If you know the psychology (& science) behind rising and falling markets you can start Intraday trading. Intraday trading relies heavily on price movements.
Capturing favorable price movements in a disciplined manner (without being greedy) is critical for making money in day trading. Once you learn this art, you would easily start picking the best stocks for intraday trading.
For example, you can buy a stock at Rs. 900 and sell it at 910 to capture Rs. 10 profit.
All you need is to be disciplined enough to close the trade at Rs. 910 and not wait (get greedy) for the price to climb to Rs. 920.
Which unfortunately many people do and lose money because the price moves sharply. Instead of rising to Rs. 920 the prices can move back to Rs. 850 in a few minutes.
As a beginner, you need to avoid such mistakes while doing intraday trading.
Likewise, you can make money even when the stock price is falling. In day trading you can sell the stock first and buy later . it is called shorting a stock.
For example, if you predict that a shares will go down, then you can sell first at Rs. 910 and buy within the same day at Rs. 900, again making a profit of Rs. 10 per share.
In case if you are not sure of the individual stock price movements then you can sell NIFTY.
During March 2020, NIFTY fell 3000 points, starting from 11,000 at the beginning of March to 8,000 points at the end of March 2020.
In day trading the buy/sell or sell/buy sequence does not matter because in the end, you won’t get any shares delivered to your account.
Experienced traders know this, but if you are new to intraday trading then the article has essential resources to help you get started.
Terms used while Intraday Trading
Basic terms associated with intraday stock trading that you should know are under.
Margins are also called leverage in day trading. They help you trade larger volumes by keeping a small amount of money.
For example, If you want to buy 1000 shares intraday worth Rs. 100. You will need (1000 shares x Rs. 100 per share) = Rs. 1,00,000 in your account.
Let’s say you have only Rs. 20,000 in your account but your stockbroker is ready to provide the rest of the 80,000 rupees to complete the trade worth Rs. 1 Lakh.
This means your stockbroker has provided 5X margins. You have a leverage of 5 times on your money.
Limit order helps you buy or sell stocks at a specific price that you are willing to trade. The trading platform will send your limit order to the stock exchange marking your specified price.
For example, the current market price of a share is Rs. 900. You already have some that share and you want to sell them at Rs. 910.
In such a case, you can enter a limit order specifying you’re stockbroker to sell the share at Rs. 910.
Market orders are the current trading price of a stock. When you place a market order for a liquid stock then the buying/selling will happen immediately at the best price available.
Stop Loss Order
Stop-loss order protects you from the risk of continuing a loss trade. Let us understand from the example below.
Suppose, you have bought a share at Rs. 900 for intraday trading. Naturally, you will want to sell them higher, let say at Rs. 910 and book profit.
But due to adverse market movements, the share price starts to decline and is trading at Rs. 898. Which means, at the moment you have an unrealized loss of Rs. 2 per share. The price can move down further to Rs. 900 creating more losses.
The above loss situation can be prevented by placing a stop-loss order at Rs. 897. When you do that, the Stop loss order gets executed at Rs. 897 booking a loss of Rs. 3 per share. But the stop-loss order protected you from making further losses.
MIS (Margin Intraday Square off) Order
MIS orders are intraday orders that need to be closed (squared off) before the end of the day’s trading.
Most stockbrokers square off your open MIS trades at around 3:15 pm unless you convert the outstanding MIS order into delivery orders.
Bracket Orders (BO)
Bracket order removes risk elements in intraday trading. The Bracket order is designed to lock your profit and losses by creating a price bracket on both sides.
The system places a target profit order and a stop-loss order as brackets simultaneously with the original buy/sell order. For example, you want to place a buy BO order for a share that is currently trading at Rs. 900.
The system will place three order simultaneously as below
- Buy order at Rs. 900
- Target profit order at Rs. 910
- Stop Loss order at Rs. 890
Of course, you will have the option to set the target and stop-loss price but all the three orders will be launched simultaneously under the Bracket Order.
Cover Orders (CO)
Cover order is a risk-mitigating order in which a stop loss is placed simultaneously with the original buy/sell order.
For example, if you want to place an intraday buy CO order for a share that is currently trading at Rs. 900.
The trading platform will enter both the buy order (at Rs. 900) and a stop-loss order (at Rs. 857) simultaneously to cover your original buy order. You have the flexibility to set the stop-loss orders within the range allowed by your stockbroker.