Intraday trading is concerned with buying and selling financial instruments within a single trading day. First, there’s the closing out of positions at the end of the day and starting afresh the next.
Day traders buy and sell multiple assets within 24 hours. They may even do so multiple times in a single day, taking advantage of small market movements.
Intraday Trading is not for the part-timers. Intraday trading is concerned with making fast decisions and executing many trades for a comparatively small profit each time. It is usually thought of as the opposite to most investment strategies.
Those aiming to learn Intraday Trading will have to research the markets they may trade; decide on a day trading strategy, open a live account, or build confidence with a demo trading account.
Markets For Intraday Trading:
Day trading is frequently associated with markets that have predetermined closes. But in reality, you may be a day trader and still trade 24 hours in open markets.
Finally, choosing a market to day trade that comes down to your interests, affordability, and the duration of time you aim to spend trading, is essential. Popular intraday trading markets are:
The Stock Market:
Most people associate intraday trading with the stock market. It’s a fantastic day trading market, where day traders purchase and sell shares of a firm before the market closes at 4 p.m. EST (opens at 9:30 AM EST, but you can also make trades before this in the “pre-market”).
The Foreign Exchange Market:
The FX market is the world’s largest and most accessible market, with trading available 24 hours a day.
Traders in the forex market can start with as low as $100, while it is advised that they start with at least $500 or $1,000.
The forex market is a global exchange market where one currency is swapped for another. Because most brokerage platforms only trade high-volume pairings, the currencies available for investing are limited.
The Futures Exchange:
Another prominent intraday trading market is futures markets. Futures are contracts in which a buyer and seller agree to purchase or sell a certain quantity of an underlying asset at a future date.
Day traders profit from price swings that occur between the time they purchase or sell a contract and the time they close the position (before the end of the day).
How To Start Intraday Trading?
Here’s a step-by-step procedure for starting Intraday trading:
Understand The Factors Affecting Intraday Trading:
There are a number of important factors to think of prior to the starting of day trading. Practicing alone is time-consuming.
With investing, the concentration is on longer-term market movements. Daily movements affect the overall picture very little.
Nonetheless, when you day trade, the concentration is on the factors that may impact intraday market behaviour.
The following are counted among the factors:
- Liquidity: A market’s liquidity is understood in terms of how easily and quickly positions may be entered and exited. High liquidity is very important for day traders, since it is possible they will be executing may trades the whole trading day;
- Volatility: An asset’s volatility, or how swiftly the price moves, is vital for day traders.in case there is high volatility expected during the course of the trading day, the movements may lead to plenty of opportunities for short term profits ;
- Trading Volume: The trading volume of an asset is a measure of the number of times it is being bought or sold in a particular period. A high trading volume indicates that there’s plenty of interest. Obviously, it helps point out entry and exit points.
Choose An Asset:
The first step on your journey to starting Intraday Trading is deciding which product you wish to trade with.
For day trading, derivatives are held much in preference. For the UK, your main choices are CFD trading and spread betting.
There’s no need to have ownership of the traded underlying asset with these products. The implication is that you may open and close positions much faster, speculating on a market’s price regardless of if it is depreciating or appreciating.
There’s no set tax for day trading. Therefore, it will be contingent upon the instrument you choose.
For instance, while spread bets are exempt from the capital gains tax, CFD trading is not, notwithstanding losses being offset against profits.
Create a Trading Plan:
Prior to your starting to day trade, defining precisely what you are hoping to accomplish is significant. You have to be realistic about the targets you set.
If you aim to make loads of cash right away, there’s the steep learning curve that comes with day trading. So, un-delude yourself.
It is vital to think over precisely how you are going to come up with a methodology for entering and exiting a market, and if this will be fundamental – or technical analysis-based.
In case you go for fundamental analysis, your day trades will in all likelihood, turn around macroeconomic data announcements, breaking news, and company reports.
On the other hand, if you decide to use technical analysis, you would perhaps concentrate on chart patterns, technical indicators, and historical data.
Learn Day Trading Risk Management:
Coming up with a risk management strategy is a vital step in trade preparation. Traders may minimise potential losses by putting measures in place to prevent the worst-case scenario.
Risk management tools like limits and stops are an important part of any trader’s toolbox. You will frequently hear that a successful trader cuts losing trades swiftly, but permits profitable trades to run , and that’s as important in day trading as in any other strategy.
A trader does not always have to be right. However, they have to admit quickly when they are wrong and take action.
The trader has to make sure they are making more money on winning trades than they are losing on the ones that fail.
It is challenging to decide whether a trader should target a high win/loss ratio or look closely at the risk to reward ratio.
Skilled traders will frequently have low win rates, even less than 40%. They will aim at targeting a low risk to reward ratio of a minimum 1:2.
In other words, the trader expects to double the money that they willingly risk. Wrong moves have to be rectified fast. Starting wrong without insight is the best way to end the short-term trading journey.
Opening And Monitoring Your First Position:
When your trading plan starts to give you good vibes, it is time to start trading. But, first, you will have to open an account.
In case you are not prepared to trade on live markets, you may practice opening positions on an InvestBy demo account.
You have to be sure about trade parameters. In one trading day, it is possible that you will want to place both long and short positions.
If you believe the market will appreciate, you would buy the asset. Conversely, in case you believe that a market is due to depreciate, you would go for selling it.
Do not forget, when you are a day trader, you will, in all likelihood, be closing and opening multiple trades within the same day.
Therefore, it is vital to keep up to date with market events or breaking news that you affect your preferred market prices.
The Trade Journal will describe all the positions opened and closed in the day. In addition, there will be a record of all trades – the failures and the successes alike.
5 Best Day Trading Strategies:
Day trading is not really a trading strategy. It just lays down that you don’t keep a trade open overnight. Take a look at the following popular day trading strategies:
Trend traders try to make money by studying asset price direction, subsequently buying/selling contingent upon the trend’s direction.
In case the trend is upwards, showing prices in a succession of higher highs, traders chose a long position, buying the asset.
On the other hand, in case the trend is downwards, showing prices in a succession of lower lows, traders would take a short position by selling.
Day traders do not mainly use trend trading. You may hold your position open for as long as the trend goes on.
Nonetheless, if you are going to stay engaged with intra-day dealing before the day is over you would close it ;
Swing trading is concerned with making the most of short term price patterns, assuming that prices always go in more than one direction in a trend.
Rather, swing traders aim to make money from both up and down movements taking place in a shorter time frame.
Trend traders aim to make the most of long-term market trends. However, swing traders are generally more interested in a price movement’s tiny reversals.
They try to mark these reversals in advance. Then, they trade to make profits from smaller market moves.
Scalping is a short-term trading strategy that accepts small but regular profits. The concentration is on making it to a high win rate.
The theory is that you may easily build a big trading account. Smaller profits are taken at regular intervals.
Fewer trades are placed, and the profits are allowed to run. Scalping demands a very stringent exit strategy. Losses have the tendency to neutralise the benefits brought on board by profits.
The majority of scalpers close positions prior to the end of the day. Smaller profit margins from all trades are considerably reduced owing to overnight funding charges ;
Mean reversion finds its basis in the theory that prices and other measures of value like price-to-earnings (P/E) ratios, unfailingly return to the historical mean.
The strategy employs technical analysis to grab assets whose recent performance has varied significantly from their historical average.
Mean reversion traders will subsequently make the most of the return to the normal trajectory.
The money flow indicator signals of an asset might be oversold or overbought. Therefore, volume and price are used instead of the asset’s price in isolation.
The study involves the comparison of the number of trades from the preceding day to the present day, determining if the money flow was positive or negative.
An 80 or 80+ reading indicates overbought conditions. The trader sells accordingly.
On the other hand, a 20 or 20 – reading indicates oversold market conditions. Accordingly, the trader buys.
How Much Money Do You Need To Start Intraday Trading?
The most common question every new trader often ask is How much money do you need to start intraday trading? Here’s an answer to this question.
Some experts believe that GBP 1000 will yield the right returns. On the other hand, brokers also help traders in increasing the buying power of their capital outlay with margin accounts.
That’s why you have to be in the company of brokers like InvestBy. But, on the other hand, the majority of clueless traders are not able to generate a 25% plus return annually.
Intraday trading is a short-term trading method. It concentrates on small movements in price, not running the risk of any overnight gaping.
Many day traders depend on technical analysis and price charts, forming their specific day trading strategy. Regardless of whichever strategy is chosen, they have to be able to follow several principles.
These include the use of risk management tools and being able to stay calm despite the volatile, high-risk environment. Intraday Trading for Beginners is safer with InvestBy.