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Intraday Trading Meaning & Overview

Synopsis:


• Intraday Trading refers to the practice of executing buy and sell transactions within the same trading session. Read more..
• All open positions under intraday trading must be squared off before the market closes on the same day.
• Understanding intraday trading meaning can help individuals navigate short-term market opportunities while maintaining risk control.  Read less


Intraday trading refers to buying and selling stocks within the same trading day, meaning all positions are squared off before the market closes. Unlike regular investing, where shares are held long-term, intraday trading focuses on quick price movements to generate short-term profits. It requires close market monitoring, technical analysis, and timely decision-making to capitalise on fluctuations in stock prices.

An intraday trader should be aware of the price trends and monitor market behavior closely. If a trader is not keeping a close watch on market movements, he/she may incur a loss. Therefore, tracking the market consistently becomes a priority for a day trader to make a profit. There are many techniques and strategies which are followed by the day traders, one of the popular techniques is to follow the news and trade. Apart from this, a trader keeps track of the economic stats, past market trends and volatility of the shares in which they want to trade.

How to Do Intraday Trading in India

Intraday trading in India involves buying and selling stocks within the same trading day to capitalize on price movements. Here are the steps to get started:

  1. Open a Trading Account:

     Ensure you have a reliable trading account with a trusted broker. Platforms like Bajaj Broking provide user-friendly interfaces and low brokerage charges.
  2. Learn the Basics:

     Understand the key concepts of intraday trading, including margin, leverage, and square-off policies. Familiarize yourself with terms like long position and short position.
  3. Use Technical Indicators:

     Utilize tools like Moving Average, Bollinger Bands, RSI, and MACD to analyse stock price movements. These indicators help in predicting trends and making informed decisions.
  4. Develop a Strategy:

     Create a trading strategy based on your risk tolerance, market analysis, and goals. Stick to your plan and avoid impulsive decisions.
  5. Monitor the Market:

     Keep an eye on market news, economic data, and stock performance. Use real-time data to make timely trades.
  6. Manage Risk:

     Use stop-loss orders to limit potential losses. Never invest more than you can afford to lose.

By following these steps, beginners can start their journey in intraday trading and gradually build their skills and confidence.

Core Concepts of Intraday Trading That Every Trader Should Know

Intraday trading involves executing trades that are closed within the same day. The following are the fundamental aspects:

  • It is carried out during market hours without holding positions overnight.
  • The focus is on price fluctuations occurring within the same session.
  • Traders typically utilise technical charts to determine optimal trade timings.
  • Leverage or margin is frequently used to amplify exposure.
  • Squaring off positions before market close is a mandatory step.

Intraday trading refers to the practice of buying and selling financial instruments within the same trading day. The primary goal is to profit from short-term price fluctuations. Here's a detailed look at its meaning:

  1. Immediate Execution: Trades are executed and settled within the same day. This requires quick decision-making and constant monitoring of the market.
  2. Leverage: Brokers often provide leverage, allowing traders to control larger positions with a smaller amount of capital. While this can amplify profits, it also increases risk.
  3. Volatility: Intraday traders thrive on market volatility. They look for stocks with significant price movements to capitalize on short-term trends.
  4. Technical Analysis: Intraday trading heavily relies on technical analysis. Traders use various indicators and chart patterns to predict future price movements.
  5. No Overnight Risk: Unlike long-term investors, intraday traders do not hold positions overnight, eliminating the risk of adverse price movements while the market is closed.
  6. High Frequency: Intraday traders often execute multiple trades in a single day, seeking to capture small price movements. This requires a disciplined approach and a well-defined trading strategy.

Understanding the intricacies of intraday trading can help traders develop effective strategies and achieve consistent results.

What are the Types of Intraday Trading?

Intraday trading can be classified into several types based on strategies and trading styles:

  1. Scalping: This involves making numerous trades throughout the day to capture small price movements. Scalpers hold positions for a very short duration, often just a few minutes.
  2. Momentum Trading: Traders look for stocks showing strong price movements and trade in the direction of the momentum. They aim to ride the wave until the momentum shows signs of reversing.

    Read Also:Momentum Trading
  3. Breakout Trading: This strategy involves identifying key price levels, such as support and resistance. Traders enter positions when the price breaks out of these levels, expecting significant movement in the breakout direction.
  4. Reversal Trading: Also known as contrarian trading, this strategy involves identifying overbought or oversold conditions and taking positions against the prevailing trend, anticipating a reversal.
  5. News-Based Trading: Traders capitalize on market volatility caused by news events, such as earnings reports, economic data releases, or geopolitical developments. Quick decision-making is crucial in this type of trading.
  6. Algorithmic Trading: Some intraday traders use automated trading systems or algorithms to execute trades based on pre-defined criteria. These systems can analyse vast amounts of data and execute trades at high speed.

Each type of intraday trading requires a different approach and skill set. Traders should choose a style that aligns with their risk tolerance and market understanding.

How Does Intraday Trading Work?

Intraday trading works through short-term speculation on stock price movements. Here, traders aim to benefit from small fluctuations during the day. Trades can be placed using limit or market orders and are squared off before the end of the session.

Example to Understand Intraday

Consider a trader who buys 100 shares of a company at ₹250 per share in the morning. Later in the day, the share price increases to ₹260, and the trader decides to sell the shares. The profit made in this example would be ₹10 per share, or ₹1,000 in total, excluding brokerage and other charges. The entire transaction starts and ends within a single trading day.

Day trading refers to the buying and selling of stocks within the same day. It is done with the help of online trading platforms. If a person purchases stocks for a company, then they have to select 'intraday' in the trading platform. Intraday trading is quite popular in the stock market, and one must be well-versed in the basics of intraday trading before taking a plunge. The most important thing you need to understand as an intraday trading beginner is that it involves having a view of the trend and taking a position accordingly. Having a view on the trend means you form a view of whether the stock prices will go up or down within a certain time frame. When you have a view that the prices will go up, then you take a long position, meaning you place a buy order. When you have a view that the prices will go down, then you take a short position, meaning you place a sell order. It is mandated by SEBI to square-off, that is, settle your position by the end of the market hours, or else it will be automatically done by your broker.

Example to understand Intraday:

A share's price is ₹10, and you took a long position with a buy order of 1000 shares, which is a total order size of ₹10,000. At 3:00 P.M., the share's price is trending at ₹11. You would like to settle your trade for a profit of ₹1000 for the day.

Key Features of Intraday Trading are:

  • It is a separate category of trading and does not involve the delivery of shares into theDemat account.
  • The trade needs to be settled on the same market day.
  • Leverage is provided by your broker depending on the SEBI guidelines. As there is leverage involved, small price fluctuations can lead to higher movements in your invested capital.
  • Intraday trading requires researching the stocks you want to take a position on, studying the chart closely with indicators, making your own strategy, and including a stop-loss to prevent heavy losses.
  • Trades are executed and closed on the same day.
  • Positions are not carried forward to the next session.
  • Requires constant monitoring of price movements.
  • Allows the use of leverage based on margin requirements.
  • Involves the use of stop-loss and target levels for risk management.
  • Can be impacted by market volatility and external events.

Intraday Trading Indicators

The price fluctuations in the stock market appear to be erratic and incomprehensible. But several statistical tools are used by traders to find patterns in these price movements and draw insights into future trends. A few Intraday Trading indicators are described below:

  1. Moving Average:

    This indicator shows the average price of a stock over a specific period. It is used to identify trends by smoothing out short-term fluctuations.

    Moving Average is one such technical analysis tool that traders use to predict price trends. It smooths the price fluctuation graph by creating data of average price over a specific interval. Traders can set this interval to 1 day, 10 days, 1 hour, 5 min, 1 min, etc., whatever the trader wishes. It is beneficial for both long-term investors and short-term traders. It smooths out the short-term fluctuations and gives a broader view of the ongoing trend within the time interval.
  2. Bollinger Bands:

    This tool uses standard deviation and a moving average to indicate volatility. Wider bands suggest higher volatility, and narrower bands suggest lower volatility.

    Bollinger Band is a more advanced technical analysis tool that helps the trader identify if the shares are overbought or oversold. It consists of 3 lines. The first line is the 20-day simple moving average line, and there are two lines at two standard deviations in the positive and negative direction from it. In more volatile markets, the bands tend to widen, and in non-volatile markets, they tend to contract.
  3. Relative Strength Index (RSI):

    RSI is a momentum oscillator that measures the speed and change of price movements. It helps identify overbought or oversold conditions in a stock.

    RSI is a technical analysis tool that considers the prevailing price changes to identify if the stock is trading in the overbought or oversold state. Its value oscillates between 0 to 100. Traditionally, an RSI value above 80 suggests an overbought condition; an RSI value below 20 suggests an oversold condition. There's a rise in the index when the price of the stock rises and vice-versa.

    Let's take a look at the formula for RSI calculation:

    RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ))]

  4. Moving Average Convergence Divergence (MACD):

    MACD is used to identify trend changes and momentum. It shows the relationship between two moving averages of a security's price.

    MACD, a trading indicator, is used to identify signals for trend reversal or continuation in stocks' price movement. It is arrived at by finding the difference between the fast-moving average and the slow-moving average. MACD is depicted with a histogram which signals whether the momentum (of bullish or bearish trend) is high or low.

Intraday Trading Vs Delivery Trading

  1. When the shares are bought and sold within the same trading day, it is called Intraday Trading whereas in Delivery Trading, the shares are bought and held for months or years before selling.
  2. In Day Trading, it is mandatory to square-off the position before the market closes whereas delivery trading allows the traders to hold the shares for long-term.
  3. In Day Trading, the price movement during one day matters as both buying and selling has to be done on the same day. On the other hand, in Delivery Trading the return is expected in long-term, so the price movement during the day doesn't affect delivery trader.
  4. The ownership of shares is transferred in delivery trading and not in day trading.

What are the brokerage charges for intraday?

Bajaj Broking offers you the benefit of low brokerage rates for intraday trading. Through affordable subscription plans, you can trade at a flat fee and save a lot on brokerage. With Bajaj Broking, brokerages go as low as ₹10 per order flat for all segments of trading: Intraday, Futures and Options, and Delivery.

Brokerage Charges for Day Trading for the 2 Subscription Packs Offered by Bajaj Broking:

Subscription packs from Bajaj BrokingEquity Intraday trading brokerage
Freedom Pack₹ 20 / order
Professional Pack₹ 10 / order
Disclaimer: Investment in securities market are subject to market risk, read all related documents carefully before investing. Brokerage will not exceed the SEBI prescribed limit. All leveraged intraday positions will be squared off the same day. There is no restriction on the withdrawal of unutilized margin amount.

Advantages and Disadvantages (Pros and Cons) of Intraday Trading

Advantages of Intraday Trading:

  • If trade turns favorable, one can make profit in a very short interval of time.
  • Intraday Trading increases the market knowledge for people who wants to gain experience in trading.
  • You can sell shares in Intraday without needing to submit Power of Attorney (POA) to the broker or using EDIS, which is mandatory for selling shares in Delivery order.
  • No overnight risk as positions are squared off daily.
  • Lower capital outlay due to margin trading.
  • Frequent trading opportunities due to price volatility.

Disadvantages of Intraday Trading:

  • There is insufficient time span to see increase in profit for a position, since position must be squared-off within the day.
  • Ownership of share is not transferred to the trader.
  • Involves higher risk
  • Requires constant market monitoring.
  • Sudden price movements can lead to losses.
  • Leverage can amplify losses as well as gains.

Alternative Trading Methods

In addition to intraday trading, other approaches include:

  • Delivery Trading: Involves buying stocks and holding them for longer periods.
  • Swing Trading: Focuses on short- to medium-term price movements over days or weeks.
  • Scalping: Involves making many trades in a single day for small profits.
  • Positional Trading: Involves holding positions for several weeks or months.
  • Algorithmic Trading: Uses pre-programmed strategies to execute trades based on defined rules.

These alternatives differ in terms of holding duration, risk exposure, and capital involvement.

How to choose stocks for Intraday Trading?

Volume and liquidity are the most important aspects of intraday trading according to investors. Intraday traders choose stocks with high liquidity and high trading volume. It is important to do your due diligence (research, check the news, use technical indicators) along with analysing the volume and liquidity for that stock before choosing a stock for intraday. It is always recommended by traders to analyse stocks through various technical indicators to get a better understanding of the price movements of the stocks.

  • Other than volume and liquidity, it would be advisable if you purchased a stock that has a high correlation with a reputed stock exchange's benchmark index.
  • Intraday investors can track the trade volume index of a specific share to study price fluctuations. If there's a rise in the trade volume index, then it means that there's either excessive demand or supply, that can help take positions in intraday trades.

Intraday Trading at Bajaj Broking

Bajaj Broking is an ideal place for intraday traders, as traders have a great opportunity to save a lot on brokerages. Intraday trading experience is elevated for a trader with Bajaj Broking's simple and effective user interface.

Download the intraday trading app to start trading!

Conclusion

Intraday trading is a dynamic and potentially profitable trading style, but it requires a thorough understanding of market behaviour, technical analysis, and effective risk management. By following the right strategies and using reliable tools, traders can maximize their chances of success in intraday trading. Always stay informed, disciplined, and prepared to adapt to market changes to achieve consistent results.

Additional Read: Risk Management in Intraday Trading

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Frequently Asked Questions

What is the intraday trading meaning?

Answer Field

Intraday trading refers to buying and selling financial instruments within the same trading day to profit from short-term price movements.

What is an example of intraday?

Answer Field

If a trader buys 1000 shares of a stock at ₹10 each in the morning and sells them at ₹11 each before the market closes, they make a profit of ₹1000 in intraday trading.

What are the best indicators for intraday trading?

Answer Field

Bollinger Bands, Relative Strength Index (RSI), Exponential Moving Average (EMA), Moving Average Convergence Divergence (MACD), and Volume are some of the best indicators for intraday trading. These tools assist traders in spotting market trends, assessing momentum, and evaluating volatility, helping them make informed trading decisions.

How does an intraday trading indicator work?

Answer Field

Intraday trading indicators analyse price data to identify trends, reversals, and potential trading opportunities within the same day.

What is the best time frame for intraday trading?

Answer Field

The best time frame for intraday trading varies; common choices include 1-minute, 5-minute, and 15-minute charts, depending on the trader's strategy.

What are some best technical indicators for intraday trading to follow?

Answer Field

Key technical indicators for intraday trading include Moving Average, Bollinger Bands, RSI, and MACD.

How to pick stocks for Day Trading?

Answer Field
Choose stocks with high liquidity and trading volume, perform thorough research, and use technical analysis to identify potential trading opportunities.

How is regular trading different from intraday trading?

Answer Field

Regular trading can involve holding positions for days, months, or years, while intraday trading requires closing positions within the same trading day.

How can a beginner earn in intraday trading?

Answer Field

Beginners can earn by starting with small trades, using technical indicators, developing a trading strategy, and managing risks effectively.

Which is the best chart for intraday trading?

Answer Field

The best charts for intraday trading are typically 1-minute, 5-minute, and 15-minute charts, which provide detailed insights into price movements.

How can I earn ₹1000 a day from intraday?

Answer Field

To earn ₹1000 a day from intraday trading, focus on stocks with significant price movements, use leverage wisely, and employ effective trading strategies.

What are the requirements for intraday trading?

Answer Field

Requirements include a trading account, sufficient capital, a good understanding of the market, and familiarity with technical analysis tools.

Is intraday trading profitable?

Answer Field

Intraday trading can be profitable, but it also involves high risk. Success depends on market knowledge, discipline, and effective risk management.

What is the 3 5 7 rule in trading?

Answer Field

This rule is an informal guideline used by some traders to limit their trades to three profitable trades, five moderate trades, and seven losses before reassessing their strategy. It is not a standard or universally accepted method.

What are some intraday trading tips?

Answer Field

Some traders follow practices like setting stop-loss orders, selecting liquid stocks, following technical indicators, and monitoring news events. However, outcomes vary depending on market conditions and execution.

What is intraday limit?

Answer Field

Intraday limit refers to the maximum permissible leverage a broker allows for intraday trades. This varies between brokers and is subject to regulatory guidelines and risk management practices.

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Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

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Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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