Intraday Trading – Explanation
Intraday trading is a term associated with trading shares, stocks and other derivatives, on stock exchanges, or commodities on commodities exchange, or forex in foreign exchange markets. This term is used for sale and purchase within the same day. An example of intraday trading is when a person buys a stock during the day, and waits to make reasonable profit, and sells it as soon as some profits are made during the same day. There are, of course, transaction charges both ways, which need to be taken into account for determining profit from intraday trading.
But most importantly, there are some other terms that are used by intraday traders that need to be understood before venturing into such trades:
Intraday Trading – Terms
A. Index refers to stock market index in intraday trading. In this a set of stocks that reflect the stock market`s movements are included and their weighted position marks and upward or downward movement of the index;
B. Short sale it is possible to sell a stock even though the person does not own the stock as yet, but when this is done, the trader has indirectly committed to buying the security during the day. Therefore, a trader who sees stock touch $3 may choose to sell, it, and a few hours later, purchase is for $1.5 or so. Effectively, he would be making profit on the same day. This is a popular method for intraday trading.
C. Long position in intraday trading is when the trader gives an order to purchase at a specific rate, and waits for the deal to materialize. After the deal, the trader again gives the order for sale at some profit. Effectively, the trader wants the prices to go up, unlike in short sale where trader hopes prices of the stock will plunge.
D. Liquid stocks in intraday trading are stocks that show high volume of activity. They may also be stocks with lower face values. If more number of stocks of a business enterprise are being traded on the stock market, then the chances of the sale or purchase as desired price level increase;
E. Derivatives Stock markets were primarily formed to allow intraday trading in stocks and shares. However, new forms of transactions where some stocks can be bought or sold in future, or option to buy or sell stocks in future were developed. Since they are essentially based on underlying shares or stocks, they are known as derivatives;
f. Option as the name implies in intraday trading are rights not essentially binding. These are derivatives. There are available in two types, i.e., the put, and the call.
i. Call gives the trader a right to buy in future at the rate specified right now;
ii. Put gives the trader the right to sell in future what he doesn`t have at present, at the rate specified now;
g. Futures unlike options are firm contracts or agreements to buy or sell in future. These are also derivatives in intraday trading.
h. Stop loss This is a crucial term for intraday trading. It is triggered when the profits are likely to dip below the specified limit. This is part of the intraday trading formula.
Intraday Trading – Example
Intraday trading in India starts in the morning at 10.00 a.m., Indian Standard Time, and the markets close at 3.30 pm. No further bookings are accepted beyond that, whether they are sales or purchases of shares, or derivatives. Transaction charges applicable to intraday trading are much lower than transaction charges for inter day or overnight trading. But at times, it may become necessary to hold on to the share for longer due to unexpected volatility in stock markets. In such cases, the required sale price needs to be revised upwards duly considering the transaction charges both ways.
There are several online sites that facilitate both interday and intraday trading on stock markets. Icicidirect is one such online trading facility offered by the Indian bank, ICICI. In addition to the usual features, the site keeps a record of the day on which stock was purchased and the rate at which it was purchased. This is useful for calculating any capital gains on the particular transaction.
Traders discuss the intraday trading strategies using the terminology detailed above. Their assumptions are often based on the quantum of futures transactions and estimation of options, as well as volume of trade. Though all their strategies do not work, following the advice of the stock brokers consistently in the initial stages will give insight into normal traders strategies. On an average, the losses will be minimal when following the intraday trading strategies suggested by brokers.
For risk averse, and newcomers, derivatives make better sense, as loss is limited, especially under options. An example of intraday trading, options are just rights, and they are purchased at a price. Unlike it, trading in stocks can lead to heavy losses. Generally, buying stocks when they are low and then waiting for them to move upwards would pay. But in intraday trading this strategy may not work. If the results of a company are bad, and the market is over reacting, then the market will hammer down the stock for a whole day, or even a whole week. Since it is not easy to identify when a stock has bottomed out, the intraday trader has to take contrarian call. The swing of the stock price is an indicator which value it will most probably touch. Intraday trading pair is about trading with two stocks that keep on catching up with each other.
Intraday Trading Tips & Strategies
Intraday Trading is a label for a type of stock market trading. You do not hold onto the stock and ride out the ups and downs over the years hoping to make a sizable profit in the end. It is classified as intraday trading because its actions take place within one day; opening and closing a position in a security happens within the same day.
This can mean a number of things for intraday trading and traders. It could be that they are buying and selling within a day to cash-in on a possible rise in a security`s value. They can also be shorting and covering the short to cash-in on the possible drop in value of the stocks.
Either way they are capitalizing in the small rises and falls of stocks that occur on a daily basis. It is a risk like it would be playing any of the rest of the stock market, but they do intraday trading basically by borrowing money. For example if they have an account with $1 in it they can take a $4 position for that day. In Intraday trading you are not allowed to hold this amount overnight. You can only hold 2X the value of your account overnight.
One strategy used for intraday trading is when traders are strictly cutting their losses by maintaining stop loss orders. These limitations can be a good thing though because the trader can be wrong about 50% of the time and still hope to make a good profit. Some traders follow trends while others prefer to identify intraday trading reversals. Some hold a position all day and some only for a few minutes before switching it up when intraday trading.
Whatever you strategy is, playing the stock market is always going to be a bit of a risk in intraday trading. It is making money off of taking chances. In order to raise the likelihood of making profitable guesses, it is a good idea to be very informed. Many traders study intraday trading history, intraday trading chart, intraday trading data, and intraday trading indicators. This helps them understand what kinds of trends and signals to look for and see what has happened in the past that could be an indicator for how the market will react in the future. Almost all day traders rely heavily on trading chart and intraday trading strategies. Don’t forget to use these intraday trading tricks and intraday trading techniques.
Intraday Trading conclusion
Intraday trading has been made much easier with technological advances. Traders can find intraday trading strategies and advice online at trading sites or blogs. You need to pay attention to the technical analysis for intraday trading. There are shelves full of books about good intraday trading strategies. You can even learn how to trade better from the comfort of your home with intraday trading software. Some of your intraday trading can even be set up to go through software. No matter how much you learn, participating in intraday trading will always be a bit risky. However, there is also a huge thrill to be had and tons of money with the right investments. There is nothing like seeing your small stack of chips grow just by moving it around. So learn to be a better intraday trader today by finding tips and strategies now! Best of luck in your intraday trading strategies and download intraday trading strategies pdf files.
Intraday Trading – Useful Links
- Definition of Intraday Trading on Investopedia
- Intraday Trading article on Wikipedia
- Useful resource about Intraday Trading
- Another Useful resource on Intraday Trading
- Another definition of Intraday Trading on InvestingAnswers