Intraday Trading Tips, Strategies & Basic Rules - Explained

Intraday trading means buying and selling financial instruments within the same day, aiming for short-term profits from market fluctuations. You do not hold positions overnight; instead, you square off before the market closes.

This type of trading relies on quick decision-making and analysing market trends within a day. You need to be alert, adaptable, and well-versed in technical analysis to succeed. If you are looking for tips to enhance your trading approach, you have come to the right place!

Here, you will find intraday trading strategies that can help improve your trading skills and boost your profit potential.

Intraday Trading Tips & Tricks

The traditional rule of thumb for intraday trading is not to risk more than 2 percent of your capital on one trade. Moreover, the risk of ignorance is greater than the market risk itself, especially for beginners. So, make sure you:

• Choose liquid stocks

Intraday trading involves buying and selling a set of shares on the same day before market closing, i.e., squaring off open positions. However, for the stock exchange to execute these orders, there must be enough liquidity in the market.

Thus, the first tip is to avoid small-cap and mid-cap stocks that may not be liquid enough. Otherwise, there is a high probability that your squaring off order may not get executed, forcing you to take delivery instead. Liquidity is one of the most important criteria you must check before selecting a particular stock to trade in.

Stocks with high liquidity trade at huge volumes which allows intraday traders to buy or sell larger quantities at ease.

Further, avoid investing all your trading money in a single stock. Experts recommend diversifying your intraday positions across a handful of stocks. Diversification will help you balance your intraday trade strategy and minimise your risk.

• Freeze the entry and exit price

In Intraday, the price movements in a single day can make investors doubt their initial decision. In this case, all you need to do is decide the entry and exit price before taking a position. This ensures that you have an objective view and know the levels at which you will be buying or selling your trades.

You must know how to strategically plan your entry and exit without letting your emotions rule your decisions.

• Always set a stop-loss level

Let’s understand this with an example.

Say you are an intraday trader. XYZ Ltd is trading at ₹550 per share, and you expect the share price to rise today. You decide to buy 100 shares of XYZ Ltd by investing ₹55,000.

But instead of going up, the price goes down to ₹500 per share. Within a matter of hours, you bear losses of a total ₹5,000 (₹500 x 100 shares). When you invest in a share, the share price can go up or down. It is quite possible that the share you purchase and take a long position in falls on the day you trade instead of rising.

Therefore, it is important that you decide how much loss you are ready to bear if the trade goes against your position. This acts as a safety net and helps minimise your losses. Most experts would suggest this is the most important tip for intraday trading you’ll ever get. Hence, the third intraday tip is to research intraday calls, which are buy and sell recommendations, and set a stop-loss level.

Continuing with the same example, if you had set a stop-loss at ₹540, the losses would have been limited to ₹1,000 only (₹10 x 100 shares).

• Book profit when the target is reached

Greed is every intraday trader’s enemy. Why, you may ask? It is because it only takes a few minutes for the market to switch sides, especially if the market is too volatile.

The secret to successful intraday trading lies in the high leverage and margins that traders enjoy. Leverage and margins help amplify profits (as well as losses). But the trick lies in not getting greedy once that target is reached. Don’t wait for the stock price to increase further if it has reached your target price.

Avoid falling into the trap where you feel that the price will keep rising (or falling if you short-sell). You must make trade decisions based on facts and strategies and not on how you feel a stock will perform.

If there is good reason to believe that the price is likely to move in the right direction, then adjust the stop-loss accordingly.

• Always close all your open positions

The next intraday tip is to always close all your open positions. Many intraday traders choose to take delivery of the shares if the stock price target they set at the start of the day isn’t met.

This may not be a good strategy. After all, the stocks were bought for intraday trading based on market trends and technical analysis of the stock movements. They may not be good enough for a long-term investment.

Imagine what would happen if a leading company declared bankruptcy post-market closing and the stock opened with a gap down the following day. Investors holding the stock at the end of the day might not get a chance to exit their position and would thus have to take a hit on their portfolio.

Whereas, for an intraday trader, company specific information released during the day can be processed during the same day. Intraday traders will have a chance to deal with the information impact in real-time.

Post the market hours, the news would not affect intraday traders as they might have already squared off their position. It helps us eliminate overnight risk without blocking any capital.

So, before converting to delivery, look at the intraday calls and the fundamental strength of the stock.

• Do not challenge the market

It is nearly impossible to predict market movements. Often, you may find that all the factors are indicating a bullish market. As usual, you may expect your target stock to rise. But, the market decides to disagree and the stock price does not rise.

The bottom line is to not get married to your analysis. Fluctuation is the very nature of the stock market. If the market is not supporting your analysis, sell and exit your position as soon as it hits your stop-loss level. Holding on to the hopes that the market will act as you predicted it to can increase your losses.

• Research your target companies thoroughly

Once you have identified a set of stocks to trade by going through professional intraday calls, make sure to research them thoroughly. In other words, do your homework! Start with understanding how technical analysis can help you make better trading decisions.

Find out when any corporate events are scheduled for. These include acquisitions, mergers, bonus issues, stock splits, and dividend payments, among others. These events could turn out to be as important as being up-to-date with the technical levels.

• Timing is crucial

Profits in intraday trading depend heavily on the time factor. One of the best intraday trading tips is not to take a position within the first hour of trading for the day. This is because volatility tends to be high at this hour. This leads to heavy rush and noise in the first market hour, which ultimately leads to huge price fluctuations. Many experts prefer taking an intraday position between noon and 1 PM.

• Choose the right platform

Intraday traders make frequent multiple transactions and accrue gains daily. As such, you need to choose the right platform that allows for quick decision-making and execution and charges minimal brokerage.

With Kotak Securities, you only have to pay a minimal brokerage of ₹10 per order with Trade Free Youth, Trade Free, and Trade Free Pro plan.

Lastly, it is essential to remember that discipline is paramount in intraday trading. Track your strike rate and accept that not all trades will go as expected. Losing is part and parcel of this journey. Your primary focus should be on minimising losses while striving to win big.

Process of choosing stocks for intraday trading

Intraday traders often decide to pick stocks depending on the volume of trading. Generally, it is better to pick stocks when the trading volume is high. That’s because if the trading volume is high, prices also move upwards. Volume is nothing but the number of times a company’s stock is traded at a particular time.

Technical analysis is often used to identify short term trends and indicators. It helps traders understand the current market mood based on which they can strategically decide when to enter or exit a position with maximum gains.

A stock’s resistance level is a handy indicator, too. Buying a stock when it breaks its resistance level and moves upwards is usually a good time to pick stocks.

Being up-to-date with daily news and market events is very important for intraday traders. In most cases, a company’s stock prices rise on the back of good news. It is also handy to keep a tab on the top gainers and losers of the week. They can tell you how different stocks have been performing over a particular period.

Intraday time analysis

Daily charts like hourly, 15-minute, and five-minute charts are commonly used by intraday traders to assess stock movements. These charts help in identifying short-term trends, assisting in more accurate decision-making. You need to understand how to read and interpret these charts effectively.

Hourly charts can show general trends throughout the day, while 15-minute charts help identify entry and exit points. The five-minute chart offers a closer look at rapid movements, making it useful for quick trades.

Using multiple time frames together can provide a clearer picture of the market’s direction. Intraday trading tips include analysing these charts to spot key support and resistance levels.

Read More: Intraday Trading Time Analysis

Learn technical analysis

Though this might not sound like an intraday tip, learning the basics of technical analysis is a must if you want to understand the game of trading intraday.

Don’t jump into the water just because it sounds fun and thrilling. You must have some basic understanding of the various technical indicators. These indicators will make you a smarter trader and ultimately bring more profits.

For example, the Relative Strength Index (RSI) is another technical tool that can help evaluate which way the stock prices can move. If the RSI of a stock is above 30, it sets off a potential ‘buy’ signal as it suggests that the stock is undersold. If it is above 70, it indicates that a stock has been overbought and sets off a potential ‘sell’ signal.

Read More: Intraday Trading Strategies - Get Maximum Benefits From Intraday Trading And Formulas

Risk-reward ratio

The risk-reward ratio, also known as the RR ratio, compares a trade’s potential profit to its potential loss. It uses the difference between a trade’s entry point and stop-loss order to gauge risk and the difference between profit target and entry point to find reward.

RR Ratio = (Entry point - stop loss point) / (Profit target - entry point)

Common Pitfalls to Avoid in Intraday Trading

Intraday trading can be risky, especially for beginners. You need to be aware of common mistakes that can cost you significantly. Here are key pitfalls to avoid:

• Failing to set stop-loss orders Never enter a trade without setting a stop-loss. This is one of the most important intraday trading tips. Without it, you risk large losses if the market moves against you.
  

• Trading without a clear plan You should have a detailed strategy before starting. This includes your entry and exit points, as well as your risk management rules.
  

• Getting swayed by emotions Emotions can cloud your judgment and lead to impulsive decisions. Stick to your strategy, and do not let fear or greed take over. Your mind must be calm and focused.
  

• Holding losing trades Avoid holding onto losing trades, hoping they will rebound. If a trade hits your stop-loss, exit and limit your loss. Holding on can turn small losses into big ones.
  

• Overtrading Avoid taking too many trades in a day. Overtrading can lead to mistakes and increased transaction costs. Focus on quality trades rather than quantity.
  

Read More: Understanding the Pitfalls of Overtrading and Ways to Combat It

• Ignoring technical analysis Use technical indicators and chart patterns to guide your decisions. Ignoring these can make your trades more speculative than calculated.
  

• Not keeping up with market news Stay informed about market news and economic reports. Surprises can cause sudden price movements, impacting your trades.
  

Follow these tips, stay disciplined, and remember that consistency is key to long-term success in intraday trading.

Summing it up

Intraday trading involves buying and selling stocks within the same day for quick gains. To succeed, you need to stay alert, know technical analysis, and use strategic entry and exit points. Start by trading liquid stocks and diversifying your positions to manage risk effectively.

Always set stop-loss levels to limit potential losses and book profits once targets are reached. Avoid holding positions overnight to prevent exposure to unexpected news. Timing matters: trade when market volatility is low and stay updated with company news and economic events.

Master technical analysis tools and maintain discipline. Remember to always avoid emotional trading and overtrading. Stick to your plan and keep learning. Ready to refine your trading skills? Take action and stay consistent!