Decoding Intraday Trading
Investors in the stock market open trading accounts and trade for various reasons – it could be to invest in the long term for wealth generation or to make gains in the short run as supplemental income or even for their livelihood.
Those who engage in short-term trading may employ a method called intraday trading.
What is Intraday Trading?
Intraday trading or day trading is a stock market trading method where you buy and sell your stock positions on the same day. Traders who engage in intraday trading settle all their positions at market close at the end of the day. The primary goal of intraday traders is to take advantage of price fluctuations of stocks daily and profit out of that. It is contrary to investing in stocks for the long term, emphasising wealth generation as the company grows.
Some of the things to keep in mind when it comes to intraday trading are:
- The critical goal of intraday trading is to make profits from price fluctuations in shares during a single day.
- Intraday traders must have a high-risk capacity since fluctuations could go either way.
- If the settings on your trading platform are set to intraday trading, then the positions in stocks will automatically get squared off at the market close.
- Intraday trading requires a person to monitor the stock market to monitor price movements constantly.
- It involves the use of various price charts, trend charts and other tools.
To engage in intraday trading, one must have an active and open trading account through which they can execute trades.
Intraday Trading Indicators
There are specific price and trend indicators that can be used for intraday trading. These are outlined below:
The most commonly used indicator is the daily moving average of stocks. It is the arithmetical mean of the everyday prices of a stock over a specifictime. A stock’s price opens at a different level every day, reaches a high and a low point, and then closes on another level. Daily moving average evens out these price points to give a clear price trend for traders to make their trading decision.
Bollinger bands are slightly more advanced than moving day averages. As the name suggests, it shows the moving day average within a band of an upper limit and a lower limit. Three lines help a trader understand the price variations of a stock over a period of time.
Since stock prices fluctuate a lot over a day, i.e. they are volatile, this indicator helps determine the direction in which the stock is most likely to go, barring the fluctuations. It is scored between 1 to 100.
Relative Strength Index (RSI)
The Relative Strength Index or RSI is an indicator that charts the speed and the change in price movements. That is scored between 0 and 100. However, a stock is considered overbought when RSI is above 70 and oversold when below 30.
How to Begin Intraday Trading?
- The first thing to do is open a trading account and a demat account with a trusted broker.
- Equip yourself with all the necessary tools to trade. Learn about the different indicators to watch out for, follow the market for news and make prudent decisions.
- Pick stocks that have high liquidity so that it is easy for you to square off your positions.
- Remember that it is possible to make losses too during intraday trading. That is why you need to be alert and not fall prey to emotional trading.
- Learn from your mistakes and improve your strategy with every trade.
Intraday trading is a matter of skill and practice, just like any other trade. Always remember the motive for intraday trading is to make short-term profits on a day-to-day basis. That means that you need to have the time, expertise and the right trading partner to ensure your success in this feat.
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