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Intraday trading or day trading is the process of buying and selling stocks on the same day (squaring off the position) before the market closes. Investing is not the main focus of intraday trading, instead, it focuses on generating profits through market movements. 

As a result, the stock price movements are tracked closely. This article covers what intraday trading is, who should opt for it, how to select stocks for intraday trading, and how it differs from regular trading.

What is Intraday Trading?

Intraday trading is buying and selling stocks on the same day. For intraday trading, you should explicitly mention ‘intraday’ on the online trading platform. This will enable you to buy and sell the same number of shares of the company in a day before the market closes. Often, intraday trading is also referred to as ‘Day Trading’.

The main purpose of intraday trading is to earn profits through market movements. Invest and hold is not the strategy. Therefore, all the positions are squared off before the markets close for the day. Or, some platforms convert the trades into delivery, and the stocks will reflect in your demat account.

Who Should opt for Intraday Trading?

  • Only those who understand that this is a high risk activity should opt for intraday trading.
  • Furthermore, intraday trading will require you to be constantly aware of stock price movements.
  • Day trading is often seen as attractive because of the potential for high returns in a day. However, it is important to note the high risk associated with it.
  • If you are unable to keep a watch on the stocks during  trading hours, it is better to avoid intraday trading.
  • Moreover, you should have sound financial knowledge as well to deal in intra day trading. Trading based on recommendations is very risky. You should be able to do your own research about the stock and the company before taking a position.
  • Being technologically savvy is critical for intra day trading. You can make use of machine learning tools to time and execute your trades. Therefore, being technologically progressive is almost a necessity these days for those interested in intra day trading.

How is Intraday Trading Different from Regular Trading?

Following are the key difference between intra day trading and regular trading:

Intraday trading refers to buying and selling of shares on the same day. In other words, the shares that are bought during a trading session are sold during the same session. Regular trading, on the other hand, is completely the opposite. In a regular trade, you buy the stocks and hold them for a desired period of time. The duration can be days, months or even years.

With intraday trading, you will not get the possession or delivery of the stocks. On the other hand, with regular trading, the stocks reflect in your demat account.

Intra day trading doesn’t give the ownership of the share. While, with regular trading, you will have the ownership of the shares till you sell them.

The main purpose of intraday trading is to generate profits through market movements. While the main motive behind regular trading is investing and therefore can be a long-term investment option.

Intra day trading requires your undivided attention to track the price movements of the stocks. On the other hand, you do not have to worry about short-term price fluctuations with regular trading.

How to Proceed with Intraday Trading?

Intra day trading requires your attention. Therefore, you need to do your research and be actively tracking the stocks. Following are some ways that will help you proceed with intra day trading:

  • To participate in intra day trading, you should be able to pick the right stocks. Always choose stocks that have good trading volume. A good trading volume is important considering the need for  liquidity.
  • Trade with the money that you are comfortable losing without any financial difficulties.
  • Do not pick more than two or three stocks. It will often become difficult to track their prices at the same time.
  • Determine your buy price and sell price. In other words, have your entry and exit strategies in place.
  • Also, have a stop-loss order to protect your investments from heavy losses.
  • Upon placing the intraday order, monitor the stock prices closing and exit when the prices have reached the target or stop-loss levels.

How to Select Stocks for Intraday Trading?

Choosing the right stock is the most important step in intraday trading. If the choice is right, you make profits, and you can lose your money if you make a bad choice. Therefore, you need to be quite cautious while making intraday trading decisions. Following are some parameters that will help you select the stocks for intra day trading:

Research

Research is the most important step in day trading. You should always be on the lookout, analyse, and understand the market and stock movements. Unless you are lucky, nothing can go right without in-depth analysis and computation. The luck factor is always uncertain, and placing bets relying on it can be foolish. Therefore, always do your research thoroughly and only then select stocks for intraday trading.

Avoid highly volatile stocks

Volatile stocks are unstable. The price movements are almost impossible to estimate. Hence stay away from highly volatile stocks. After all, who wants to invest in stocks that will never let you have your money back. Therefore, pick and trade over potentially stable stocks. 

Trade Volume

Intraday investors must monitor a security’s trade volume index to detect price movements. Depending on the underlying company’s performance, a greater trade volume index indicates either excessive demand or supply. In such situations, profits can be generated through both purchase and sell transactions.

Resistance and Support

Technical analysis will help you read the stock data and draw inferences. Typically, you should be picking companies that have broken through their resistance and support lines and are entering buying and selling trade positions.

Trend

Look out for significant trends in the market. Experienced traders say that one shouldn’t try to experiment with new stocks. Analyse the general market sentiments and the stocks in focus. When the markets are rising, keep an eye out for the stocks that are on the rise. And when they are falling, lookout for declining stocks.