5 Tips for Intraday Trading

Intraday Trading is totally different from long-term equity investment. Till now, i discussed only long term investment through my blog. Intraday Trading is riskier compared to stock investment. Off late, the stock market is highly volatile. If you have to make your living from the stock market, then Intraday Trading is the only solution. There is a famous saying that “Either change yourself or Change will change you”. I decided to change myself and jumped to Intraday Trading. The most critical point is to keep long-term equity investment separate from Intraday Trading. As i mentioned in my post, Fundamental Analysis vs. Technical Analysis that intraday trading demands a lot of technical analyses. During my journey so far, i observed that too much analysis leads to paralysis. There are lot of technical analysis indicators like

(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

After a lot of studies and practical case study, i concluded that none of the indicators can be termed as RELIABLE. Intraday Trading require devising own strategy to make money in the stock market. After going through a lot of turbulence and ups/downs, i created a list of tips for myself. Intraday Trading is a vast subject, and i can write hundred of posts on same, but this post will only discuss basic tips. My next post will be on how to shortlist stocks for Intraday Trading?

5 Tips for Intraday Trading

1. Identify Strong Stock Trend:

It is the most difficult job in the stock market. Any error in judgement 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 i 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

Many more can be added to the list.

2.  Initiate Early Trade:

I observed that initial 15-20 mins of morning trade were highly volatile. Generally traders suggest trading after 20-30 mins of early trade. I noted that in most of the stocks trend is established within 30 mins and no trade is left for the day. After initial turbulence, the prices stabilize and further movement is limited. In the case of stocks with a strong trend, a position can be taken within few mins and profits are more in such stocks. If you are 100% sure of the trend, then the position can be taken within few mins. At the same time, it is very risky. A risk-free approach is to wait for 20-30 mins before taking any position. In short, for Intraday Trading you should take a position within 30 mins of trade.

3. Fix your Gains and Losses:

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. It is done so that overall trade for the day should be profitable. I explained this in my post, How to control your loss in the stock market?. There is 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. I will discuss it in detail in my future posts.

4. 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. Therefore, to start with, i initiated trading in 1 stock, and now i trade in two stocks every day.

5. 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, i 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.

The first and foremost objective of any day trader is to prevent losses and protect profits. The most important trait of an Intraday Trader is to follow Disciplined approach. Once i achieve the daily target, i CLOSE my trade for the day even if it’s too early. It’s quite tempting to earn more profit and initiate fresh trade but always remember that you missed the pulse of the trade. You can catch the pulse only during initial few mins of the trade. On the contrary, if a trader gets wrong calls then also QUIT for the day. Trust me its not your day. A disciplined approach can help you earn a decent living from Intraday Trading. On the other hand, the ad-hoc approach may land you in big trouble. No one is perfect in this approach, but time & experience teach a lot of lessons. Traders who learn from their mistakes can earn, and others QUIT.

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Happy Intraday Trading !!!

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