From years of trading, working alongside full-time traders, and managing the risk of thousands of clients that trade intraday at FYERS, I can tell you confidently that the successful traders knowingly or unknowingly practice certain principles that help them succeed. Since your question is specifically about managing intraday risk, some of the tricks they use are as follows:
- They never deploy 100% of their capital on a single trade. Going on all in induces tremendous anxiety and fear, which will increase the chances of making irrational trading decisions. I don't know of any consistent winners who do this. All the talk about the legendary George Soros's "all-in bet against the British pound" is easier said than done. It is not wise for traders who deploy their savings to risk their entire capital on one idea. I have seen too many of them lose everything in a single day. They can never come back and trade rationally after that.
- They rarely deploy 100% of their overall capital across trades. This gives them the ability to hedge, adjust their positions, diversify or average based on their view with the spare funds. In my observation, around 20-25% are usually unutilized and kept aside to take advantage of emerging opportunities later in the day.
- They trail their SL (Place Protective Stops). The traders that get too hung up about capturing the entire move of the stock or index give in to their emotions. Many talented technical analysts put so much faith in their trades that they become obstinate and forget about risk management. As a result, profitable trades with unrealized gains turn into big realized losses. Successful traders usually prevent this from happening. They tend to be less emotional and know that taking a small profit is better than hoping their trade will turn back in their favor. It's not about whether you were right in your prediction or not; it's about how much you made or lost in the trade. I was like this too until I met this guy at a prop firm who didn't even believe in technical analysis or fundamental analysis, and yet, he always managed to protect his capital. Why? Because he would cut his losses short no matter what. He didn't regret losing out on opportunities. He did pretty well. Years later, he went on to work at SGX's risk dept.
- They have a portfolio level stop loss. If they lose a certain percentage of their total capital on any given day, they will stop trading and do something else. This saves them from further losses. Usually, the final stop loss is 5-10% of their trading capital, or if they're already in profits, then a certain percentage of the earned profits.
- They don't use intraday profits for leveraging their positions further. Profits earned are left alone. They withdraw their earnings from time to time to help de-risk and enjoy the money earned in the markets. Doing so allows them develop a long-term roadmap for trading. Using profits gained intraday to initiate positions aggressively reduces their odds of making money over the long run.
- They don't double down on intraday reversals. Catching a reversal at the peak or trough is usually rare. If you are successful, you can capture a large chunk of the move. However, experienced traders don't attempt it too often because the failure rates are very high, especially if they average such trades. They prefer to trade when some sort of trend or pattern has emerged.
- They adjust their trades. Intraday trading is all about positioning and repositioning one's portfolio throughout the day. Yes, this results in a high turnover, but it's the only way I've seen most traders make money in this timeframe. They don't just initiate their position and hold it all day. They get in and out through the day and try to avoid big losses.
- They never average loss-making trades; especially options. This is a cardinal sin in intraday trading, and the smart traders know this at the back of their hands. Averaging loss-making trades is foolhardy, and they know that it is a slippery slope toward going broke sooner than later.
- They roll over their positions to buy time in options. Nobody can get the timing right all the time, and expert traders are no exception. Options give traders the flexibility to roll over their positions in case traders feel that their view is intact, but it requires more time to play out. In this way, they avoid losses. Although they do this sometimes, it is not a regular feat. It is usually done in exceptional cases.
- They avoid mainstream trading practices. If anything becomes too mainstream, the odds of making money go down. In a way, it is inversely proportional, in my opinion. Right now, expiry trading is HOT. Everyone wants to do it. A few months ago, I met someone through a friend at a club. He told me how easy it is to make money by shorting straddles/strangles on Thursdays because, 90% of the time, options will go to zero. So he had been making money consistently and expected to be successful 50 out of 52 weeks in a year. A few expiries later, he blew up his account because BankNifty made a big move. A smart trader wouldn't do what everyone else does. Derivatives are a zero-sum game. If you do what everybody else does, you are likely to lose.
I hope this was useful.