in the event of a sudden market downturn. Stop loss orders can also be used to sell stocks when the prices go high. The trader can sell the stock for a higher price without the fear of losing profit in case there is a sudden downward trend in the market.

Maintain Realistic Expectation: Be realistic about the profits. Traders generally make profits in about 50% of their daily trade. Intraday trading is not a get rich soon scheme. Do not be greedy and expect unrealistically high profits from day trading.

Develop a Strategy: The traders must develop a day trading strategy based on their research, all that they have learned, and the information and resources available to them. But the market is a dynamic environment and ever changing. A lot of internal and external factors affect the market. So strategy also must be ever evolving. Learn from your experience and modify the strategy. But you should never deviate from the plan. “Plan the trade and trade the plan”.

Be Disciplined and Patient: Patience and discipline are probably the two most important factors that contribute to the success of an intraday trader. Fear, greed, and boredom are human emotions that come into play in a trader. These emotions combine to make the trader impatient and undisciplined. It can lead the trader to take too much risk, over-trade, enter too soon or exit too soon. The traders can have fear of missing out (FOMO) on opportunities or fear not making the right decision. Greed make the trader have unrealistic expectation on profits.

With patience and discipline you learn to self-control, develop endurance, train yourself to follow the rules, thus making you a better trader and achieve your goals. It can be the difference between the success and failure of a trader.

Points of Note

  • There is no fool-proof strategy or hard and fast rules to be successful in day trading.
  • In day trading, you are on your own. You have to be highly motivated, learn continuously, design and follow your own strategies, make your own decisions, and accountable for your actions.
  • Nuuu can help you with setting up demat and trading account, help you with the basics of online trading and day trading, and familiarise you with the rule and regulations.
  • Any profit is considered good in day trading. In fact, if you are considered to be a good trader if you do not lose money. You can expect about 50% – 60% of your trading to be profitable. But if your profit from the gaining stock is more than your losses from your losing stock, it will give you a net profit. Always work towards keeping your losses low.
  • Timing is important in day trading. There might be lot of volatility in the market just after opening and just before closing. Experience traders might use it to their advantage and maximise profits. But generally about half an hour after opening and about one hour before closing is considered good for day trading.
  • Day trading needs to be taken very seriously. Please trade responsibly.