Article

10 Steps to Being Profitable in Intraday Trading

07 Aug 2019

Is it possible to be consistently profitable in intraday trading? Now that sounds too simplistic but you need to understand that intraday trading is less about risk taking ability and skill and a lot more about how you manage your risk. In intraday trading, you start with the premise that you need to protect your capital and then start trading. To consistently make profits in intraday trading over a longer period of time, you need to start off with simple things like documentation, setting limits and managing risks. Here are the 10 steps to focus on.

10 steps to intraday trading

  1. Have you created your trading rule book and if not, then start the process right away. The trading rule book basically lays down all the rules and regulations for your intraday trading. This includes questions like - the loss you are willing to take, the capital depletion you can afford, preferred risk-reward ratio etc. It is your trading constitution book which you must adhere to.

  2. Define your maximum loss at various levels. Define how much of your capital you are willing to lose. At that point, you must stop trading and get back to the drawing board. You must also define the maximum you are willing to lose in a day. If that loss occurs in the first one hour, then have the discipline to shut your terminal for the rest of the day.

  3. In any intraday trade, stop loss is the Holy Grail whether on the long side or on the short side. Normally, stop losses are linked to support and resistance levels but can also be set at your affordability level. Stop loss must be a part of your order and not an afterthought. Secondly, when the stop loss is triggered, just close the position and don’t try to average it.

  4. In intraday trading, always work with a reasonable profit target in mind and be flexible about it. These profit targets must also be imputed in the system as part of a bracket order so that once the stop loss or profit target is triggered; the other leg automatically gets cancelled.

  5. Buy on hope and sell on reality. As an intraday trader, you largely deal with expectations. Once the street knows about it, there is hardly any trade left in the stock. If you are trading based on news flows, you will have to initiate the trade based on expectations and then book your profits when the actual announcement is made.

  6. You can’t outsource charting and research as an intraday trader; you need to do it all by yourself. If you are an intraday trader, the basic route to being successful is to be your own chartist. It is not too complicated and a few basic rules are good enough for you to consistently trade intraday.

  7. Ensure that you are in control of your open positions. Don’t have too many positions open at one point of time as they can be hard to track. This is a mistake intraday traders often commit. Your mental bandwidth only allows you to track a limited number of positions in terms of fundamentals, charts and news flows.

  8. A very important rule in intraday trading is “doing nothing” and it is also an intraday strategy. Quite often, when you look back, it is the most profitable strategy. Intraday trading does not mean that you must either be long or short at all points of time. When the market is too confusing or volatile, take a conscious call to sit out of the market.

  9. As an intraday trader, you are most likely to be successful if you stay close to the market trend. The trend is your friend because it always has a story to tell you. When the market shows a trend it is your job to listen to that message and trade accordingly. At the end of the day, the market is collective wisdom and is always smarter than you. Once you develop that humility in intraday trading, you are on the profitable path.

  10. Documenting and recording may look like mundane jobs but they are the core for your successful intraday trading. Start maintaining a trading diary. It is not just a record of your trades and the logic, but also a daily end-of-day evaluation of how it fared. Make notes on where you went wrong and how you could trade better. Over time, your intraday trading skills gets fine-tuned!

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10 Steps to Being Profitable in Intraday Trading

07 Aug 2019

Is it possible to be consistently profitable in intraday trading? Now that sounds too simplistic but you need to understand that intraday trading is less about risk taking ability and skill and a lot more about how you manage your risk. In intraday trading, you start with the premise that you need to protect your capital and then start trading. To consistently make profits in intraday trading over a longer period of time, you need to start off with simple things like documentation, setting limits and managing risks. Here are the 10 steps to focus on.

10 steps to intraday trading

  1. Have you created your trading rule book and if not, then start the process right away. The trading rule book basically lays down all the rules and regulations for your intraday trading. This includes questions like - the loss you are willing to take, the capital depletion you can afford, preferred risk-reward ratio etc. It is your trading constitution book which you must adhere to.

  2. Define your maximum loss at various levels. Define how much of your capital you are willing to lose. At that point, you must stop trading and get back to the drawing board. You must also define the maximum you are willing to lose in a day. If that loss occurs in the first one hour, then have the discipline to shut your terminal for the rest of the day.

  3. In any intraday trade, stop loss is the Holy Grail whether on the long side or on the short side. Normally, stop losses are linked to support and resistance levels but can also be set at your affordability level. Stop loss must be a part of your order and not an afterthought. Secondly, when the stop loss is triggered, just close the position and don’t try to average it.

  4. In intraday trading, always work with a reasonable profit target in mind and be flexible about it. These profit targets must also be imputed in the system as part of a bracket order so that once the stop loss or profit target is triggered; the other leg automatically gets cancelled.

  5. Buy on hope and sell on reality. As an intraday trader, you largely deal with expectations. Once the street knows about it, there is hardly any trade left in the stock. If you are trading based on news flows, you will have to initiate the trade based on expectations and then book your profits when the actual announcement is made.

  6. You can’t outsource charting and research as an intraday trader; you need to do it all by yourself. If you are an intraday trader, the basic route to being successful is to be your own chartist. It is not too complicated and a few basic rules are good enough for you to consistently trade intraday.

  7. Ensure that you are in control of your open positions. Don’t have too many positions open at one point of time as they can be hard to track. This is a mistake intraday traders often commit. Your mental bandwidth only allows you to track a limited number of positions in terms of fundamentals, charts and news flows.

  8. A very important rule in intraday trading is “doing nothing” and it is also an intraday strategy. Quite often, when you look back, it is the most profitable strategy. Intraday trading does not mean that you must either be long or short at all points of time. When the market is too confusing or volatile, take a conscious call to sit out of the market.

  9. As an intraday trader, you are most likely to be successful if you stay close to the market trend. The trend is your friend because it always has a story to tell you. When the market shows a trend it is your job to listen to that message and trade accordingly. At the end of the day, the market is collective wisdom and is always smarter than you. Once you develop that humility in intraday trading, you are on the profitable path.

  10. Documenting and recording may look like mundane jobs but they are the core for your successful intraday trading. Start maintaining a trading diary. It is not just a record of your trades and the logic, but also a daily end-of-day evaluation of how it fared. Make notes on where you went wrong and how you could trade better. Over time, your intraday trading skills gets fine-tuned!