Last updated on September 15, 2020
What Are Intraday Positions?
Intraday Trading, as the name suggests, is the process of buying and selling the stocks on the same trading day. The intentions of an intraday trader behind purchasing the stocks for intraday trading are not to invest the money, but to earn profit from trading. They earn profits from the movements of the indices.
The fluctuations in the prices of the stocks in the market are used to earn profits by buying and selling the stocks on the very same day. In order to make consistent profits from intraday trading one needs to understand the fundamentals of the same.
Benefits of Intraday Trading
- Intraday trading does not involve overnight risk. This is because the trader closes his position before the trading day ends. This ensures that the profitability earned during that day is not altered or affected by market movements taking place after the closing. This, in turn, prevents any global or domestic movements to affect their profits on that particular day.
- Intraday trading combined with effective trading strategy can generate higher returns that too in a short span of time. The only and most important key here is the trading strategy used.
- Many brokers offer quadruple leverage perks to intraday traders.
- Intraday trading offers a valuable platform to learn stock trading. You can learn to examine the market and apply various trading strategies and techniques in a short period of time. This not only helps you in enhancing your skills but also offers higher returns, as mentioned earlier.
Different Trading Positions
There are two market positions: Long Position and Short Position
1.Long Position: A long positions, also known as a long, is the position of buying stocks, commodities, or currencies with the expectation that their value is going to rise. To hold a long position is considered as a bullish view.
The investor who is in the long position is going to earn the profits from a rise in the price of the stocks. A typical stock purchase is referred to as a long stock asset purchase in the intraday trading.
The long position is further classified as a long call position and a long put position.
A long call position is the one where the investor can call the option. Just like any other option contract, a long call position also generates profits from a rise in the value of the underlying asset.
A long put option, on the other hand, involves a put option. Just like a long call option, a long put option generates profits for the investors when the value of the underlying asset goes down. In case of a long put option, things are reversed. A put option rises in its value when the value of the underlying asset goes down.
2.Short Position: Short position is the exact opposite of the long position. In the short position, an investor benefits from the fall in the price of the security held by him. A short position is considered to be more complicated than buying the asset.
Investors in the short position expect to earn a profit from a fall in the price of the stock. This is done by buying a certain number of shares of a company from your stockbroker and selling them at the current market value.
Suppose the investor buys X number of shares then he has an open position of X number of shares which needs to be closed in the future. In case the price of the share drops, he can then purchase X amount of shares for a less than total price. The excess amount of cash here is the profit earned by the investor.
Though the short position seems to be more complicated, the entire process of short selling is, however, easier. Short selling position is offered only to the accredited investors and traders. This is because there needs to be a great amount of trust between the investor and the stockbroker to lend the shares to the investor for executing the short sale. In the case of short selling position, the investors are required to keep a margin or collateral with their respective brokers in return for the loaned value of shares.
Indicators for Intraday Trading
Earning profits in intraday trading requires a lot of research to be done on the part of the investors. This requires investors to follow certain indicators. The intraday tips that are considered to be all informative are not always accurate. Hence, the intraday trading indicators come to play. They are a beneficial tool when used along with a comprehensive strategy in order to maximize returns from intraday trading. These indicators provide information about the direction of the trend to determine the movement, to analyze the profit potential due to the volatility of the market, to determine the popularity through volume measurements, and so on. Moving averages, Bollinger bands, momentum oscillators and relative strength index are some of the useful and popular intraday trading indicators.
Tips for Intraday Trading
Intraday trading is considered to be more risky than regular stock market investments. Thus, it is important for intraday traders, especially the beginners, to understand well about intraday trading so as to avoid losses. It is always advised to invest the amount which you can afford to lose in case the market falls down without facing any financial trouble.
Some of the tips are as follows:
- Choose only two or three large-cap shares that are highly liquid when beginning intraday trading.
- Determine your entry and target prices before you place the buy order.
- Take advantage of stop loss. Stop loss is a trigger that automatically sells the share if the price of the share under consideration falls below a specific limit.
- Book your profits once you have reached the target price.
- Adjust the stop loss triggers as and when required to match your expectations.
- No one in the market is accurate in predicting the market movements, not even professional investors. Hence, if the market is moving against your expectations, it is important to exit your position so as to avoid any further loss.
How to make profits
There are always inherent risks involved in intraday trading. Out of all the factors that play an important role in intraday trading, price volatility, and daily volume are the most essential factors. A trader is advised not to risk more than two per cent of their total trading capital when opting for intraday trading to make profits.
Intraday trading is one of the most popular ways of making profits in the stock market. However, the process of buying and selling the stocks on the same day is not as easy as it seems to be. One must be highly cautious when choosing stocks for intraday trading, the time of entering and leaving the market, and should have a keen understanding of the various market indicators.