Unlike traditional investing, where positions are held for longer periods, day trading involves buying and selling securities within the same trading day. It can be a lucrative way to capitalise on the price movements of an asset.Â
Â
However, the fast-paced nature of this trading approach makes it very challenging. If you’re looking to actively engage yourself in financial market trading, here are some intraday trading tips that you can follow to increase your chances of success.Â
Â
The very foundation of successful intraday trading is having a well-thought-out trading plan. Committing yourself to this challenging trading approach without a formal plan in place can lead you nowhere.Â
Â
When formulating a trading plan, remember to consider factors such as your trading goals, preferred markets and assets, risk tolerance, entry and exit strategies and a clear set of rules for trade executions.Â
Â
By setting these parameters in advance, you can avoid making impulsive decisions and stay focused on achieving your objectives.
Â
Setting a realistic target for every one of your trades is crucial since it can help you exit your position at the right time. Overestimating a trade’s ability to generate profits can push you to hold onto your positions for longer, eventually leading to losses. When setting a target, make sure to also take the risk-reward ratio of the trade into account.Â
Â
If you wish to protect your capital from adverse market movements, this is one piece of intraday trading advice you must follow. Using your entire capital for every trade can do more harm than good. Although it could potentially increase the profits you make, it can also lead to heavier losses if the market moves against your position.Â
Â
Therefore, it is advisable to commit only a portion of your capital that you’re willing to risk for each trade. For instance, if your total trading capital is Rs. 1 lakh, consider using no more than 5% of it (Rs. 5,000) on every trade you make. This way, even if you lose your entire capital due to adverse market movements, you will still be left with 95% of your capital.
Â
Technical analysis is a process that involves using various tools, techniques and indicators to predict the future price movements of assets. With the insights you gain from technical analysis, you can enter into appropriate positions in assets, potentially increasing your chances of success.Â
Â
For instance, day traders routinely use technical indicators such as the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) and support and resistance levels to predict the direction of the asset movement. If the indicators suggest that the price is likely to fall, they take up short positions in the asset, and vice versa.
Â
One of the biggest challenges in day trading is managing risk effectively. Therefore, proper risk management is one of the best intraday trading suggestions you can follow. Position sizing and stop-loss orders are among the most important tools available for traders.Â
Â
A stop-loss order ensures that you automatically exit a trade if the asset price moves against your position and beyond a set level. Setting stop-loss orders helps limit losses and may also prevent emotional decision-making during volatile market conditions.
Â
This is another very useful piece of intraday trading advice. Liquidity is a key consideration for day trading. Liquidity is a metric that measures how easy it is to purchase or sell an asset in the market at your desired price. For instance, if the trading volume is high, it usually indicates high liquidity.Â
Â
Therefore, when day trading an asset, you must ensure that there are enough buyers and sellers in the market to facilitate smooth trade execution. It is advisable to stick to assets and markets with high liquidity to avoid getting stuck in a position. Also, consider staying away from penny stocks, irrespective of how attractive a trading opportunity may seem to be. They’re often illiquid and highly volatile, both of which can make it hard to execute trades seamlessly at your intended prices.Â
Â
Among the various intraday trading tips, this is one of the most important. The financial markets are influenced by a plethora of different factors. These include economic data, geopolitical events and investor sentiment, among others.Â
Â
Staying informed about market trends, news developments and macroeconomic factors that could impact your trades can potentially give you an edge while trading and increase your chances of success.Â
Â
That said, don’t forget to adapt your intraday trading strategies based on changing market conditions. This will ensure that your trades remain profitable, irrespective of the situation.Â
Â
Intraday trading is not only challenging to carry out successfully but also takes a huge emotional toll since you need to account for a plethora of different factors to be profitable. Many inexperienced traders often become victims of overtrading, which is a common pitfall.Â
Â
Overtrading happens when you execute too many trades within a short period. This could lead to exhaustion, emotional stress and reduced profitability. Here’s a valuable piece of intraday trading advice. Focus on quality over quantity and consider taking up trades that align with your trading plan and have a high probability of success. Remember, you don’t have to try to cash in on all possible intraday opportunities.Â
Â
Successful day trading requires a combination of skill, discipline and a penchant for continuous learning. Also, the approach requires you to continuously monitor the markets and make frequent adjustments to your intraday trading strategies. Therefore, consider taking it up only if you can commit to it fully.Â
Â
If you’re looking for some tools to help you succeed in intraday trading, consider signing up for the Research 360 platform powered by Motilal Oswal. Research 360 has a plethora of features designed to make trading easier.Â
Â
The Stock Screeners tool of the platform can filter stocks on the basis of the criteria you set, making it easier to identify stocks with intraday trading potential. You can also view the intraday market sentiment for various key market indices, such as the Nifty 50, the Nifty IT and the Bank Nifty. This gives you information on whether the market is bullish, bearish or neutral in real time. So, sign up for Motilal Oswal’s Research 360 and discover the many ways in which you can elevate your intraday trading experience.