Last updated on July 15, 2023
Day trading is one of the riskiest ways of trading in the stock market and with high risk comes high gain also. This content is focused on day trading and intraday trading tips for beginners. Intraday trading attracts beginners the most. New traders nosedive into this without much preparation and end up losing money most of the time.
In this article, we will provide some guidelines and some tips for beginners for day trading. This article is created to help new intraday traders minimize loss and maximize gains. We will be glad if this article on intraday trading tips for beginners helps new traders.
Intraday trading can be done in all segments. Be it equity cash, future and options, commodity or currency, intraday trading is possible in all segments. Anybody can trade in any segment provided the required cash is available in the account for trading. Different segments demand different cash availability for trading.
The least amount of cash is required for trading in the equity cash segment where a trader can buy and sell one equity share and start trading. In all other segments, a trader has to buy or sell a minimum of one lot of commodity, currency Put, Call or Future. For one lot you need to pay much more money than one share price. Therefore, I would suggest a beginner should start day trading in the equity segment only as per capacity and understand the pros and cons of intraday trading. This article will provide guidelines and intraday trading tips for beginners. The intraday tips provided here should be used as a general guideline for day trading.
Choosing Stocks for Day Trading
The first and foremost aspect of intraday trading that work as tips for beginners is to make a list of a few stocks for intraday trading. The choicest intraday stock is that there is a high volume of trading every day. Having high volume means having high liquidity. Any trader can enter or exit from the stock at any time within the trading hours of the day.
As we all know, intraday trading means buying a stock after the day’s opening hours and exiting from the stock on the same day.
An intraday trader should not choose highly expensive stocks for intraday trades because most of them are not very liquid stocks. In general, most intraday traders flock together in large-cap liquid stocks.
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Choose Strategy for Intraday Trading
First of all, the trader should be familiar with charts. Among different kinds of charts, the candlestick chart is more popular. Hence the trader should understand the candlestick charts.
It is advisable to pick up a combination strategy for better results. The strategy may contain two or three technical indicators within the platform. The right combination can be VWAP, Supertrend and MACD in one window. Use a well-tested combination for intraday trading. There can be hundreds of such combinations.
The time frame is another important factor. But it must be mentioned that too small a time brings more volatility and chances of false trades increase. While long time frames like half-hourly or hourly are not suitable for intraday trading.
Though many traders prefer 5 mins. or 10 mins. time frames for day trading, I find 15 mins. time frame suits intraday trading very well. 5 mins. or smaller time frames are for those intraday traders who prefer scalping. They draw small profits in short time frames and trade repeatedly.
Do not commit to highly leveraged trades. They are risky trades. Committing 20-25% of capital in a single trade is recommended for intraday trades.
Taking a trade position is most suitable when volatility is not very high to avoid false trades. Enter the trade at around 11 am. Before that time, the trend is not clearly visible. From 11 am onwards, the morning volatility is gone and the market settles down for the day. Initiating the position at 11 am is better.
The intraday trades are valid till 15:30 hours. It is better to close the trade around 14:55 hours unless it is a highly trending market. For a trending market, the intraday trade should be closed around 15:25 hours. For successful intraday trades, the trading time is important.
Intraday trades are risky trades. Therefore, a strong risk management system should be in place to minimize trade risks. Simply put, strict trade entry, stop loss and exit can minimize trade risks.
Intraday traders generally find trade entries from technical charts. Whenever some preconditions are met, the buy or sell signal is generated. Some charts show the signals and sometimes the trader takes a decision by seeing the chart.
A technical chart generates a signal on the basis of logic. It helps the trader to trade rationally. Therefore, if a trader does not follow signals, the trader must have better logic behind not taking the trade. A combination strategy can be backtested to see its success rate. If the success rate is high, the trader should follow it and take every trade. The success rate should be at par with the backtesting result. Overall the strategy will bear fruit in the longer term.
A trader must be prepared to accept a loss. The amount of loss can be controlled through proper stop loss.
The stop loss and the exit prices are interrelated. Here a fixed Risk/ Reward ratio must be followed. A conservative trader may keep it to 1.5 to 1, while a more aggressive trader may want to trade 3:2. It means that in percentage terms if the profit is 2% and then the stop loss will be placed at 3%. If a trader wants to work at different ratios, it can also be fixed. With every trade, the target and stop loss must be placed with the broker.
As discussed earlier, the trader exits at desired profit percentage. Supposing in a trending market, after placing the buy order, the stock price shoots up and the trader didn’t take a profit in the hope of gaining more. It is possible but the trader must put a trailing stop loss to book profit if prices go down suddenly. Otherwise, when the market comes down suddenly, the price may go down sharply and may hit stop loss.
Intraday Trading Tips for Beginners
We have already discussed how to do day trading. In this article, we are explaining intraday trading tips for beginners. Given below are some tips for beginners.
- Map the daily support and resistance of the stock to be traded. It can be a standard or Fibonacci retracement. Be aware of these ranges while trading. Price usually comes back from resistance or goes up from support prices. During intraday trades, these provide important clues.
- Trade large-cap stocks where there is high volume and the stock price is not too high.
- Trace price action and use trailing stop loss when necessary.
- Book profit in stages. Book 50% when the first target is reached, and place others with trailing stop loss to reach a higher target.
- Never panic and follow the risk/ reward ratio.
- Do not overtrade. Place trading capital within the desired limit.
Hope these intraday tips will come to help the newbies in the day trading field. In case of any further query you can contact us through the following links.