Are you looking forward to making money by trading in the stock market?
Intraday Trading is one of the ways to make money online and here we have a complete Intraday Trading Strategy using which you can start making money.
Trading is a discipline where you make money by buying and selling. Buying at a lower price and selling at a higher price and there’s your profit what you were looking for. It can be otherwise also where you sell at a higher price and then buy at a lower price which is known as short selling. There are different forms of trading but here we are discussing one of the most popular forms of trading known as Intraday Trading.
What is Intraday Trading?
Intraday Trading means trading done within a day. The purpose of trading is to make a profit with it so no matter what profit is the aim and it has to complete within a day itself. The trading in the Indian Stock Market starts at 9.15 a.m. in the morning which is open till 3.30 p.m. from Monday to Friday. If you enter a trade in the morning you have to exit it before the market closes. If you fail to do so your broker will automatically let you exit but then you will be fined for this as the broker has to do it for you.
Even though the market closes at 3.30 p.m. but the brokers have their own timings some 10-20 minutes prior to 3.30. In Zerodha the closing time for Intraday Trades is 3.20 o.m. If you don’t square off your position by 3.20, Zerodha will square it off for you but then you will be charged a fine of Rs 50. Since this is an Intraday trade, here you can have both Long as well as Short positions. If you are expecting a stock to go up you can buy it and if reverse then you can sell it. And, if it goes the way you predicted it, you will make a profit.
What is Short Selling?
Talking about a short position in the market, it is called short selling when it comes to Intraday trading. If you predict that a particular stock will go downside then what you have to do is sell it as of that moment and when it comes down you can exit your trade by buying it. Let’s suppose Tata Motors is trading at 500 and you are predicting that it will close by 490 today. What you can do here is sell it at 500 and when it comes to 490, buy it which gives you a profit of Rs 10 per share making it a profit of 2%.
The question here is how can you sell something that you don’t have already. See, here in this situation, you don’t have Tata Motors but the broker with which you have an account definitely has a lot of Tata Motors stocks. So, when you place an Intraday Sell order for Tata Motors, it indicates that you are borrowing some shares of Tata Motors from your broker which you have to return him back by the end of the day. So, after borrowing the hares you sold them in the market at a price of 500 and when it came down to 490 you purchased the same quantity at a lower price and returned it back to your broker. But, the timeline is of a trading day only.
Best Timeframe for Intraday Trading
When it comes to Intraday Trading, what we are doing is predicting the stock price by looking at its chart pattern and that too specifically candlestick chart pattern. So, the next question that arises is to which time frame to look at? A candlestick represents open price, close price, and high and low as well but for the time frame, you select. Ideally, a 15 minutes candle is good to look at but 5 minutes is also considered.
Firstly, you should look at the daily candle to identify the trend on day to day basis, then accordingly open 5 minutes candle to see the intraday trend. But, the decision should be taken on the basis of 15 minutes stick only which gives a holistic view. Some traders look at one minute candle also but it’s not a good time frame to make the decision as in a minute you cannot identify the trend.
Risk Management in Intraday
After all, the most important thing is to manage the risk Intraday as it’s much riskier than the swing trade. Firstly, the risk is that you have to square off your position within a day otherwise you will be squared off by the broker. Then you are using borrowed funds here. Not exactly, but it’s a borrowing only where the broker is allowing you a margin of about 20% which means you can trade for at least 5 times your capital.
So, with a capital of 1,00,000 having a margin of 20% you can trade for 5 lakhs. Now, here with a risk to reward ratio of 1:1, let’s take a profit of 2% which comes to Rs 10,000 with a trade of 5 Lakhs but this becomes a profit of 10% for you as you invested only Rs 1 Lakh over here. But, similarly, if it comes down and your stop loss is at 2 % or even if it is at 1% the loss will be 5,000 which is 5% for you. Are you ready for it?
What should be the quantity in Intraday?
Here, since you are getting a margin, you have to be really careful with the quantity you are trading as it will decide your loss. You cannot increase the profit but limiting the loss is always in your hand depending upon your stop loss and quantity traded-in. Ideally, a risk to rewards ratio of 1:2 is advised but sometimes 1:1 also works fine.
Let’s take the same example of Tata Motors where the CMP is 500. From this 500 we are expecting an upside movement till 510 and a downside risk of 495 which gives a stop loss of 5 and a target of 10 making it a risk to reward of 1:2. So, this becomes a profitable situation to enter the trade but how many quantities to go with so that the loss is also limited.
To answer this question, first, you have to decide the maximum loss you are ready to take. Let’s say it is Rs 2,000, so now divide this maximum loss of 2,000 by the loss per share you are ready to take i.e. by 5 which comes to 2,000/5 = 400 shares. This is the maximum quantity you should go for.
All in all, intraday trading is equally profitable but it comes with great risk this risk has to be managed properly. If you are taking a calculated risk, the intraday trade will be profitable for you.