Rules to follow before buying stocks in intraday trading

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Online share trading can be tricky. This holds true especially if you engage in intraday trading, where decisions have to be made quickly. Traders need to know the ins and outs of the market to gain from minor changes in stock price trends. Learning to read the movements of different financial instruments is only the first step in intraday trading for beginners.

If you are just starting out, keep in mind the following pointers while selecting stocks:

  1. Liquidity

Higher-volume stocks offer higher liquidity and therefore are good choices for intraday traders. Because liquid stocks see more market activity, day traders have more opportunities to exit their trading positions. Therefore, it is always advisable to check the daily volume of that stock before entering into any intra-day trade.

  1. Volatility

Day traders feed on stock price movements throughout the day. The rate of movement indicates the level of volatility. In intraday trading, it is advisable to avoid stocks that show low volatility, as it may be harder to exit the trade under favourable conditions. To make money through day trading, traders should focus on stocks that show moderate-to-high volatility.

  1. Indexes

Most traders follow the price indexes relating to their shortlisted stocks. Any change in the index will typically reflect in the shares they hold. When you know how your preferred stocks are moving against their indexes, making the right trading decision becomes easier.

Entry and exit points

Once you choose which stocks to trade in, finalise your online share trading strategy. Here are some rules to help:

  • Follow the trend

The trends in the stock market come in waves throughout the day. To make money on the stock market, you must learn to ride those waves. Just keep in mind that intraday trends do not last long. Be ready to modify your position when a change seems imminent. A trend chart can help you figure things out.

  • When to trade which stock

While selecting stocks, divide them into strong or weak based on their ranking on various indexes or futures. This will help you to select a strong stock that may move higher than the market. When futures move fast, for example, you may find stocks moving even faster. Now, if futures pull back, the strong stocks may not be heavily affected. These market-leading stocks often present good opportunities for day traders.

Just keep in mind that a stock’s strength may change at any time. You must keep monitoring them to get a feel for their market performance.

  • Have patience

Keep an eye on different trading charts to identify the best entry point in the market. Are you buying long-hold stocks? Then, time it to the point where the pullback has happened and prices are bound to go up again. Wait to buy when the price is closer to the stop-loss point and is just below the trend line. This way, you will minimise risks and earn better rewards.

  • Pocket the profit

If a trade is losing money, abandon it quickly. Try to make more winning trades and keep your losses to a minimum. Make small profits but ensure you take them home. You could set up a profit target to ensure that you exit at an opportune time.

Conclusion

To profit from intraday trading, you must develop an understanding of how the market might move. Trading charts can give you valuable insights into market trends. Learn to read them closely. To make intraday trading for beginners simpler, you could open an account with an experienced broker. Such brokers offer a range of platforms and resources that can help you finetune your trading strategy.

CA Karan Batra, the founder of this website is All India Rank 22 in CA Exams and is regularly featured in both TV and Print media as a leading tax expert. He is the author of 2 books and has vast experience of representing cases before the Tax Dept.