Understanding Intraday trading: Key terms for beginners

At some point in your life, you would have definitely thought about trying your hands at intraday trading. It refers to buying and selling stocks or other tradable securities on the same day before the market closes. Intraday trading requires you to understand various key terminologies associated with it.

This article will help you through the most common terms used in intraday trading.

Key terms used in intraday trading

The 10 most common intraday trading terms are detailed below.

1. Ask

In intraday trading, the ‘Ask’ is the minimum price a seller is willing to agree upon for a stock or any other security. For example, if a trader wishes to sell shares of Company X, they may set an ‘Ask’ price of Rs 500. If the buyer places a bid that matches the ‘Ask,’ a trade can occur. 

The ‘Ask’ price helps establish the market’s liquidity and facilitates the price discovery procedure.

2. Bid-Ask Spread

The Bid-Ask Spread defines the contrast between the maximum price for the security a buyer is ready to pay (bid) and the minimum price a seller is keen to accept (ask). For example, if the bid price for a stock is Rs 205 and the asking price is Rs 207, the spread is Rs 2. This spread can fluctuate throughout the trading day due to changes in supply and demand, news, or market sentiment. A narrow spread indicates high liquidity and lower transaction costs.

3. Bull Market 

A Bull Market points to a market condition where prices are rising or expected to increase. Traders in this market are optimistic. They buy stocks early in the trading day and sell them at a higher price before the market closes.

4. Bear Market 

This market condition occurs when stock prices decline broadly over a sustained period. It is typically marked by a fall of 20% or more from recent highs. Traders anticipate lower prices and may engage in short selling—borrowing shares to sell at current prices with the intent to buy them back at lower prices before the market closes.  

Bear markets reflect widespread pessimism. It often triggers a self-reinforcing downward spiral as falling prices erode investor confidence.

5. Scalping 

Scalping in intraday trading is a strategy for capitalising on small price changes within the same trading day. It involves executing a high volume of trades and holding positions for a very short duration, ranging from seconds to minutes. The goal is to accumulate multiple small gains, collectively contributing to significant profits. 

For example, a scalper may buy shares at Rs 10.00 and sell at Rs 10.05, profiting Rs 0.05 per share. If repeated across thousands of shares, these small increments can add up.

6. Breakout

A breakout is a significant price movement beyond a specific level of resistance or support within a single trading day. This movement indicates a potential shift in market sentiment and can lead to a new price trend.

For example, suppose a stock has been trading between Rs 100 and Rs 105 for several days. If the price suddenly moves to Rs 106, it has “broken out” of its usual range. 

Traders might interpret this as a sign of increasing bullish sentiment and expect the price to continue rising. Consequently, they may decide to buy the stock, anticipating further gains.

7. Support Level

It is a price point at which a stock’s price tends to stop falling and may even begin to rise again. This happens because, at the support level, buyers have more demand than sellers. 

It is important to note that while support levels can indicate potential reversals in price trends, they are not foolproof. 

8. Resistance Level

It is a price point above the current market price where selling pressure is strong enough to prevent the price from rising further. Suppose a stock repeatedly shifts downwards upon reaching Rs 150; this price becomes a resistance level. 

Traders anticipating the price will fall back down might consider selling when the price approaches this level.

9. Market Order

In intraday trading, you command your broker to buy or sell stocks immediately at the current market prices. For instance, if you place a market Order to buy shares of XYZ company, your broker will purchase the shares at the lowest price available at that moment. 

Conversely, if you are selling, they will sell at the maximum price someone is willing to pay.

10. Margin Trading 

Assume it as a short-term loan from your broker that allows you to buy more stocks than your capital would normally permit. 

Margin amplifies your trading power for the day. For example, if you have Rs 10,000 in your account, and your broker offers a 5x margin, you can trade up to Rs 50,000 worth of stocks.

Conclusion

Just as you need the right words to communicate effectively, knowing intraday long terms helps you understand market trends, make faster decisions, and execute trades confidently. It’s the foundation for becoming a successful trader, allowing you to follow expert advice, use trading tools properly, and navigate the fast-paced environment of the stock market without confusion. To learn more about trading, subscribe to StockGro!

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