Ace Intraday Trading With Seven Backtested Tips

5paisa Research Team Date: 01 Jun, 2022 04:45 PM IST


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Intraday trading is one of the most popular segments in the capital market. Every day, millions of traders apply numerous strategies to make profits. But, very few make decent profits, primarily because winners approach the market in a different way than ordinary traders.

This article discusses the top-7 trading techniques ace traders use to make a profit in trading. You can use these strategies irrespective of your trading level. If you are a beginner, you need to pick the method that works the best for you and stick to it to get consistent returns. If you are an experienced trader and know how the market works, these intraday trading tips can help you refine your trading strategy and make even better profits.

Seven Backtested Tips For Making Profit in Intraday Trading

Here are the seven tested tips you must follow to turn your losing bets into sure-shot winning trades:

Frame a Favourable Risk-Reward Strategy

The market rewards the brave and punishes people without any risk management strategy. The groundwork to making a profit begins with risk management.

Generally, informed investors decide the risk-reward ratio based on their experience in the market. The risk-reward ratio refers to the amount you are ready to lose versus the profit you want to take home. If your risk-reward ratio is 1:1, you are prepared to lose one rupee for earning one rupee.

Hence, if the stock price is 100, you will place your Stoploss at 99 and Target at 101 or anything that matches the ratio. The more experienced you become, the higher your target becomes. Some traders also go as high as 1:5 while placing their trades.

Therefore, determining your loss bearing capacity is vital before deciding the profit margin.

Pick The Best Stocks

This section talks about the stock selection strategy. Finding the best stocks from thousands of stocks is not easy, and you need to have a systematic approach and strong observation power. Here are the things you must consider to pick the best stocks for intraday trading.

Liquidity and Volatility

Liquid stocks have higher volumes and are liked by intraday traders. Getting in and out of liquid stocks is fairly easy since you can always get enough buyers and sellers. Due to significant investor participation in liquid stocks, they are volatile. And, intraday traders prefer volatile stocks more. The more volatile a stock, the better the money-making opportunities. Hence, finding liquid and volatile stocks are imperative when you want to become an expert intraday trader.

Follower or Contrarian?

Intraday traders are of two types - follower and contrarian. A follower would analyse the market condition and buy or sell accordingly. They assume that if the index or the broader market sentiment is positive, the stock will also perform well, and vice versa. Hence, if the broader market is green, they pick high-growth stocks and buy them. In contrast, if the broader market or the index is red, the trader would be on the sell-side.

Contrarian traders go opposite the market. These traders have plenty of experience in identifying stocks that will go against the market. Going opposite to the market direction requires courage and patience. But, if their prediction is proper, they might make a fortune by being on the contrarian side.

Book Your Profits and Losses

Quite often, intraday traders close profitable trades early and keep bearing the losses. Remember, nothing is permanent in the market, and you are not invincible. Even expert traders make mistakes, a reason why they set stop losses and targets before entering trades. However, if they feel the market sentiment has changed and the stock has the potential to move beyond the target set by them, they put a trailing stop loss and chase the target. Trailing stop loss means revising your stop loss upwards every time the stock moves up.

Square-Off Open Positions by 3:15 PM

3:15 PM is the usual time for auto square-off. However, some brokerage firms charge an amount to avail of the auto square-off facility. The amount will get deducted from your online trading account, thereby lowering your net returns. Hence, try to close all your open positions before 3:15 PM. Also, it is wise not to carry forward intraday trades. Intraday trading and positional trading employ different strategies, and mixing both might do more harm than good.

Research Before Placing Orders

It is crucial to know a little about the company you are investing in. Novice traders often rely on free intraday calls to invest without realising that most of these are traps. If you want to trust free intraday calls, it is wise to rely on reputed brokerage houses with the demonstrable performance of providing profitable calls.

Whether you rely on intraday trading calls or not, you must keep an eye on the latest news about the stock you wish to purchase. Track the event dates and scour the company website for the latest announcements. Remember, the more information you collect before investing, the more informed a choice you can make.

The EndNote

The intraday trading tips mentioned in this article can make you take a systematic approach to trade. But, if you want to take your trading skills one step further, choosing a reputed broker to open the Demat account is vital. 5paisa has a long history of offering cost-efficient brokerage services to Indian clients. You may also read the various research reports published by the brokerage house to make more informed decisions and earn gravity-defying returns.

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