To easily understand this, let us break down the term. Intraday means “within the day”, and trading is the buying and selling of securities to make a profit within a short time frame. Combining the two, intraday trading is defined as buying or selling securities and closing the position by the end of the trading day. 

Trading involves securities like stocks, derivatives, currencies, futures contracts, indexes, and exchange-traded funds (ETFs). To keep it simple, we will only consider stocks as the security we wish to trade. 

How Does It Work?

Unlike long-term purchase and hold and value investing strategies, day trading is extremely risky and based on market price guesswork. Experienced traders will find it difficult to predict price fluctuations. To profit from these price changes, traders use real-time charts to monitor intraday price movements. This is done to avoid unmanageable variations and dangers between the previous day’s closing price and the following day’s opening price. 

Advantages Of Intraday Trading

• Overnight Risk

Long-term investors buy and hold the shares to gain from price appreciation. Since intraday traders execute and square off their trades within the day, they don’t have to face the potential overnight risk of a share price falling. These risks may be any news affecting the price of a particular stock.

• Short Selling

Intraday trading allows the trader to operate profitably even in a bearish market with the option of short selling. One can sell the security at a higher price, even if they don’t own it, and buy it when it falls. 

• Leverage

Intraday traders can utilise margins or leverage provided by the broker. This works much like a bank loan. The broker gives the trader a leverage of 5-10 times the funds in their account, which they can use to trade and earn profit. This allows traders to multiply their profits with a comparatively smaller fund size.

Disadvantages Of Intraday Trading

• Risk 

With high risk comes high rewards. So is the case with intraday trading, with the possibility of huge profits in a short period, which is risky. For a person unable to risk their money, it is not advisable to trade intraday.  

• Time

Intraday trading is time intensive. Firstly, you must put in the time and effort to learn and train to trade in the market. Then you must be alert and aware of a potentially profitable trade every moment. One can put a target and stop loss, but it sometimes leads to missing an opportunity if the stock price hits the stop loss and then hits or crosses the target. All in all, one has to treat trading as a full-time business. 

• Discipline and Emotions

If you cannot control your trade, you should consider not trading. You need to stay calm and be disciplined toward your plan. Traders are also humans. They sometimes may get out of hand, leading to impulsive decisions.

How Does One Become A Successful Intraday Trader?

Successful trading does not mean profiting from every trade. A successful trader can generate consistent profits, with their wins outweighing their losses. You must have strategies you have trained on, a risk appetite, and a winning mindset to become a successful intraday trader. 

Strategy

Even untrained traders can profit from trade if lucky, but you need a strategic edge over the market for consistent profits and growth. This can be done by constructing a plan with a strategy or a group of strategies and just sticking to it. One should operate on these strategies only after learning about them first. These strategies must also be tried and tested over time. 

There are a lot of strategies, but finding the ones for you can be difficult and should be picked considering your trading style, risk tolerance, and goals. 

1. Scalping 

Scalping is a trading strategy where profits are made from small price swings, and trades are quickly settled for a profit. It emphasises making large volumes of small gains. When scalping, the trader takes advantage of little price gaps caused by the bid-ask spread. A position is established and liquidated typically between 10 seconds to 5 minutes. Scalping requires a strict exit plan because one significant loss could wipe out all the small wins the trader has worked hard to achieve.

2. Range Trading

This strategy involves benefiting from the trading range. The trading range is when a stock trades constantly between the resistance and support levels. Once a stock is observed to be in a trading range, the trader buys the stock near the low price and sells at the high cost. The trader can also short-sell the stock at the resistance level and capitalise by buying it near the support level. 

3. Contrarian Trading

Contrarian Trading is a strategy in which the trader assumes that a steadily increasing stock will decline and vice versa. Simply put, a contrarian trader will do the opposite of what the market does. Long-term investors such as the Berkshire Hathaway Chair and Chief Executive Officer (CEO) Warren Buffett also use this strategy.

Risk Management

A successful trader has predefined risk management techniques to which they adhere. Risk management helps reduce losses. One of the most essential skills for every successful trader is managing risk. Traders can lose on trades without inflicting their accounts irreparable harm if they have a risk management strategy. It is a crucial but frequently disregarded element for effective trading, and every trader uniquely manages risk.

Setting Targets and Stop Loss points is one of the most basic but crucial ways to reduce risk in a trade. If a trade goes sideways, a stop loss helps reduce the loss suffered beyond the predefined point. In the case of a profit, setting a target helps reduce the risk if the price goes down after hitting the resistance.

Experienced Traders who now have a considerable risk appetite used the 1% Rule in their early days. Following the 1% Rule means that you do not risk more than 1% of your funds available to trade. This does not implement that the trader trades with no more than 1% of their capital on a single trade. Let us see it through an example. A trader has Rs 1000 with them to trade. If they follow the 1% Person rule, the trader will try to prevent more than Rs.10 losses. As you gain experience and capital, you can increase the risk percentage according to your risk tolerance. 

Psychology

Negative beliefs can significantly impact one’s ability to trade successfully. Traders constantly plagued by self-doubt and bad luck often miss good opportunities and hesitate to initiate trades. It’s important to note that losing trades are a natural part of the trading game, and individuals who have a very low-risk tolerance and cannot accept losses are not suited for successful trading.

Self-confidence is a personal characteristic that many winning traders possess, allowing them to take advantage of genuine trading opportunities easily. Successful traders have a strong sense of self-belief not easily dented by losing trades. Additionally, they are not overly ecstatic about winning trades or excessively dejected about losing trades because they have a healthy respect for the inherent unpredictability of trading. Successful traders can control their emotions rather than getting influenced by them.

Tips And Thumb Rules

• Understand the basics and Research thoroughly

Treat trading as if you are continuing your education. Learn all there is to know about the market and its intricacies. Knowing about different indicators, technical terms, corporate events, and fundamental concepts will help you become a better trader. Researching and analysing past and present trends will make you more trained for the future.

• Never trade more than what you can afford to lose

You should start trading with smaller amounts and only trade with what you think is genuinely expendable and can afford to lose. Always use a stop loss, hitting which the given stock is sold, preventing the trader from further losses. 

• Plan a trade, trade the plan

Create a plan with tried and tested strategies that helps you determine entry and exit levels. Back-test your plans using historical data and assess if it is viable. Close the trade as soon as your predetermined profit target is reached. If a plan doesn’t work, find out if the reason is something you can meddle with. If not, start over and stick to the new plan till it stops working. 

• Don’t get impulsive or emotional

Do not act impulsively or emotionally when you operate with a plan and a defined profit and stop-loss level. Do not change the plan mid-trade. Trading decisions should be based on logic and rationale rather than emotions.

Commonly Used Terms And Jargon

• Long Position – When a trader buys a security to then book a profit by selling at a higher price
• Short Position – When a trader sells a security to then book a profit by buying at a lower price
• Bid Price – The price that the potential buyers are willing to pay 
• Ask Price – The price at which the seller is willing to sell a security 
• Trade – A trade is executed when the bid and the asking price of a given security match 
• Spread – The difference between the highest bid price and the lowest ask price of a security 
• Volume – The quantity of a given security traded within a period
• Volatility – The rate at which the price of security changes, often considered to be a measure of risk
• Liquidity – The scope at which an asset or security can be bought or sold 
• Bull Market – A market where prices of securities are either rising or are expected to rise
• Bear Market – A market where prices of securities are either falling or are expected to fall 
• Leverage – Funds borrowed from a broker or a financial institution that allow traders to trade with more money than they have in their trading account, increasing their potential profits significantly
• Resistance Level – When a security is in a bullish environment, the supply of the security increases, leading to a price level or zone at which the security value stops increasing. This price level is known as the Resistance level.
• Support Level – In a bearish market, a price level or zone after which the demand increases causing the security to not fall further for some time, is called the support level. 
• Breakout – The point at which the price of a security rises above its resistance level or falls below its support level