Intraday trading : An introduction

     We had discussed the topic 'what is share market' in a previous post.  In addition, it is necessary to discuss further about various type of share trading methods.  Intraday trading, or day trading as other people refer to it, is the practice of buying and selling financial stocks or instruments within the same trading day.  In this method, all positions are (or must be) closed before the market close of the trading day regardless of the trading ended up in loss or profit. The most common instruments traded by day traders are stocks, stock options, currencies, equity index futures, interest rate futures, commodity futures and other future contracts.  As of the moment, day trading is growing in popularity amongst professional and casual traders because of many factors – advances in technology, amendments in the legislation allowing for easier trading and the advent of the internet. 

     While the term intraday trading is the most common term for this type of trading, it does branch out to other types of trading styles or sub-styles. These sub-styles usually reflect the way a day trader trades, such as whether one makes a single trade daily, or a dozen, five, four and so on and so forth. The main reason why day trading attracts casual traders is the fact that it produces gains almost immediately. With short term trading the focus of most day traders, trades usually last only for a few seconds or a few minutes and most day traders exchange financial instruments many times in a single day, sometimes trading high volumes of stocks just to receive big discounts from the brokerage.

     More experienced day traders, however, focus on trends.  They wait for the most popular moves within a single day, and choose to ride on it. They make fewer trades and take fewer risks. However, their success mainly depends on the success of the trends or momentum that they choose to ride on. The Indian share market, for example, is a market that sees itself with a growing number of day traders almost on a daily basis. With the growing number of day traders in the aforementioned market, these traders also look for ways to develop various intraday techniques, some of which they come up on their own, while most read about such techniques over the internet.

     The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) also see itself as having plenty of day traders every day, simply because day trading is comparable to gambling. In fact, the other investors, that do not see day trading as something profitable, call day traders as “bandits” or “gamblers” and they say that the day trading is not a way to make money consistently. Now, while participating in intraday trading is indeed very risky, all other ways of exchanging financial instruments also pose their own risks to anyone who dares participate. Thus, to trade stocks, in general, is a risk.

     Fortunately, one reason for the most day traders are behind the day trading is the fact that they can easily borrow funds to participate in day trading and the brokers also allow bigger margins for the day traders. Just a warning, though, that unlike in other trades, loss is very common for day traders, and most would usually exit the trading day even on a losing position just to prevent an even greater loss that will lead to them spiraling to a world of debt.  The life of a day trader is not easy and it is not for the undisciplined, undetermined and it certainly is for those who have the wit, intelligence and instincts to participate in trades for hours at a time every single day.

     A successful day trader is a man who could control his anxiety, greed and fear while trading.