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How Does Intraday Trading Work?

How Does Intraday Trading Work?

Intraday trading is gaining much traction in India, becoming a top choice trading segment for beginners. It refers to buying and selling stocks and securities within the same day to make profits.

Think of day trading as batting in a T20 cricket match. T20 cricket requires the batsman to be quick, take decisions under pressure, and assess the pitch to plan their innings. Similarly, day trading needs the trader to watch the stock market like a hawk, make quick decisions to stay put in a volatile market, and identify the market trends to time their exit.

Hit the market at the right time for a six! Waste even a moment doubting your strategy, and you get clean bowled. Day trading, just like T-20, is all about predicting the short-term flows of the cricket pitch to score higher.

Interested in entering the equity trading market? Here's what you need to know.

What is intraday trading?

Simply put, intraday trading involves the trading activities performed by an individual within a day. As share prices keep fluctuating, day traders try to make profits from these price changes by buying and selling shares strategically before the market closes for the day. Essentially, the goal of day trading is not to own stocks but to gain profits from the changing share prices.

The process of intraday trading requires you to have comprehensive knowledge of the stock market. You also need the ability to keep up with the ins and outs of the stock market so that when the market closes, you have greater profits coming your way.

How does intraday trading work?

The intraday trading process is all about making the right move at the right time. Day traders use market analysis and short-term trading strategies to capitalise on even the slightest price movements to maximise profits. Engaging in day trading requires you to have a keen sense of how the market may perform and take calculative steps accordingly.

Let's understand how does intraday trading work with the help of an example -

Suppose a stock opens in the morning at Rs. 300 per share, and the trader decides to buy (their position in the market) it. By the afternoon, they see the stock price rising to Rs. 340, so they sell the stock. Because the trader squared off their position before the market closed, this completes the process of intraday trading.

Is it different from regular trading?

The intraday trading process differs significantly from regular trading in terms of the delivery of the stock. When it comes to day trading, the trader must square off his position (reverse his existing position; if an individual has bought a stock, he must sell, and if the person has sold a stock, he must buy before the day ends), regardless of the profit or loss. This way, there is no change in ownership of the shares.

Keen on entering the stock market with the process of intraday trading? Here are a few successful tips to remember when it comes to day trading.

1. Entry and exit

As a trader, while it might make sense to continue trading to get higher profits, knowing when to enter or exit the market is the sign of a smart trader. Identify the market trends to avoid entering the market by buying the wrong stock.

Similarly, to decide when to exit the market, you can either set a target profit or determine the maximum loss you can bear, after which you can consider withdrawing.

2. Choose the right stocks

Having a comprehensive knowledge of the stock market wouldn't be beneficial if you don't choose the right stocks to trade. After all, your investment will only be worth your time if you get better returns. Identify the stocks that interest the most traders and vary the stocks that show historical instability. It is always better to research the stock before trading.

3. Always have a stop loss

A stop-loss order is an excellent way to minimise your risk in the intraday trading process. A stop-loss is an order to buy or sell a stock when the price reaches a certain level. This saves you from potential losses in case the price goes down.

4. Start small

While there is no limit to how much profits you can make with day trading, the stock market still comes with its risks. So, until you get acquainted with the stock market, it is better to start small and only invest funds you'll be willing to lose.

Over to You

Good knowledge of the stock market, strong technical skills, and the ability to make wise decisions can lead you down a profitable path in day trading. Ready to set your base in trading? Download the Moneyfy appto stay up to date with the stock market news. Research different investment options and reach your financial goals sooner.

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