Traditional investment routes, such as fixed deposits, gold, and savings accounts, remain the preferred choices for many. They offer safety and stability, but on the flip side, their returns often fall short of keeping pace with rising expenses and evolving financial goals. That is where intraday trading comes in handy.
What is Intraday Trading?
Intraday trading involves buying and selling a stock on the same day. All positions must be sold before the market closes, or your broker may automatically square off your position.
For instance, if you notice a stock trading at ₹100 in the morning and anticipate it will rise, you buy 100 shares for ₹10,000. Later, the stock price increases to ₹105, and you sell your shares for ₹10,500, resulting in a ₹500 profit before brokerage and taxes.
Best Intraday Tips for Beginners
Before you start intraday trading, keep the following pointers in mind.
Defined Capital Allocation
Instead of investing all your savings in intraday trading, allocate a specific amount of capital that you can manage to lose if the market moves against your trade. Additionally, out of the capital you have set aside for day trading, use only 2-5% per trade. Also, avoid averaging down.
For those unaware, ‘averaging down’ refers to the practice of buying more of a stock or security that is declining in price, aiming to lower the average purchase price of the overall position.
Consider Liquid Stocks
In intraday trading, you are required to enter and exit positions quickly. For this, it is important that you trade stocks that are traded in decent volumes during the day. If you focus on low-volume stocks, you may encounter wide bid-ask spreads and sudden price jumps, which will make it difficult for you to execute trades at the desired level. When looking for liquid stocks, check the average daily traded volume over the last few days.
Use Stop-Loss
Always define your stop-loss level before entering the trade and stick to it strictly. The levels should be based on support, resistance, or candlestick patterns, not a random figure.
For those unfamiliar, a stop-loss order is a risk management tool that automatically sells an asset once it hits your defined price. For example, if you buy a stock at ₹500 and place a stop-loss at ₹480, the system will automatically sell the stock if it falls to ₹480.
Avoid Over-reliance on the News
Market news should be one of your parameters to enter or exit a position, but not the sole factor. News creates temporary spikes and drops that may not be sustained. Remember that stock prices react before the news is fully out, and by the time retail traders act, smart money has already moved. Always use news alongside charts to confirm the trend and levels.
Maintain a Trading Journal
Always record your trading details. Keep a note of each trade’s entry and exit price, strategy used, stop-loss, target, reason for taking the trade, and the result. At the end of the week, review your journal to see what worked and what didn’t. This helps you identify patterns in your behaviour, such as overtrading, skipping stop-losses, or ignoring signals.
Best Intraday Trading Strategies for Beginners
As a beginner, you can try any of the following strategies for successful intraday trading.
Opening Range Breakout
This strategy focuses on the price movement in the first 15-30 minutes after the stock market opens. In this, you mark the session high and low during that window, then wait for the price to breach either side. If it breaks out with volume support, you enter the trade in that direction.
Suppose a stock trades between ₹980 and ₹990 during this period. If the price later crosses ₹990 with a strong volume, you take a buy position. If it falls below ₹980, you take a sell position. You also set stop-losses just outside the opposite side of the range.
Gap and Go Strategy
This strategy targets stocks that open with a noticeable price jump triggered by overnight news or earnings. You begin by scanning pre-market data to identify such gapped-up stocks.
For example, if the previous day’s close of stock was ₹150 but the opening price is ₹170, then that ₹20 rise is the ‘gap.’ Once the market opens, look for signs of continued strength, such as high volume and rapid upward movement. If these signals are strong, you can enter early, ride the momentum, and exit before the trend reverses.
First Pullback Entry
In this, you enter a trade after the first minor price dip (pullback) in the direction of a strong trend. Here is how it works:
Suppose a stock opens strong and quickly rises from ₹500 to ₹520 within 15 minutes. Now, even with this surge, you don’t take a position immediately. Instead, you wait for a small retracement, such as when the price drops to ₹514. This is the first pullback. You now watch if the price shows signs of strength again, like forming a bullish candle or bouncing from a support level.
If it does, you enter the trade around ₹515, placing a stop-loss just below the recent low, say, at ₹511. You target ₹525 or more to benefit from the trend.
VWAP Reversion
VWAP, or Volume Weighted Average Price, works on the idea that stock prices tend to return to their average after straying too far. The VWAP reversion strategy helps identify when a stock is overbought or oversold compared to this average.
Suppose a stock opens at ₹200, and its VWAP for the day stays around ₹202. If the price spikes to ₹208 without any strong news or volume, it may be considered overbought. You could enter a short position expecting it to revert to ₹202. Similarly, if it drops to ₹196, you might consider going long, expecting a bounce towards VWAP.
Flat Base Breakout
The Flat Base Breakout strategy catches strong upward moves after a stock consolidates within a tight price range. You look for a stock that has been trading sideways (flat base) for several days or hours with little price movement.
As a trader, you wait for the stock to break above the resistance level with strong volume, which confirms buyer strength. That’s your entry signal.
Suppose a stock stays between ₹98 and ₹100 for 2 hours. You notice that ₹100 is a key level of resistance. Once it breaks above ₹100 with high volume, you enter the trade, expecting a sharp upward move. Place a stop-loss just below the base, say at ₹97.50, to manage risk.
Conclusion
Intraday online trading can be exciting and rewarding if you understand how it works and follow the right strategies. While day trading, you can reduce your risk by focusing on liquid stocks, setting stop-losses, avoiding impulsive news-based trades, and learning from a trading journal. For effective day trading, consider strategies such as VWAP reversion or pullback entries. Remember, discipline, planning, and continuous learning are key to success in intraday trading.
