What is Intraday Stocks
Intraday trading is a trading method where the trader aims to generate profits from price fluctuations in a stock in the same trading session. In this way, all trades are closed within the market hours, i.e, before 3:30 pm. Intraday trading contrasts with investing in the sense that the former aims to generate swift profits, whereas the latter aims to earn from the stock’s growth.
In India, intraday trades are executed on the NSE or BSE and are settled without actual delivery of shares. Brokers typically offer leverage — allowing traders to take larger positions than their available capital — which amplifies both the potential gain and the potential loss. Since the trading hours begin at 9:15 am, traders estimate the first 15 minutes to be critical to act upon. However, the time frame between 9:30 am and 2:15 pm relies on traders using calculated estimations. These are usually based on information and trends as the day passes. This highlights that while intraday trading can be profitable, it is highly competitive and risky, requiring skill, discipline, and experience.
Who Should Consider Intraday Trading
Intraday trading is not suited to everyone. It works best for individuals who can monitor screens continuously during market hours, respond quickly to price changes, and maintain emotional discipline even when trades move against them. Individuals who work full-time in a stringent work culture may find it inconvenient to devote time during the trading hours.
Individuals who have a good knowledge and experience in technical analysis and its indicators, may find it interesting and suitable to indulge in intraday trading. These individuals may also have a clear understanding of risk management and stop-loss targets. However, individuals seeking passive income or predictable returns are better served by SIPs or long-term equity investing.
How to Invest in Intraday Stocks
The first step to start trading in intraday stocks is to understand your preparedness. You must ensure you check out the latest patterns and trends to determine the best stocks for intraday trading. Once this is decided, check out the following steps to begin:
- Ensure you have a trading and demat account with a SEBI-registered broker.
- Once the account is active, you can select the best intraday stocks today, then place a buy or sell order.
- Do ensure that all positions are closed before the end of the session.
- Before pursuing the trade, determine the entry price, the stop-loss level which indicates the price point at which you will exit the trade to limit further loss, and the target price.
- Most brokers auto-square off open intraday positions around 3:15–3:20 PM if the trader has not done so manually.
What are the Metrics used to Check Performance of Intraday Stocks
To evaluate and understand the suitability of intraday stocks, you must consider metrics that can check their performance. Certain metrics that amp up the selection process include:
- Volume: This is where most traders start, and for good reason. A stock that sees strong daily trading activity allows you to enter and exit positions cleanly — without the price moving sharply against you just because you placed an order. As a general rule, stocks crossing 10 lakh shares in daily volume tend to offer the kind of liquidity that makes intraday trading workable.
- Volatility: Volatility is equally important. If the price barely moves, there’s no real opportunity to make money. Most intraday traders prefer stocks that move at least a certain percentage during the day.
- Relative Strength Index (RSI): RSI helps understand momentum. It is a momentum indicator ranging from 0 to 100. An RSI more than 70 implies a stock may be overbought and can lead to a pullback; below 30 suggests oversold zones that may have a potential bounce. Where traders go wrong is using RSI in isolation.
- VWAP (Volume Weighted Average Price): VWAP denotes the average price at which a stock has traded the whole trading day, adjusted for volume at each price point. When a stock trades higher than its VWAP, the bias is bullish; below it, the bias is bearish.
- MACD (Moving Average Convergence Divergence): MACD helps track trend direction and momentum. Crossovers in MACD often indicate whether a move is building strength or losing steam. It is a lagging indicator by design, which means it confirms a trend rather than predicting one.
Benefits of Investing in Intraday Stocks
The main objective of intraday trading is to realise quick, aggressive profits. However, the real benefits of investing in intraday stocks are:
- No substantial losses: Since the purchase and sale of these stocks occur within the same trading day, the depth of losses may be minimised.
- Use of leverage: Intraday trading also offers the use of leverage, allowing traders to take positions larger than their capital base.
- Improved liquidity: Intraday trading provides daily liquidity- unlike real estate or fixed deposits, profits are accessible the same day.
- Daily profit locking: This form of trading carries the potential to earn daily profits through successful trades.
Challenges of Investing in Intraday Stocks
The challenges of intraday trading in stocks are significant and should not be underestimated. Here are a few:
- Emotional decision-making is the single largest cause of preventable losses.
- High-frequency trading systems operated by institutions also create a structural disadvantage for retail participants.
- Intraday trading needs your full attention during market hours. You can’t miss these positions even for a short time.
- Frequent trades mean higher costs, which can significantly reduce your actual profits over time.
- Sudden news or market movements can cause sharp price swings, making it difficult to control risk.