What is Intraday Trading - Indicators, Meaning, & Basics (2024)

Traders base their profits on different kinds of purposes. One may be a long-term investment which is a gradual process, yet may produce high returns. The other can be a short-term strategy which includes trading with quick gains. One such method is intraday trading.

Basics of intraday trading:

Intraday trading refers to buying and selling of stocks on the same day. It is done using online trading platforms. Suppose a person buys stock for a company, they have to specifically mention ‘intraday’ in the portal of the platform used. This enables the user to buy and sell the same number of stocks of the same company on the same day before the market closes. The purpose is earning profits through the movement of market indices. It is also referred to as Day Trading by many.

Stock market earns you great returns if you are a long-term investor. But even on the short term, they can help you earn profits. Suppose a stock opens trade at Rs 500 in the morning. Soon, it climbs to Rs. 550 within an hour or two. If you had bought 1,000 stocks in the morning and sold at Rs 550, you would have made a cool profit of Rs 50,000 – all within a few hours. This is called intraday trading.

Intraday Trading Indicators

Traders often face difficulties with concurrent events occurring in intraday trading. Whether a person is an experienced trader or a beginner, looking at the trends and indicators is always beneficial for everyday trading. Let us look at some indicators :

• Moving Average

  Most traders rely on the daily moving average (DMA) of the stocks. The moving average is a line on the charts that show the behavior of a stock over a period of time. These charts show the opening and closing rates of the stock. The minimum average line shows the average closing rates of that particular stock in the given interval and helps you comprehend the ups and downs in the price and determine the flow of the stock.

• Bollinger Bands

  These are bands that show the standard deviation of the stock. It consists of three lines - the moving average, the upper limit and the lower limit. If you seek the trading ranger of a particular stock, these help you locate the price variation of the stock over a period of time, hence, you can put your money around the observations.

• Momentum Oscillators

  The stock prices are highly volatile. Such variations largely depend on market situations. If a trader wants to know whether a stock would rise or fall, this is where the momentum oscillator is beneficial. It is depicted in a range of 1 to 100 and shows whether a stock would further rise or fall, helping you in determining when to buy a particular stock. It shows the right time to trade, not making you lose your chances.

• Relative Strength Index (RSI)

  This is the indexed form of all the trading that happens over a stock in a period of time. It ranges from 1 to 100 and graphically shows when a stock is sold or bought highest. The RSI Indicator is considered overbought when over 70 and oversold when below 30. It uses a formula for this calculation, that is,

  RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]

Intraday Time Analysis

When it comes to variations and movements in intraday trading, the most helpful tools are the daily charts. These can provide all the necessary information about the stocks with indicators that show the trend of any particular stock over a definite period of time. They convey the movement of the prices from the start to the close of market. Time analysis becomes a useful tool for intraday trading as the momentum tends to shift quickly. You won't be able to comprehend the charts before the stock you put your money in goes down steeply or shoots right up. Hence, it becomes necessary for day traders to look for such charts that would help you understand the flow better - we’ve covered these concepts extensively in things to know while investing in Intraday Trading.

How to choose stocks for Intraday Trading?

Choice of stocks is the first and the most vital step when it comes to Intraday Trading. After all, the money you put in is only worth the time if you get a return, otherwise, it is done and dusted. So how do we choose stocks wisely? Let us take a look.

• Avoid volatile stocks: It is always preferable to stay away from what clearly looks unstable. Why put your money in something that might never let you have it back. Hence, it is advisable to track the stock behavior and consider trading over potentially stable stocks.
• Correlate stocks with geopolitical changes: It is better to invest in stocks that have a correlation with major sectors. If the index for the sector goes up, it might also affect the price of the stock in a positive manner. For example, strengthening of Indian Rupee against Chinese Renminbi would affect the iron industries. Resultantly, the income from exports would increase and the stocks would go up. Picking stocks while keeping in mind such market situation would help you a lot.
• Research: Looking, analyzing and comprehending are the basic steps of trading. Nothing goes right without proper calculation unless you really have luck on your side while trading. As luck does not often show its grace, it is always necessary to research before trading.
• Trends: Sometimes it's better to follow the herd rather than being a lone wolf. Look for the general flow in the market or the stocks that have raised the most interests in traders. When the market rises, traders must look for the stocks that rise, when it falls, looks for the stocks that show a potential decline.

Five things to know about intraday trading.

Trading Strategy

Intraday trading is a strategy where you buy and sell your stock holding in the same trading day. Traders thus take advantage of the price fluctuations that take place during market hours. In case the trader expects the price to rise during the day, he or she would first buy a lot of securities and then sell some time during the day. The reverse, called short-selling, can also happen. To take advantage of a falling market, traders would short-sell. This is when they borrow shares and sell it in the market. Once the price falls as required, the traders buy shares at the lower price and then return them to the lender.

High risks

Since day traders essentially take advantage of the volatility, they are exposed to great risks. This is much higher than the risks taken by a long-term stock investor. As a result, intraday traders are usually speculators, who are willing to take high risks. They usually conduct high-value trades worth lakhs and crores of rupees by using margin trading. (Use Cover Orders and Bracket Orders to take advantage of high margins provided by Upstox) However, intraday traders can also make an extraordinary amount of profits.

Stock price impact

By doing so, they often affect the stock’s price trend. For example, a stock is trading at Rs 100-102 range. Intraday or day traders decide to bet on the stock and 1,000 shares each. Thus there is a sudden rise in demand for the share. This causes prices to go up marginally. As soon as it hits a certain level, traders sell their stocks. This, in turn, causes prices to fall.
Technical analysis: Since day-traders are only concerned with the volatility in price and volume of the stock, these traders rarely look into the financial viability of the underlying company. They usually employ technical analysis. This includes analyzing historical trends in stock prices and volumes to forecast the future price. Technical analysis helps determine the right conditions to buy and sell stocks. This usually requires a lot of time and effort. As a result, day traders are usually full-time traders, closely monitoring each and every movement in the stocks.

How to day-trade

First of all, the idea is to select stocks which have a high volume of trade. This means they are highly liquid. This could include penny stocks – shares of small-scale companies with prices as low as Rs 20. Select a maximum of two or three stocks at a time. It would become difficult to monitor more shares. Decide the price at which you want to buy and sell – your entry and target prices. Most importantly, ensure you have a stop loss order to act as a safety net. This will help reduce your risks. Once you have placed your order, monitor closely and exit when the price has hit your target or stop- loss levels.

Delivery vs. Intraday trading

If you buy stock on delivery basis, you can pretty much do anything with it. You can keep it for as long as you want, or sell it the next day. It all depends on what you wish to do with it. Anytime you feel the market is high or the value of the stocks held is adequate enough to trade, you can sell them to earn the benefits.

In intraday trading, you are required to sell the stocks on the same day, before the market closes. If you fail to do so, there can be two outcomes. Some online platforms automatically convert those stocks into delivery trades and levy a brokerage, so that you can sell them at your own desired time. Others just square-off your trades at the market price during the close time, even if you’re making a loss, and sadly you have to bear the losses.