Understanding Intraday Trading
How To Do Intraday Trading in India For Beginners? Before directly jumping on How to do? Let’s create a base understanding about what is trading and how trading works practically?
Trading is like buying and selling stuff, but instead of things like toys or clothes, you’re dealing with things like stocks, currencies, or even cryptocurrencies. People do intraday trading to make money.
Here’s how trading works: Imagine you have some money, and you think the price of something, let’s say a stock in a company like HCL Technologies, will go up in the future. So, you buy some of that stock at the current price.
Later, if the price goes up like you predicted, you can sell it for more money and make a profit. Likewise, you can also sell stock first and buy it later, which is called short selling. how to do intraday trading.
Intraday Trading Example
For example (refer to the image below), let’s say you buy 10 shares of HCL technologies stock at Rs. 1,227.80 per share. So, you have invested Rs. 12,278 (10 shares x Rs. 1,227.80 per share) to buy Apple shares.
Later on, if the price of HCL technologies stock goes up to Rs. 1,249.65 per share, you can sell your 10 shares for Rs. 12,496.5 (10 shares x Rs. 1,249.65 per share). You’ve made a profit of Rs. 218.5 (Rs. 12,278 – Rs. 12,496.5) by selling your shares at a higher price than you bought them for.
But remember, stock prices can go down too. In such a case, you have to bear the loss.
So, trading stocks is about trying to buy low and sell high to make a profit, but it’s not always easy, and there are risks involved. That’s why people study the stock market and use different strategies to make informed decisions. how to do intraday trading.
Advantages and disadvantages of intraday trading
Advantages of Intraday Trading:
Quick Profits: Intraday traders aim to capture profits from short-term price movements, i.e., make money in a single trading day.
No Overnight Risk: Intraday traders don’t hold positions overnight. It reduces the risk of overnight market news or events that can affect prices.
Lower Margin Requirements: Brokers offer higher leverage for day trading. It means traders don’t need to use their own full cash, they can take trades with a smaller amount of capital.
Potential for Daily Income: Intraday trading is a great source of daily income for those who are skilled and disciplined.
Disadvantages of Intraday trading:
High Risk: Intraday trading can be very risky because prices can be extremely volatile during a single trading day. Quick price movements can lead to substantial losses.
Stress and Pressure: Day traders need to make quick decisions, which can be mentally and emotionally taxing. The stress of constantly monitoring the market can be overwhelming.
Trading Costs: Frequent buying and selling can lead to higher trading costs, including commissions and spreads, which can eat into profits.
Information Overload: Keeping up with market news, technical indicators, and price charts can be overwhelming, especially for beginners. How To Do Intraday Trading in India For Beginners.
Difference between trading (day trading) and Investing
Day Trading: Day trading means buying and selling financial assets like stocks or currencies within the same trading day. Day trader aims to book profit from short-term price fluctuations, sometimes even within minutes or hours.
Do you want to know how much day traders earn? Check here
Investing: On the other hand, Investing is like planting seeds and waiting for them to grow into big trees. When you invest, you’re buying assets like stocks, bonds, real estate, or mutual funds with the expectation that their value will increase over time. You invest your money for the long term, often years or even decades. How To Do Intraday Trading in India For Beginners.
So, by now you are aware of what intraday trading is, its advantages and disadvantages, and the difference between intraday trading and Investment.
The next, step is what segments are available in the Indian market to do intraday trading. There are different segments in which you can choose and do trading such as Equity intraday, F&O trading, currency trading, commodity trading, etc.
Let me give you a brief about every type of trading segment to clear all your basics as a beginner. how to do intraday trading.
Trading segments for Intraday Trading in India
In India, intraday trading involves buying and selling stocks or other financial instruments within the same trading day. Let us understand about the trading segments in which you can do trading in India
#1. Equity Intraday Trading in India
- This is the most common segment for intraday trading in stocks. In equity intraday trading, you buy and sell shares of the listed companies on the same trading day.
- You need to square off the trade before the end of the trading session, i.e., 3:30 p.m. (Many broker’s square-off timings are 3:20 p.m.)
- You can choose NSE and BSE stocks for intraday trading.
Check here: Learn How to do Intraday Trading in India
#2. Futures and Options (F&O) Intraday Trading in India
- F&O (equity derivatives) trading involves trading in futures and options contracts.
- Intraday traders can trade on contracts without actually owning the underlying assets.
- F&O intraday trading requires a good understanding of derivatives and risk management.
Check here: Learn how to do F&O trading in India?
#3. Commodity Intraday Trading in India
- Commodity markets offer opportunities for intraday trading in various raw materials like gold, silver, crude oil, and agricultural products.
- You can do commodity trading on various exchanges such as MCX, NCDEX, ICEX, NMCE, and ACE.
- Traders speculate on the price fluctuations of these commodities during the trading day.
- Traders can do agro-based commodities trading between 9 a.m. to 5 p.m. and on non-agricultural commodities between 9 a.m. to 11:30 p.m.
#4. Currency Intraday Trading in India
- In Currency trading currency derivatives or forex trading, traders can trade on the foreign exchange market (known as Forex) on NSE, BSE, and MSE (Metropolitan Stock Exchange).
- You can trade in four currency pairs in India (e.g., USD/INR, EUR/USD) with the aim of profiting from changes in exchange rates within a single trading session:
- Rupee-Dollar (INR-USD)
- Rupee-Pound (INR-GBP)
- Rupee-Euro (INR-EUR)
- Rupee-Yen (INR-JPY)
- The currency market opens at 9 am and closes at 5 pm. How To Do Intraday Trading in India For Beginners.
#5. Index Intraday Trading In India
Index trading involves trading stock market indices like the Nifty 50 or Sensex. Traders speculate on the overall direction of the market based on the performance of these indices during the day.
#6. Sectoral Intraday Trading
Some traders focus on specific sectors or industries, such as IT, banking, or pharmaceuticals. They trade stocks from these sectors based on sector-specific news and trends.
So, these were the trading segments, once you decide which type of trading segment you want to do. You are ready to explore the market practically.
Setting up Trading account for intraday trading
To start intraday, you need a Demat and trading account. It is basically a platform where you can buy and sell shares/securities/currencies/commodities, etc. How To Do Intraday Trading in India For Beginners.
Here are the simple steps that you can follow before you can start intraday trading in India:
Step 1: Choose a Stockbroker
Select a reputable stock broker and reliable trading platform in India, like Zerodha Kite, Upstox, Angel One, or ICICI Direct, and open a trading account with them. These platforms offer features like real-time market data, charting tools, and order execution options to facilitate intraday trading. How To Do Intraday Trading in India For Beginners.
Here is my guidance on how to select the best broker: 7 Best Broker for Intraday in India 2023 (How I selected the best stock broker)
Step 2: Demat Account
Open the demat account with the above-selected stock broker. Demat account holds your stocks and securities electronically.
If you don’t have a demat account, I would recommend you open a Zerodha demat account. You can check my honest Zerodha Reviews here: Zerodha Reviews 2023
Also, if you want to compare different stock brokers, here you can check the comparisons of different stock brokers:
Step 3: Fund Your Account
Add funds into your trading account from your bank account to have the capital needed for trading.
Step 4: Market research and analysis for intraday trading
To succeed in intraday trading, you must develop a robust research and analysis routine. Here are some key aspects to consider:
- News and Events: Stay updated on market news, economic events, and company-specific news that could impact the stocks you’re trading.
- Technical Analysis: Study technical indicators, charts, and patterns to make informed trading decisions. Learn about candlestick patterns, moving averages, and Relative Strength Index (RSI).
- Fundamental Analysis: While not the primary focus of intraday trading, understanding the basics of a company’s financial health can provide context for your trades. how to do intraday trading
Start here : How To Make Money Trading With Candlestick Charts? (Free Book)
Step 5: Choosing Stocks for Intraday Trading
Selecting the right stocks is crucial for successful intraday trading. Here’s how you can pick the best stocks for your strategy:
- Liquidity: Choose highly liquid stocks, as they are easier to trade in and out of.
- Volatility: Look for stocks with high volatility to offer trading opportunities. Avoid stocks that are too stable or lack price movements.
- Sector Analysis: Focus on specific sectors or industries that you understand well and that are currently in demand.
Once you complete the above 5 steps, you are ready to analyze the market and select stocks in which you want to trade.
However, before that, I would recommend you to know a few basic terms related to Intraday Trading and how to do intraday trading. So that when you make your positions in the market, you don’t get confused, and the main thing is don’t get trapped in the losses.
Intraday Terms you should Know before start trading
Here are a few terms that you should know before starting intraday trading. How To Do Intraday Trading in India For Beginners.
#1. Intraday margin
The amount of money you need to have in your trading account to enter an intraday trade.
Example: If your broker requires a 20% margin for a stock of Rs. 1,000, you need Rs. 200 in your account to trade one share of that stock intraday.
#2. Limit order
An order to buy or sell an asset at a specific price.
Example: You want to buy a stock trading at ₹100, but you’re only willing to pay ₹95. You place a limit order to buy at ₹95. If the stock price reaches ₹95, your order will be executed.
#3. Market Order
Market order means you are ready to buy or sell stock at the current market price.
Example: You want to buy a stock trading at ₹100, and you place a market order. Your order will be executed at the best available price, which may be close to ₹100.
#4. Stop Loss Order
An order to limit potential losses by selling a position if the price reaches a specified level.
You buy a stock at ₹100 and set a stop loss order at ₹90. If the stock price drops to ₹90 or below, your shares will be automatically sold to limit your loss.
#5. MIS (Margin Intraday Square-off)
A trading product that allows you to take intraday positions with higher leverage but requires closing all positions by the end of the trading day.
You use MIS to buy 10 shares of a stock worth ₹1,000 each with only ₹5,000 in your account, but you must sell these shares by the market’s closing time.
#6. Bracket Orders
An order that consists of a main order and two linked orders (stop-loss and target). When the main order is executed, the stop-loss and target orders are automatically placed.
You place a buy bracket order for a stock at ₹100 with a target of ₹110 and a stop-loss at ₹95. When the stock hits ₹100, your buy order is executed, and the stop-loss and target orders are also set.
#7. Cover Orders
Similar to bracket orders, cover orders involve placing a market or limit order along with a compulsory stop-loss order.
Example: You want to buy a stock at the market price (current price) of ₹100, and you place a cover order with a stop-loss at ₹95. If the stock price drops to ₹95, it will be sold automatically.
#8. Candlestick Charts
Graphical representations of price movements using candlestick-shaped bars, helping traders analyze patterns and trends.
Example: A candlestick chart shows green bars (bullish) and red bars (bearish) to visualize whether the price is going up or down.
#9. Day Trader
A trader buys and sells assets within the same trading day to profit from short-term price movements.
Example: You buy 100 shares of stock in the morning and sell them in the afternoon to make a profit based on the day’s price changes.
#10. Leverage
Using borrowed funds to trade larger positions than you could with your own capital.
Example: With ₹10,000 of your own money and 5x leverage, you can control ₹50,000 worth of assets in your trades.
#11. Volatility
The fluctuations in the price of the stocks. High volatility means significant price swings.
Example: A highly volatile stock might move from ₹100 to ₹120 in a day, while a low-volatility stock may move only from ₹100 to ₹102.
#12. Futures Contracts
Agreements to buy or sell an asset at a predetermined price and date in the future.
Example: You enter into a futures contract to buy oil at ₹1,000 per barrel three months from now, regardless of its market price.
#13. Options Contracts
Financial derivatives that give you the right (but not the obligation) to buy (call) or sell (put) an asset at a specified price on or before a specified date.
Example: You buy a call option giving you the right to buy 100 shares of a stock at ₹110 each within the next month.
#14. Risk Management
Strategies and techniques to minimize potential losses and protect your capital.
Example: Setting stop-loss orders, diversifying your investments, and not risking more than a certain percentage of your capital on a single trade are all forms of risk management.
#15. Delivery Margin
Delivery margin is the amount blocked by the broker (it is usually 20% of the value of stocks sold) when you sell stocks from your Demat account. Such funds are released by broker and you can utilize these from the next trading day. how to do intraday trading.
Strategies to choose stocks for intraday trading
Intraday trading relies on various strategies to capitalize on price movements within a single trading session. How To Do Intraday Trading in India For Beginners. Here are some common strategies:
- Scalping: Involves making small, quick trades to capture minor price fluctuations.
- Day Trading: The most common form of intraday trading, where traders open and close positions within the same trading day.
- Swing Trading: A slightly longer-term approach that aims to capture price swings over a few days.
- Breakout Trading: Traders identify key price levels and enter positions when a stock breaks above or below these levels. how to do intraday trading.
Trading Psychology and Risk Management
Intraday trading carries inherent risks due to the fast-paced nature of the market. Proper risk management is vital to protect your capital. Key principles include:
- Setting Stop Loss Orders: Always use stop-loss orders to limit potential losses on your trades.
- Position Sizing: Determine the size of your positions based on your risk tolerance and available capital.
- Diversification: Avoid putting all your capital into a single trade. Diversify your portfolio to spread risk. How To Do Intraday Trading in India For Beginners.
Technical analysis tools
Technical analysis is a fundamental part of intraday trading. Here are some essential technical analysis tools:
- Candlestick Charts: These charts display price movements and patterns in a visually informative way.
- Moving Averages: Use moving averages to identify trends and potential entry or exit points.
- Relative Strength Index (RSI): RSI helps determine overbought or oversold conditions in a stock.
- Bollinger Bands: These bands indicate price volatility and potential reversals. How To Do Intraday Trading in India For Beginners.
Also Check: 5 Best Indicators for Intraday Trading in TradingView Free
Use our free resources to start learning technical analysis of stock market:
How to Do intraday trading in India for Beginners?
Step by Step guide on How To Do Intraday Trading in India For Beginners:
The intraday steps are similar with all the trading brokers. In this guide, I have taken an example of the Zerodha Kite App to help you in understanding the process better.
Step 1: Open trading account
You need to open a trading account with one of the brokers (you can compare and choose Zerodha, Upstox, Groww, Finvasia, Angel one, etc.).
Open Zerodha Demat Account directly here: Zerodha Account Open Online
Step 2: Transfer fund to your trading account
You must have sufficient margin balance in your trading account for intraday trading (Intraday trading is called MIS, i.e., Margin Intraday Square off). How To Do Intraday Trading in India For Beginners. how to do intraday trading.
Step 3: Select the stocks for Intraday
This is the most important step that can make or break your money. As we know that the NSE has more than 1600 companies listed in the stock exchange, while the BSE has more than 5000 companies in its exchange, we can’t track all the stocks for intraday trading.
So, the best way is to create a watchlist of stocks for trading. You can easily track a list of 10-20 stocks to find the intraday opportunity. How To Do Intraday Trading in India For Beginners.
Step 4: Buy Shares for Intraday Trading
You have two options to take trade with – Limit order and market order. Further for the intraday trading you need to select MIS and delivery trading you need to choose CNC.
Check here: How to Buy Shares for Long Term?
Step 5: Track order book for executed or cancelled trades.
The next step is to ensure a track order book to ensure the status of the trade whether it is executed or cancelled. Simply click on the order tab and see all the orders you have placed. how to do intraday trading.
Step 6: Continuous monitoring of trades executed
We should always be on the constant lookout for opportunities to trade and always have a stop loss for the existing trade. How To Do Intraday Trading in India For Beginners. how to do intraday trading.
Taxes and Regulations on Intraday Trading
In India, intraday trading is subject to specific tax regulations. Profits from intraday trading are treated as speculative income and are subject to short-term capital gains tax. It’s essential to keep accurate records of your trades and consult with a tax advisor to ensure compliance with tax laws. How To Do Intraday Trading in India For Beginners.
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