Intraday trading is a kind of stock trading where both the purchase and sale of stocks occur on the same trading day and before the market closes. Stocks are not held overnight by traders. The goal is to earn profits by analysing price movements within a single trading day. Intraday trading has become popular in India in recent years, particularly amongst the young investors. However, it is a risky approach, and many traders lose money from it. This guide explains what is intraday trading, its working method, the steps involved in starting it, strategies used, popular indicators, fees involved and important advantages & disadvantages.
What is Intraday Trading?
Intraday Trading, also known as day trading, involves buying and selling securities within the same trading session. In other words, intraday trading aims to make profits through short-term price changes rather than capital gains in the long term. Positions taken under an intraday product may need to be closed before the end of the trading session. If an eligible position remains open, the broker may square it off according to its applicable terms and cut-off times.
How Does Intraday Trading Work?
Intraday trading depends upon the strategy of buying low and selling high (and vice versa in case of short selling). The traders use a specific order type known as "MIS" (Margin Intraday Square-off) or "intraday order". This order type is different from the usual "CNC" (Cash and Carry) delivery order.
A basic intraday trading sequence includes the following steps:
- Identify stocks that would move in a certain direction.
- Place an order using a trading application or terminal (with intraday margin).
- Monitor the price trend and make a decision about the exit point, either to make profits or to prevent losses.
- Exit the position by the end of the day, or have your position automatically squared off by the broker.
The time frame for intraday trading is so small that the trader needs to pay complete attention and be ready for immediate decision-making and exiting the position.
How to Start Intraday Trading
For starting intraday trading, it would be necessary for you to have a Demat account, trading account, money, and awareness regarding the movement in the market. It is usually suggested that the beginners start slowly by starting with paper trading before going into actual trading. Through this process, new traders can comprehend price movements, execution of orders, and risk management without their funds being drained by the market. In addition, adherence to a disciplined trading strategy and analysis of trades is beneficial.
How to Select Stocks for Intraday Trading
Choosing the right stocks matters more than most beginners realise. Good intraday stocks generally have:
- High liquidity, so shares can be bought and sold quickly without large price gaps
- Reasonable daily volatility, enough to offer price movement but not extreme swings
- Strong trading volumes, which reduce the risk of getting stuck in a position
- Relevance to current news or sector trends, since these often drive short-term price action
Large-cap and frequently traded stocks are usually preferred over illiquid, small-cap counters for intraday purposes.
Common Intraday Trading Strategies
There may not be one right way to go about it, but here are some common strategies:
- Scalping: Doing several small transactions during the day in order to capitalise on small fluctuations in price.
- Momentum trading: Buying stocks that are experiencing strong movement in one direction, usually with high volume.
- Breakout trading: Starting the transaction when the price breaks through a critical level of support or resistance.
- Reversal trading: Taking a chance on stocks that have experienced strong price movement but may be reversing.
Each strategy needs discipline, a defined entry and exit point, and a stop-loss to manage risk.
Technical Indicators Used in Intraday Trading
Most intraday traders rely on technical analysis rather than long-term fundamentals. Commonly used tools include:
- Moving Averages (like EMA and SMA): To identify trend direction
- Relative Strength Index (RSI): To spot overbought or oversold conditions
- Bollinger Bands: To gauge volatility and possible price reversals
- Volume Weighted Average Price (VWAP): To track average price relative to volume
- MACD (Moving Average Convergence Divergence): To identify momentum shifts
These indicators help traders time their entries and exits, but none of them guarantee accuracy.
Intraday Trading Charges and Costs
Even though intraday trading often attracts lower brokerage than delivery trading, several charges apply on every trade, including:
- Brokerage fees (flat or percentage-based, depending on the broker)
- Securities Transaction Tax (STT)
- Exchange transaction charges
- SEBI turnover fees
- GST on brokerage and other charges
- Stamp duty
Frequent trading means these costs add up quickly. SEBI's own study found that loss-making intraday traders spent a notably higher share of their losses on trading costs compared to profit-making traders, which shows how charges can quietly erode returns over time.
Benefits of Intraday Trading
Intraday trading does offer certain advantages for those who approach it carefully:
- No overnight risk: Positions are closed the same day, avoiding the impact of overnight news or global market moves.
- Potential for quick returns: Profits, if any, are realised within hours rather than waiting for long-term growth.
- Higher capital efficiency: Brokers often provide intraday margin, allowing traders to take larger positions with smaller capital.
- Skill-building opportunity: Traders develop a deeper understanding of price charts, market psychology, and technical analysis over time.
Risks of Intraday Trading
Intraday trading remains highly risky. Key risks include:
- Risk of loss: According to the SEBI statistics, most traders face losses over time.
- Risk due to use of leverage: Margin trading amplifies both profits and losses.
- Making impulsive decisions: High-speed trading induces emotional and stress-driven decision-making.
- Time-consuming: Intraday trading requires traders to continuously monitor the screen during trading hours.
- Greater risk for young and inexperienced traders: According to SEBI statistics, it was found that traders younger than 20 years faced the highest percentage of loss-makers, which was 81 per cent.
Who May Consider Intraday Trading?
Intraday trading may suit individuals who:
- Can dedicate several hours daily to actively monitor the market
- Have a strong understanding of technical analysis and risk management
- Are comfortable with high volatility and potential losses
- Have surplus capital that is not needed for essential expenses
It is generally not recommended for beginners with limited market knowledge, those seeking steady long-term wealth creation, or anyone who cannot actively track markets during trading hours.
Conclusion
There is a potential to earn profits within one day through intraday trading. However, it is important to understand that this form of trading poses serious risks, and a person should have knowledge of markets, technical analysis skills, and focus. The information provided by SEBI indicates that there are many losing intraday traders, mostly young ones. It is necessary to understand how the market works, learn technical analysis, account for transaction costs, and use money one is ready to lose when starting.
FAQs on Intraday Trading
What is the best time for intraday trading in India?
Both the period in the beginning of the market session from 9:15 AM to 11:00 AM and the closing period of the stock market from 2:30 PM to 3:30 PM are expected to have high volatility and volumes and thus are suitable for intraday trading.
How is intraday trading different from delivery trading?
Intraday trading involves buying and selling stocks in the same day and not holding any position overnight. Delivery trading is when you hold the stocks in your Demat account for several days, months or years.
What are the risks of intraday trading?
Key risks include a high probability of losses, leverage-related risk, emotional decision-making under time pressure, and the need for constant market monitoring. SEBI data shows over 70 per cent of intraday traders in the equity cash segment made losses in FY23.
What are the best stocks for intraday trading?
Liquidity, good volume of trades per day, and some amount of volatility are some of the characteristics that define good stocks for intraday trading. Generally, large cap stocks are suitable for intraday trading compared to illiquid or small-cap stocks.
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