Intraday trading is a topic which is intrigued market participants for many years. But did you know, that out of every 100 intraday traders, only 10-15 become successful?
In an interesting session as part of the highly popular MarketShala series conducted by Elearnmarkets, Mr. Vivek Bajaj, Co-founder Elearnmarkets, and Mr. Chetan Panchamia a prolific intraday trader and trainer with many years of experience came together to decode the reasons for this and to lay down some ground rules for intraday trading that really work in the markets.
Here is a short discussion of this session. If you want to get a practical understanding of how to practically implement the intraday trading rules, watch the full video at the end of this blog.
What Is So Exciting About Intraday Trading?
There are three primary reasons why people find intraday trading to be so exciting.
- There is a possibility of earning remarkably high returns from the stock market which is much more than the 6 – 6.5% that they can earn from bank interest.
- The other attraction is that in case of intraday trading the position is created and squared off on the same day. So, the entire trading capital gets freed up at the end of the day.
- Since no position gets carried forward, the traders do not have to worry about gap up or gap down openings on the next day.
The Drawbacks Of Intraday Trading
The two main reasons why so many people lose money in intraday trading are:
- There are more than 1000 actively traded stocks in the Indian stock markets. Hence it becomes exceedingly difficult to find out the few stocks that will give a superlative return.
- Getting the right information about the stocks at the right time is not easy. In most cases, the retail investors get the information so late that the price action in the stocks is almost over by that time.
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The Golden Rules For Intraday Trading
As an intraday trader, you will have to identify the right trades in a disciplined way to make money from the markets consistently. The following are some rules for finding the right stocks for trading efficiently and accurately.
Rule 1: Choose Stocks With High Liquidity
The first step for selecting stocks for trading is to find the ones which have a lot of buyers and sellers. These are the ones with high liquidity, and they have low bid-ask spreads. You can trade in these stocks with narrow margins, keep your costs low, and exit your positions quickly in unfavorable situations.
The Nifty 50 and the Nifty Next 50 indices contain the top 100 stocks that are traded in NSE. These are also the stocks which have the maximum liquidity. You can look at these stocks to get the best liquidity as well as bid-ask spreads.
Rule 2: Find Stocks With High Volatility
You must only trade the stocks which have daily volatility which is more than the Average Daily Volatility of all the stocks that are traded in futures and options. There is a good probability that these stocks will show good momentum and you will get ample opportunities for trading in those.
To know the exact step by step method to find out the list of high volatility stocks that you can track, watch the video at the end of this blog.
Rule 3: Apply Scanners
Once you have created your watchlist of the stocks that have good liquidity and volatility, you need to narrow down the list further by applying some stock scans.
Apart from this, you must also look at the scans section of the StockEdge app to get access to some powerful readymade scans. These scans are available for free and will give you good insights into the stocks that you are tracking.
Another thing to watch out for are corporate actions. The stocks where corporate actions have been announced generally experience good volatility four days before and one day after the record date and become prime candidates for trading.
Rule 4: Identify The Right Entry And Exit Points
Once you have shortlisted your stocks, the next step is to identify the entry and exit points correctly. The following are the rules that you can follow:
- If your stock is in the Top Gainers list and it goes above the high price created in the first 10 minutes after the market opens, then buy the stock. The intraday low price will be your stop loss.
- If your stock is in the Top Losers list and it falls below the low price created in the first 10 minutes after the market opens, then sell the stock. The intraday high price will be your stop loss.
When an intraday breakout happens, you can be sure that there is good buying and selling pressure in the stock and it will either go up or down further. Try to enter the position as early as possible so that you can capture the maximum movement and profit from the same.
StockEdge Makes Finding And Tracking Stocks Easy
Once you have shortlisted the stocks, you can easily create a personalized watchlist on StockEdge and track the future price and volume actions in them for free.
Access the Stocks section from the home screen to find the stocks and then click on the name of the stock to see the prices, charts, delivery positions, corporate actions, and many other details directly.
You can also go to the Scans section to find out readymade lists of stocks that have been filtered by the StockEdge Team based on their price movements, volume, and delivery details, etc.
Some Further Rules That Every Trader Needs To Keep In Mind:
- Manage your money well. Always identify the risk and reward for every trade and maintain strict stop losses to avoid big losses.
- Never let your profitable trades run into losses.
- Avoid Overtrading.
Remember at the end of the day trading is all about entering the price action as early as possible. This will enable you to capture the stock movements to the maximum extent possible and profit from the markets consistently.
You can watch the video here:
You must try to win big, lose small, and let your profits grow consistently by following the intraday trading rules discussed above.