Before getting into the basics of intraday trading, it is important to understand what intraday trading is. The term intraday means “during the same day”. When a trader purchases and sells stocks listed on a stock exchange on the same trading day, it is known as intraday trading or day trading.
The primary objective behind intraday trading is to realise the profits on the same day. It also minimises trading risks as the funds are not blocked for an extended period.
What Is Intraday Trading?
Intraday trading refers to buying and selling stocks within the same trading day. Traders open and close their positions before the market closes, meaning they do not hold the stock overnight.
The goal of intraday trading is to profit from small price movements during the day. Since stock prices fluctuate constantly during market hours, traders try to capture these short-term opportunities.
For example, if a trader buys a stock at ₹500 in the morning and sells it at ₹510 during the same day, the ₹10 difference becomes the profit (excluding brokerage and charges).
Intraday trading is commonly used by active traders who closely monitor price movements and market trends.
How Intraday Trading Works
Intraday trading works by taking advantage of short-term price fluctuations in stocks or indices during market hours.
Here is how the process usually works:
- Select a stock with high liquidity and volatility.
- Buy the stock when the price is expected to rise.
- Sell the stock when the price increases to lock in profit.
Traders can also short sell a stock if they expect the price to fall. In this case, they sell first and buy later at a lower price.
Since all positions must be closed before the market closes, intraday trading requires quick decision-making and constant market monitoring.
Features Of Intraday Trading
Intraday trading has several distinctive characteristics that make it different from long-term investing. These features define how trades are executed and how traders approach the market.
Same-day settlement: All trades must be completed within the same trading day. Any open positions are squared off before the market closes.
High liquidity requirement: Stocks with high trading volume are preferred for easy entry and exit. Liquidity ensures that traders can quickly buy or sell without significantly affecting the price.
Use of margin: Many brokers offer margin trading, allowing traders to take larger positions with less capital. This increases trading capacity but also increases potential risk.
Short-term focus: Intraday traders focus on minute-to-minute or hourly price movements. The goal is to capture small price changes during the trading session.
Technical analysis driven: Most intraday decisions rely on charts and indicators rather than long-term fundamentals. Traders use price patterns and technical tools to identify opportunities.
Benefits Of Intraday Trading
Intraday trading offers several advantages for active traders who want to take advantage of daily price movements.
Opportunity to earn daily profits: Traders can make profits from small price movements within a single day. Multiple trades can create opportunities to generate consistent returns.
No overnight risk: Since positions are closed before market closing, traders avoid risks from overnight news or global market movements. This reduces exposure to unexpected events.
Lower capital requirement: Margin trading allows traders to take larger positions with relatively smaller investments. This makes intraday trading accessible even with limited capital.
Flexible trading strategies: Traders can use multiple strategies such as scalping, momentum trading, or breakout trading. This flexibility allows traders to adapt to different market conditions.
Risks Of Intraday Trading
Despite its benefits, intraday trading also carries significant risks that traders must manage carefully.
High volatility: Prices can change rapidly, which can lead to sudden losses. A small mistake in timing can impact the trade outcome.
Emotional decision-making: Fast price movements can lead to impulsive trading decisions. Traders must remain disciplined to avoid panic buying or selling.
Leverage risk: Using margin increases both potential profits and losses. If the trade moves against the position, losses can grow quickly.
Transaction costs: Frequent trading can lead to higher brokerage and charges. These costs can reduce overall profitability if not managed properly.
Market unpredictability: Unexpected news or events can quickly change market direction. Because of these risks, intraday trading requires discipline, risk management, and proper strategy.
Best Intraday Trading Indicator
Traders often use technical indicators to identify entry and exit points during intraday trading.
Moving Averages: Moving averages help identify the overall trend direction. They also indicate potential support and resistance levels.
Relative Strength Index (RSI): RSI measures whether a stock is overbought or oversold. It helps traders identify possible reversal points.
Bollinger Bands: Bollinger Bands measure price volatility. They help traders identify potential breakout or reversal opportunities.
Volume indicators: Volume indicators show trading activity in a stock. Higher volume often confirms strong price movement.
VWAP (Volume Weighted Average Price): VWAP shows the average price based on volume during the trading day. Many traders use it to determine whether a stock is trading above or below its fair intraday value.
Many traders combine multiple indicators to improve decision-making and increase the accuracy of their trades.
Tips To Follow For Intraday Trading
Successful intraday trading requires discipline, planning, and the right approach.
Choose liquid stocks: Highly traded stocks are easier to buy and sell quickly. Liquidity reduces the chances of getting stuck in a trade.
Follow market trends: Trading in the direction of the trend often improves success rates. Trend-based trades generally have higher probability.
Use stop-loss orders: A stop-loss helps limit potential losses if the trade moves in the wrong direction. It is one of the most important risk management tools.
Avoid overtrading: Too many trades can increase costs and emotional stress. It is better to focus on quality setups rather than quantity.
Stay updated with news: Market-moving events such as earnings announcements or economic updates can influence intraday price movements.
How To Make Profit In Intraday Trading?
To make profits in intraday trading, traders usually focus on timing, discipline, and market momentum.
Breakout trading: This strategy involves buying when a stock breaks above resistance levels. Breakouts often indicate strong momentum.
Reversal trading: Traders enter positions when a stock shows signs of reversing direction. This strategy aims to capture the early stage of a new trend.
Scalping: Scalping involves making small profits from multiple trades throughout the day. Traders rely on quick entries and exits.
Momentum trading: Momentum traders focus on stocks showing strong upward or downward movement. These stocks often provide quick trading opportunities.
However, consistent profitability requires experience, discipline, and proper risk management.
How To Choose Stocks For Intraday Trading?
Choosing the right stock is crucial for intraday trading success.
High trading volume: Stocks with high trading volume ensure easy entry and exit. Liquidity helps execute trades quickly.
Price volatility: Volatile stocks provide opportunities for profit through price fluctuations. Intraday traders often prefer stocks that move actively.
News-driven stocks: Stocks reacting to earnings announcements or major news events often show strong intraday movement. These stocks attract trader attention.
Sector momentum: Stocks from strong-performing sectors tend to move together. Sector strength can provide additional confirmation for trades.
Large-cap stocks and actively traded mid-cap stocks are often preferred by intraday traders because they offer stability and liquidity.
How To Do Intraday Trading
To start intraday trading, investors need to follow a few basic steps.
Open a trading and demat account: The first step is opening accounts with a registered broker. These accounts allow investors to buy and sell stocks electronically.
Choose stocks for trading: Traders select stocks based on liquidity, volatility, and news impact. Proper stock selection improves trading opportunities.
Use technical analysis: Charts and indicators help traders identify entry and exit points. Technical tools guide trading decisions.
Place intraday orders: Traders place buy or sell orders through the trading platform. Orders must be executed during market hours.
Square off positions: All intraday trades must be closed before market closing time. This ensures that no position remains open overnight.
Many brokers also provide advanced charting tools and trading platforms to help traders analyse the market effectively.
Alternative Trading Methods
Intraday trading is only one way to participate in the stock market. Investors can also explore other trading approaches depending on their goals and risk tolerance.
Swing trading: Swing trading involves holding stocks for a few days or weeks to capture medium-term price movements. It allows traders to benefit from short trends.
Positional trading: Positional trading focuses on longer trends and may involve holding stocks for months. Traders rely on broader market analysis.
Long-term investing: Long-term investors buy fundamentally strong stocks and hold them for years. This strategy focuses on wealth creation over time.
Options trading: Options trading involves derivative contracts based on expected price movements. It allows traders to hedge risks or speculate on market direction.
Each method has its own risk level, time commitment, and strategy requirements. Choosing the right approach depends on an investor’s experience, goals, and investment horizon.
Intraday Trading Charges
Intraday trading charges are the fees traders pay when they buy and sell stocks within the same trading day. These charges vary depending on the broker, the trade value, and the exchange where the trade is executed. Understanding these costs is important because they directly affect the profitability of intraday trades.
One of the main costs is brokerage, which is the fee charged by the broker for executing trades. Many brokers offer discounted brokerage for intraday trading, often charging a flat fee per order or a small percentage of the trade value.
Another important cost is the Securities Transaction Tax (STT), which is levied by the government on the sale side of intraday equity trades. Although the rate is relatively small, it still contributes to the total cost.
Traders also pay exchange transaction charges, which are fees collected by stock exchanges like NSE or BSE for facilitating trades. These charges are usually minimal but apply to every transaction.
In addition, there are GST charges applied to brokerage and transaction fees, as well as SEBI turnover charges that go towards regulatory costs.
Some states also impose stamp duty, which is charged on the buy side of the trade.
While each individual fee may seem small, they add up over multiple trades. That is why intraday traders often choose brokers with low brokerage charges and efficient execution to keep trading costs manageable.
Final word
To make profits in the stock market, traders must have a strong understanding of intraday trading. Thoroughly analysing company charts is crucial for selecting stocks while also considering market volatility.
Unexpected market fluctuations can also lead to losses as the trader cannot hold the stocks. All intraday traders must pay close attention to intraday price movements and time the trades to make profits by using the short-term price fluctuations in the markets.
FAQs
Intraday can offer great profits, but it has an equal probability of losses. However, intraday trading is a good option for traders looking to make short-term profits and earn every day from the stock market.
No rule stops beginners from venturing into intraday trades. However, intraday trading requires high levels of understanding of stocks, prices and the market as a whole. Despite the theory, the real skill comes with practice. So, it is ideal for novice investors to begin with delivery trades and gradually explore the intraday market.
There is no restriction on the number of trades one can do per day. Some traders stop after they square off the first trade if they gain the desired profits. Otherwise, they enter more trades to reach the desired levels of profits.
Intraday traders must buy on every dip if the stock price chart is continuously making higher peaks. Whenever the chart makes a lower bottom, you should sell on every bounce back. The intraday trading tip is that the trend is verified if higher peaks are accompanied by higher bottoms.
Brokers often offer large leverage or margin to intraday traders. You may purchase more shares than your account balance allows thanks to the leverage option. For example, if your broker offers a 10x margin and your account balance is INR 10,000, you may purchase shares for INR 1 lakh.
Intraday trading involves buying and selling financial instruments within the same trading day, aiming to profit from short-term price movements.
Buying 100 shares of XYZ stock at ₹500 and selling them within the same day at ₹510, making a ₹10 profit per share.
Intraday traders make money by capitalizing on small price fluctuations throughout the day, using strategies like technical analysis, momentum, and breakouts.
Intraday trading profits are taxed as speculative business income and are subject to income tax slab rates. Losses can be set off against other speculative gains.