Understanding Intraday Trading and Common Strategies

Intraday trading involves buying and selling stocks within the same trading day, with the goal of potentially profiting from short-term price movements. This practice requires dedication and discipline and the ability to identify trading opportunities, control emotions and mitigate risk. For those who are new to the stock market or are looking for different trading approaches, this article gives an overview of intraday trading and explores it benefits, drawbacks and some common strategies.

• Table of contents

• How can beginners approach intraday trading?
• Getting started
• Approaches for more experienced traders
• Avoid overtrading and book profit if the target is reached
• Trading strategies

How can beginners approach intraday trading?

When you're just getting started with intraday trading, it's important to build a strong foundation before risking your capital. Here are some tips for beginner intraday traders:

• Understand the basics

Before you make your first trade, learn market basics like how exchanges work, order types, impact of news events, and how to read charts and trading indicators. Understanding these core concepts will help you make informed trading decisions.

• Begin trading with virtual money

Practice intraday trading using a virtual trading account offered by many brokers. Paper trading allows you to place hypothetical trades in a real market environment without risking money. Give yourself at least 3 months of virtual trading experience before using real capital.

• Choose a broker

Select a reputed trading platform that has research tools, dedicated support and a transparent fee structure.

• Do independent research

Be wary of SMS tips, social media stock picks and market gurus promising wins, etc. Do your own analysis on stocks before trading and always remember that stock market returns are never guaranteed and depend on market conditions.

Read Also: Trading Basics: History, Benefits and How Does it Work?

Getting started

Once you gain experience with virtual trading, you may choose to move on to using real capital. Here are some things you can consider at this stage.

• Choose suitable stocks

Trading penny stocks or shares of very small companies that are illiquid can be risky, especially for intraday trades. Instead, it may be easier to enter or exit positions in actively traded shares of large cap companies with significant daily volumes. As you gain more experience, you may explore a wider range of stocks, including mid- and small-cap companies. But these can be more volatile. So, do thorough research and focus on businesses with strong fundamentals and sound management.

• Set stop loss

A stop loss is a price level at which you decide to sell a stock if its price falls. This is done to prevent further loss and helps mitigate the impact of sharp downside movements in intraday trading. Skipping a stop loss in the hope that prices will bounce back can lead to bigger losses.

• Trade planning and management

Before you place a trade, consider how much money you’re comfortable risking, what your target price is and what price you’ll exit if things go wrong (your stop loss).

You may also consider not investing more than 1-2% of your total capital on a single trade to further mitigate risk of loss.

• Evaluate your strategy

Once you’ve made a few trades, review how often your positions resulted in profits, if any. For instance, if you placed 20 trades in a month and 8 were profitable, your success rate was 40%. Use this insight to assess and fine-tune your trading approach.

However, bear in mind that a more refined strategy does not guarantee greater success and past performance may or may not be sustained in future. Markets are unpredictable, and even a refined strategy can underperform due to changing conditions. Avoid increasing your trade size purely based on past outcomes.

Approaches for more experienced traders

Active traders with years of real market experience can further scale up and diversify their intraday trading. Here are some possible strategies:

Position sizing

Determine how much to invest in each stock based on your risk appetite, how volatile the stock is and the size of your invested capital. The more volatile a stock is, the smaller your position size can be to mitigate the chance of significant loss.

Set risk-reward ratio

Many experienced traders aim for a ratio between risk and potential reward of at least 1:2. This means you should only enter a trade if the potential profit is at least twice the possible loss. For example, if you're willing to risk Rs 10, your expected gain (based on realistic assessments and analysis) should be at least Rs 20.

Note: Return potential is not guaranteed and depends on market movements.

Avoid overtrading and book profit if the target is reached

Don't fall into the trap of overtrading out of greed or boredom. Wait for suitable opportunities. If your profit target is hit, it may be advisable to book these gains instead of seeing if the stock price rises further.

Avoid revenge trading

Accept losses as part of trading. Trying to make up for them by placing more aggressive trades the same day—called revenge trading—can lead to further losses. Take a step back and revisit your plan.

Square off the open positions

Close all intraday trades before the market closes. Holding them overnight can be risky due to unexpected price changes when markets open the next day.

Be disciplined

Follow your trading plan and risk management rules without compromising. That discipline can make the difference between trading and gambling.

Read Also: Trading vs. investing: Meaning, Key Differences and Which is Better?

Trading strategies

Now that we've covered general intraday trading tips, let's discuss some common trading strategies.

Pre-market analysis

Analyse news events and pre-market cues before market opens. For this, you can:

• Scan global market cues, economy news, earnings reports, analyst calls etc. before market opens.
• Identify stocks and sectors that you think will be impacted and estimate price direction.
• Be ready to trade on the expected lines as the market opens.

However, as always, it is essential to remember that markets can be unpredictable and stocks may not move along expected lines.

Gap and go strategy

This is a short-term trading approach that looks for quick opportunities right after the market opens, based on how a stock behaves compared to the previous day's closing price. Here’s how you can follow it:

• Identify stocks that have opened higher or lower than they closed the previous day. This difference is called a "gap."
• Observe the stock for the first 15–20 minutes. See if it holds its new price level (whether higher or lower).
• If the stock opened higher and holds its position during this period, some traders may choose to buy (go long), expecting a further rise.
• If the stock opened lower and continues to stay weak, some traders may consider taking a short position, expecting more downside.
• Stop-loss levels are usually placed near the stock’s price before the gap, to help manage downside risk.
• You can choose to book profits once the price reaches a target or use a trailing stop-loss if the stock keeps moving in your favour.

Opening range breakout (ORB) strategy

The focus of this approach is to buy or go short on stocks when their price goes above the high or falls below the low of the range observed during the first hour of trading.

Here’s how the strategy is typically used:

• Observe the highest and lowest price the stock reaches during the 60 minutes (called the opening range).
• If the stock moves above this range with strong volumes, some traders may choose to buy, expecting the price to rise further.
• If the stock falls below this range, some traders may consider going short, expecting further downside.
• Traders often place a stop loss just below the range for long positions, or above the range for short positions, to mitigate losses.

Momentum trading strategy

Momentum trading is based on the idea that a stock moving strongly in one direction often tends to sustain that momentum for some time. Here is one way that traders may approach this:

• Look for stocks showing strong upward or downward movement during the day, along with high trading volumes.
• Trade in the direction of the trend: Go long if the stock is rising consistently (called an uptrend) and short in downtrends.
• Set a stop loss near recent lows (for long trades) or highs (for short trades) to potentially cap downside.
• Some traders may book partial potential profits at regular intervals and use a trailing stop loss to lock in gains if the trend continues.

Reversal trading strategy

This strategy tries to take advantage of sharp intraday reversals — when a stock that was rising begins to fall, or vice versa. Here’s how it is commonly used:

• Identify stocks that have already moved sharply in one direction — either up or down.
• Watch for candlestick patterns like Dojis or spinning tops, which may indicate that momentum is weakening.
• Consider shorting if an overbought stock starts reversing at a known resistance level.
• Consider buying if an oversold stock bounces near a known support level.
• Keep wider stop loss for reversals as the trend can have strong momentum initially.

Conclusion

Intraday trading demands time, patience, and a strong grasp of risk. If you're just starting out, begin with simpler strategies that match your comfort level. Focus on building discipline and keeping emotions in check—these matter just as much as your trade decisions.

And remember, not everyone needs to trade actively to grow their money. If you prefer a more hands-off approach, mutual funds offer a way to invest in the markets with the help of professional fund managers and less day-to-day involvement. Instead of chasing quick profits, mutual funds aim to generate the potential for long-term wealth creation through relatively steady growth and risk mitigation.

Choose the path that fits your goals and always make informed decisions. Consult with a financial advisor before determining which investment approach is suitable for you.

FAQs:

How does intraday trading work?

Intraday trading involves buying and selling shares within the same trading day, with the aim of potentially taking advantage of short-term price movements in stocks. Traders analyse technical charts to identify trading opportunities and follow strategies based on market momentum, support/resistance, breakouts etc. to make quick potential profits within a trading day.

What is the best time for intraday trading?

The first hour after market opens is often the most volatile trading period as traders react to overnight news, events and cues from global markets. This volatility can present potential opportunities for quick profits from range breakouts and momentum trading.

Is intraday trading good for beginners?

Intraday trading is considered very risky for beginners given the volatile, complex nature of markets. Beginners are likely to suffer losses if they directly start actual intraday trading with real money without much practice.

Is intraday very risky?

Yes, intraday trading can be riskier compared to long-term investing as traders have to contend with volatile stock price swings within one trading session. There is constant pressure to react to market movements promptly. It requires the ability to interpret and forecast possible stock movements, something that requires extensive knowledge and research. Additionally, market movements can never be predicted with certainty, so the risk of taking the wrong call remains high, especially in the short term.

How to do intraday trading?

To succeed at intraday trading, first register with a reputed, cost-efficient broker providing robust trading platforms and market research tools. Learn trading basics thoroughly through virtual trading before risking real money.

What are some intraday trading tips?

Some useful intraday trading tips are: Restrict trading to very liquid shares only, trade in the direction of the overall market trend and avoid trades during extremely volatile periods around opening and closing hours. Start with investing only 1-2% of total capital per trade and increase your size gradually, if you wish to, as you gain experience.