What is Intraday Trading? A Beginner's Guide to Day Trading Stocks

What is Intraday Trading?

The term Intraday means “within the day”. As the name itself suggests, Intraday Trading refers to the purchasing and selling of stocks within the same day. Also known as day trading, intraday trading aims to capitalize on short-term price movements, leveraging market volatility to generate profits. Intraday trading revolves around the swift execution of trades with the objective of profiting from small price fluctuations. Traders participating in intraday activities typically do not hold positions overnight, minimizing exposure to overnight market risks. Instead, they rely on technical analysis, charts, and real-time market data to make informed decisions throughout the trading day. Intraday traders will look to settle all their positions when the market closes.

How is Intraday Trading different from Regular Trading?

The primary difference between regular trading and intraday trading lies in the handling of stock delivery. In intraday trading, positions are squared off on the same day, while regular trading transactions take a longer duration to settle. In intraday trading, where shares are bought and sold within the same day, the crucial difference lies in the absence of a transfer of ownership of shares.

During regular or delivery trading, you can keep the stocks bought for an extended duration. The shares bought by you are credited to your Demat Account and you can sell after days, weeks, months or even years. As mentioned above, where there is a lack of ownership of shares in intraday trading, delivery trading enables you to have ownership of your shares until you sell them.

While regular/delivery trading makes for a good long-term investment option, intraday trading fetches short-term results.

Also Read: What is Demat Account?

Features of Intraday Trading

The features of Intraday trading are as follows:

Ownership of Stocks :

In intraday trading, you must take position of the stock and close it within the business hours of the same day. If this does not happen, the position gets squared off at market price automatically. In this form of trading, you do not get the ownership of stocks that you buy and sell.

Same Day Trading :

The goal of intraday trading is not the ownership of stocks. It enables profits by taking advantage of the price movements during the day. In this form of trade, the transactions need to be settled on the same day within the market hours.

Leveraging :

Leveraging refers to the act of borrowing money from your broker to enhance your buying power and boost returns. However, it comes with certain terms and conditions that one must get familiar with in order to reap its benefits.

Research :

Successful participation in intraday trading demands thorough research on the stocks targeted, close scrutiny of charts using indicators, formulation of a personalized strategy, and incorporating a stop-loss to mitigate the risk of substantial losses.

Indicators of Intraday Trading

The following indicators are helpful in executing successful intraday trading transactions:

Moving Average :

This indicator connects the average closing rates over a specific period, aiding in the assessment of the underlying price movement of a stock.

Bollinger Bands :

Slightly more intricate than moving averages, Bollinger Bands exhibit three lines — the moving average, an upper limit, and a lower limit. These lines collectively provide a more comprehensive indication of a stock's underlying price dynamics compared to a simple moving average.

Momentum Oscillators :

This indicator assists in measuring how a security's price has evolved over a given period.

Relative Strength Index (RSI) :

Serving as a momentum calculator, the RSI indicates the magnitude of a recent price change for a stock.

Also Read: A Complete Guide to Mutual Funds

Benefits of Intraday Trading

With intraday trading becoming highly popular among traders, let us take a look at the various benefits this form of trading has to offer:

Higher Returns :

Intraday has the potential to provide higher returns in a shorter span of time, as compared to other investment options.

Market Knowledge :

It helps increase the market knowledge of those who are new to trading and investing.

Lower Charges :

The brokerage charges for intraday trading are lower compared to delivery trading.

Avoid Overnight Impact :

The most significant advantage is that the positions are not affected by negative overnight changes in the market which impact the price of the securities.

Intraday trading requires thorough research and knowledge for success, but with the right strategies and discipline, it can be a rewarding endeavor. Traders must continuously educate themselves, stay informed about market conditions, and adapt their strategies to evolving trends. Whether you're a seasoned investor or a novice, mastering the art of intraday trading requires commitment, practice, and a willingness to learn from both successes and setbacks. As you navigate the dynamic world of intraday trading, remember that patience and resilience are key to long-term success in the fast-paced realm of day trading.

Also Read: Understanding Trading Accounts: Types, Features, and Benefits