Intraday Trading is totally different from long-term equity investment. Till now, we discussed only long-term investment through my blog. Intraday trading is riskier than investing in the regular stock market. It is important, especially for beginners, to understand the basics of such trading to avoid losses. Intraday trading stocks is very difficult especially for beginners. Not only it is difficult, but also it is not safe for the novice traders. The only solution left out for the beginners is to learn the basics of intraday trading, including the best trading strategies and techniques and then start attempting trading.
(a) RSI: Relative Strength Index
(b) MACD: Moving Average Convergence Divergence
(c) Simple and Exponential Moving Averages
(d) Bollinger Bands
(e) Fibonacci Retracement
(f) Average True Range
(g) Average Directional Index
I have written already blog on Top 5 technical Indicator and how to use
Below are a few tips for intraday trading which will help trader in making the right decision.
Choose Liquid Stocks
Intraday trading involves squaring open positions before the end of the trading session. This is why it is recommended to choose two or three large-cap shares that are highly liquid. Avoid investing in penny stocks that have very low liquidity. Concentrate only on two or three stocks so that it will be easier for you to follow them online.
Identify Strong Stock Trend
It is the most difficult job in the stock market. Any error in judgment means huge losses. Also, remember that in the highly volatile market, the trend is short lived. It makes the job of stock selection more difficult. Sometimes, the stocks that we identify for short selling rise on the day of trade. Therefore, it is important to identify a definite trend in the stock to make money. This trend can be uptrend or downtrend. Intraday Trading based on weak trend may result in losses. There may be days when you will not find stocks with strong trend therefore simply back out from Intraday Trading. In short, you should not trade just for the sake of trading. As a golden rule, you should initiate Intraday Trading only if you identify stock with a strong trend. Some of the indicators that help you to determine stock trend are
(a) Open Price for the day (Pre-Opening Session)
(b) Volume
(c) Delivery Qty
(d) Delivery %
(e) Price Movement
(f) Futures and Options
(g) Stock Volatility
(h) Range
(i) Pivot Points
Determine Entry and Target Prices
Before placing the buy order, you must determine your entry level and target price. It is common for a person’s psychology to change after purchasing the shares.Greed and fear play a crucial role in Intraday Trading. It can erase your 100% paper profit, and you may end in a loss. A paper profit is an unrealized profit from the trade. An intraday trader should know the entry and exit point. For this, it is imp to fix your gain and loss from a particular trade. Expert traders keep a stop loss at 1/3rd of the expected benefits. Intelligent use of stop loss facility must be practiced for safe trading It is done so that overall trade for the day should be profitable.
There is an overwhelming and unanimous opinion that Intraday Trading should not be initiated without a stop loss. Though stop loss is 1/3rd of expected gains, if it is near any pivot point or resistance/support levels then it may result in more losses. The volatility is high near pivot point, resistance and support levels.
Avoid being an Investor
Intraday trading, as well as investing, requires individuals to purchase shares. However, factors for both these strategies are distinct. One kind adopts fundamentals while the other considers the technical details. It is common for day traders to take delivery of shares in case the target price is not met. He or she then wait for the price to recover to earn back his or her money. This is not recommended because the stock may not be worthy of investing, as it was purchased only for a shorter duration.
Not more than 2-3 trades per day:
Initiating multiple trades during a trading session is suicidal. Even seasoned traders don’t initiate more than 2-3 trades per day. Reason being, Stocks for Intraday Trading are highly volatile, and the trader is on toes till the position is squared off. Humanly also it is impossible to trade more than 2-3 stocks with 100% concentration level.
Don’t Move against the Market
Even experienced professionals with advanced tools are not able to predict market movements. There are times when all technical factors depict a bull market; however, there may still be a decline. These factors are only indicative and do not provide any guarantees. If the market moves against your expectations, it is important to exit your position to avoid huge losses.
Stock returns can be huge; however, earning smaller gains by adhering to these intraday trading tips & strategies should be satisfactory. Intraday trading provides higher leverage, which effectively provides decent returns in one day. Being content is crucial to succeeding as a day trader.
Avoid Intraday Trading in News/Results driven Stocks:
The reaction of news or result is unpredictable on the stock price. The stock price goes all over, and traders are not able to identify the trend. Recently, we observed reactions that were totally opposite than expected. It is tempting to enter into such stocks for quick gains. Always remember Golden Rule No 1 on this post. Only enter into a stock with a strong trend. When you are not sure of the trend, please avoid such stocks.