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3 Rules To Follow in Intraday Trading

1. Intraday trading involves buying and selling stocks within the same trading day, either holding long positions by buying first and selling higher or short positions by selling first and buying back lower. 2. To be successful, intraday traders must follow 3 rules: measure risk by limiting losses to 1-2% of capital per day, trade in the direction of prevailing trends, and be prepared to both buy and sell stocks rather than always holding long positions. 3. Most intraday traders lose money because they fail to follow these basic risk management strategies and instead take large risks, make contrarian trades against trends, and only trade on one side of the market. Proper application of these three rules can help intra

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199 views

3 Rules To Follow in Intraday Trading

1. Intraday trading involves buying and selling stocks within the same trading day, either holding long positions by buying first and selling higher or short positions by selling first and buying back lower. 2. To be successful, intraday traders must follow 3 rules: measure risk by limiting losses to 1-2% of capital per day, trade in the direction of prevailing trends, and be prepared to both buy and sell stocks rather than always holding long positions. 3. Most intraday traders lose money because they fail to follow these basic risk management strategies and instead take large risks, make contrarian trades against trends, and only trade on one side of the market. Proper application of these three rules can help intra

Uploaded by

Sumitava Paul
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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3 rules to follow in intraday trading:

Intraday trading is the act of buying and selling of stocks on the same trading day. It is also popularly
called Day Trading. Intraday trade can either be on the long side or on the short side. This means
that you can buy a stock on a particular day and sell the stock on the same day (long trade – with the
expectation that the asset’s value will rise). Alternatively, you can also sell the stock first and buy it
back before the close of trade on the same day (short trade - with the expectation that the asset’s
value will fall).

In fact, intraday trading is one instance where you can actually sell shares without having to take
delivery and as a result there is no change in ownership of the shares.

Until recently, people used to perceive day trading to be the domain of brokerage firms and
professional traders. But this has changed today, thanks to the popularity of electronic trading
systems and introduction of margin trading.

3 features of intraday trading:

 Intraday trading is meant for traders who want to settle their positions on the same day

 Brokerage commissions on intraday trading are lower than on delivery trades. Traditional
brokers charge anywhere between 1 to 2 paise per Rs 100 worth of trade. Discount brokers,
however, offer free intraday trades.

 You need a demat account to trade intraday in equity although it does not result in delivery.
You don’t need a demat account to trade intraday in futures and options.

This sounds great, but then why approximately 72% of intraday traders end up losing money? The
reason is that they do not follow the 3 simple steps that can actually help them make money in
intraday trading.

1. Measure your risk – First put risk management in place

That is the basic rule you must follow in intraday trading. In reality first-time traders have the
tendency to take huge risks while executing intraday trades. This results in capital erosion if the
executed trade moves opposite to the trader’s expectations.

So, as a trader one can set limits to the losses that he is willing to take. Ask yourself: How much are
you willing to lose in a trade? Ideally, it should not more than 1-2% of your total capital in a single
day or 10% of total profits made till date.

At that point, just get back to the drawing board and rethink your strategy all over again. In this way
you can minimize your losses (if any).

As it was infamously quoted by Benjamin Franklin that “One penny saved is one penny earned”.

When it comes to intraday trading, take care of the risks and the returns will follow. Do not let greed
overpower you. Try not to take debt and build on a particular position. Deploy your own money
instead.
2. Always be on the side of the prevailing trend

Trend refers to direction. Therefore, a trending market is a market that is trending in a specific
direction. Markets have 3 types of trends. Uptrend, Downtrend and Sideways trend.

Take the case of 2 traders, Trader A and Trader B who traded Bajaj Finance ahead of its results.

Trader A had a view that since the stock had rallied over 15% in the last one month, it must be ripe
for a correction. So he tried to short the stock and this resulted in huge losses because the price of
the stock moved up substantially from that level.

Trader B not only bought the shares but also decided to wait for a dip in the market to buy even
more.

So, what is the difference between their approaches?

While A is trying to outsmart the market, B is playing conservatively and keeping on the same side of
trend.

When you trade intraday, try not to take contrarian bets. Gauge whether the trend of the stock is up
or down and try to trade accordingly. Going with the momentum is critical in intraday trading. There
is a famous quote “Trend is your friend”

3. Play both ways – Not just on the long side but short side too

If you want to make money in intraday trading, you need to be prepared to trade the market both
ways. There is no difference whether you buy first or sell first. The advantage is that you buy when
the momentum is favourable and sell when momentum is unfavourable. As Jesse Livermore puts it,
“In trading there is no bull side or bear side. There is only the right side.” Just play the market both
ways depending on which way the wind is blowing.

Intraday trading is intended for professional traders and only the strong-willed seem to survive. But
with the advent of detailed procedural guidelines, it is a possibility that an amateur is able to make
money as an intraday trader. Disciplined approach and consistency are the two key words while
trading intraday.

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