Intraday trading, also known as day trading, is about buying and selling shares on the same day to book profits.
The aim of of this trading method is to earn quick short-term profits by taking advantage of the price movements on that particular trading day, and close your position before the end of market hours.
Here are some tips for a successful intraday trading strategy:
1. CHOOSE LIQUID STOCKS
Liquidity is the most important criteria you must check before selecting a particular stock to trade in.
Choose stocks with high liquidity, as they trade at huge volumes and allow intraday traders to buy or sell larger quantities at ease
Avoid small-cap and mid-cap stocks that may not be liquid enough. Otherwise, there is a tendency that your closing trades may not get executed
And avoid investing all your money in a single stock. Diversification is the key to balance your intraday trade and minimize your risk.
2. PLAN YOUR ENTRY AND EXIT
Decide the entry and exit price before taking a position.
You must strategically plan ahead your entry and exit without letting your emotions rule your decisions. This is to ensure that you have an objective view.
3. SET A STOP-LOSS LEVEL
When you invest in a share, it is important that you decide how much loss you are willing to take, if the trade goes against you.
That’s because share prices can go up or go down. And it is possible the long trading position you take, may go the opposite direction unexpectedly.
One of the most important tip for intraday trading is to set a stop loss, because it will act as a safety net to help minimize your losses and manage your risks.
4. TAKE PROFIT WHEN TARGET IS REACHED
You must make trade decisions based on facts and strategies, and not just emotions.
That’s because intraday trading relies on high leverage and margins to help amplify profits (as well as losses).
The trick is not to get 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 the price will keep rising (or falling), because it only takes few minutes for the market to switch position, especially if the market is volatile.
5. ALWAYS CLOSE ALL OPEN POSITIONS OVERNIGHT
Intraday trading is based on market trends and technical analysis of the stock movements for the day, and not suitable for long-term investments.
Therefore, holding onto a trade overnight, may expose your trade to unseen news or circumstances that may impact your trade drastically.
6. DON’T GO AGAINST THE TREND
It is almost impossible to predict market movements.
Fluctuation is the very nature of the stock market. If the market is not going your direction, sell and exit your position straightaway as it hits your stop-loss level.
Holding onto a losing position, in hope that the market may turnaround will often lead to further losses.
7. RESEARCH YOUR TARGET COMPANIES
Once you have identified a set of stocks to trade, make sure that you research them thoroughly.
Start by learning how technical analysis can help you make better trading decisions.
Find out when any corporate events are scheduled, like earnings and FOMC events.
8. TIMING IS CRUCIAL
To make the best of intraday trading, you must learn how to make the right moves at the right time.
Do not take a position within the first hour of the trading day. This is because volatility tends to be highest at this hour, which leads to huge price fluctuations.
To master this skill, pay attentive to details, and try to understand market’s mood in the morning, noon, and at closing.
10. DEVELOP GOOD HABITS
One of the most important intraday trading rule is to be disciplined, and not to lose money.
Start with a small amount of trading capital to test the waters, and stick to a predetermined intraday trading strategy.
For example, you can use technical analysis to identify short term trends with indicators and trend lines.
It helps traders to understand the current market conditions and plan their entry and exit strategies, for maximum profits.
For example, when a stock breaks resistance and moves upwards, it is usually a good time to buy a long position, and vice-versa.
Being up-to date with daily news and market sentiments are also very important for a successful intraday trading.
BOTTOMLINE: TRADING PSYCHOLOGY
Last but not least, the secret to successful day trading is to master your trading psychology.
It’s easy to get carried away by emotions, so you must keep emotions under control and define your profit targets,
Take charge of your emotions and stick to your trading plan, and make tactical adjustments when necessary.
When you have reached your profit targets, exit immediately.
Once you have mastered your trade play, then only can you consider becoming a full-time day trader.