This Pandemic has led to a sudden spike in trading activity. A lot of people have opened new Demat accounts and have started their trading journey. Most of the people are beginners and are not aware of the nuances of markets and trading. So, I thought to share my ingredients of intraday trading, which I have been using for the past 15yrs. The objective is to help budding traders who are just starting their journey in the markets.
A lot of people ask me whether Intraday Trading is a tough job? So, let me be very frank with all of you. For sure, intraday trading is a difficult job, but with a proper disciplined approach, one can master this tough job.
When you start trading, it is necessary to understand what type of trader you are. Are you an intraday trader, a medium-term trader, or a long term trader? After getting clarity on this, then only should one start trading.
Before we talk about how to take intraday trades, let us first understand in brief what intraday trading means. Intraday trading means buying and selling of securities within a day itself. As an intraday trader, you have to square off your positions by 3.10 pm, and by any chance, if you forget to square off your positions, then they will automatically get squared.
So, after understanding what intraday trading is about, let us take one step at a time and understand how to take intraday trades.
Set-Up for Intraday Trading:
- Before taking any intraday trade, it is essential to understand the intraday trend of the market. For example, in the medium-term, if the market trend is up but, in intraday it is looking week, then one should avoid taking long positions in intraday. Most of the time, traders get confused with the bigger picture and end up taking trade in the wrong direction. So, the first Mantra is: Never plays against the trend.
- Advance /Decline Ratio (AD). If AD is flat, it means the market is going to remain range bound, so avoid building intraday positions. On the other hand, if Advance is more than Declines, it suggests that more stocks are in green and markets will go up intraday, and vice-versa. The second Mantra is: Always looks for the AD ratio, which will help in understanding the trend better.
- Track which sectors are performing or underperforming during the day. Accordingly, select the stocks from those sectors. The third Mantra is: Never ignore Sector Trends.
- After getting clarity on the sector's performance, select stocks with high trading volume. A stock that is trading with high volume means more traders are interested in that stock, and hence you can sell or buy that stock without any difficulty. The Fourth Mantra is: Never select illiquid stocks.
- Once you're done with stock selection, study the stock on 15min, 30min, and 60min time frame charts. Avoid looking charts on 1min and 5min as that won't give a clear picture. The Fifth Mantra is: Focus on the proper time frame.
- Look for Technical Charts patterns along with other studies such as short- term oscillators, moving averages on the 15min, 30min, and 60min time frame. The Sixth Mantra is: Lookout for price patterns. If you want to learn in detail about Technical Charts pattern, then click here
- Once you are through with your analysis, the next important step is to define your stop-loss. In intraday trading, I have seen that when trades don’t pan out as expected, traders ignore their assigned stop-loss and convert their positions from intraday to medium-term trades. Never do this as it is a risky proposition. The Seventh Mantra is: Trade with strict stop-loss. This will help you to limit your losses.
These are my ingredients, which help me in making my recipe for intraday trading tastier and successful :-). I will suggest when it comes to trading, listen to people and their experiences, and build your own trading strategies because something that works great for me might not work for you, and vice-versa. Thus, keep learning and evolving.