What does intraday mean in trading? Intraday trading has evolved over the years and has drawn a lot of attention from inexperienced traders.
Let’s look at what intraday trading is.
Intraday trading refers to the trading method used by a trader buys and sells securities the same day to benefit from price fluctuations.
It can very well be viewed as a day job as traders need to be available full time during market hours to wait and watch and only enter the trade if it meets their criteria.
Professional traders make a living doing intraday trades and have the in-depth knowledge to capitalize on the intraday price movement of stocks.
It requires that traders have sufficient capital, as the “Financial Industry Regulatory Authority” records the accounts of traders who do more than 3 trades on more than 5 trading days as “Pattern day trader“Account and such merchants must have a margin of $ 25,000 on their account.
The day traders use the leverage for trading in order to benefit significantly from the price movements of the shares.
Such leverage as that of estate agents generally range from 2: 1 to 4: 1.
The mental and emotional stability of an individual plays a crucial role in success in intraday trading.
It gets emotionally stressful for traders as the volatility is quite high during the day.
Intraday traders mainly focus on the highly liquid and volatile stocks because small movements in the price of such stocks can bring them significant profits through the use of leverage.
Intraday trading is influenced by profits, economic statistics, scheduled announcements and interest rates.
The market reacts to such events when expectations are not met or exceeded and result in sudden rapid movements that intraday traders can benefit from.
The most recent example to see a significant move during the day was Tenneco Inc (NYSE: TEN), which rose 19.07% on 6/1/21 and one such intraday move came from traders holding intraday positions held to benefit considerably.
With the ability to generate higher returns, intraday trading also comes with risks.
The benefits are many, which is why it seems to be the most popular in the retail community.
The numerous advantages of this are: –
- Traders benefit from volatile markets. News-related events have a significant impact on stock prices and intraday players can benefit from huge price movements.
- Funds are not blocked for long periods of time.
- Intraday trading can be done full-time by those with extensive trading knowledge, and the rewards can be impressive to make it lucrative enough.
- It also enables traders to enjoy leverage.
In addition to its numerous advantages, intraday trading also has many shortcomings such as:
- Returns will not always be rising and there will be times when traders will experience significant drawdowns. Choppy markets can be difficult to navigate.
- The risk involved in intraday trading is high as the markets often become volatile and traders are exposed to greater risk due to the leverage.
- If positions are held overnight, the risk of gaps can be high.
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Intraday trading may include stocks, options, forex trading, stock and index futures contracts, interest rate futures, commodity futures, etc.
The wide variety of instruments on the market gives intraday traders flexibility and trading different instruments requires different intraday strategies.
Momentum or trend following strategy Traders follow this intraday strategy to ride the trend by going long on rising stocks and short on falling stocks.
Contrarian strategy In this strategy, traders will close short on stocks that have already reached overbought conditions and long on stocks that are in the oversold territory. It is assumed that a trend reversal is likely during the day.
Scalping Scalping refers to the trading method whereby traders get in and out of the trade in a matter of seconds to minutes for quick profits while exposing them to less risk. The scalpers can be described as “lions” waiting to pounce on their prey as they enter trading at key points such as support / resistance zones and make quick profits to reduce their risk.
News-based trading This strategy benefits the traders from the increased volatility during the day due to news events.
Range Trading Strategies Such strategies are used by traders who trade stocks in a range. You buy at support levels and sell at resistance to capture small intraday movements.
Both types of trading have advantages and disadvantages. Traders should choose their trading style based on their skills and mindset.
Intraday trading can be quite hectic for traders.
It can be physically and mentally stressful.
It seems pretty lucrative for beginners, but without in-depth knowledge, it can prove to be a disaster for the newbie.
You have to analyze your skills and then determine whether such a trading style is your thing, otherwise you can switch very well to swing trading or short-term investment trading.
Disclaimer: The information above is for For educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are unfamiliar with exchange-traded options. All readers interested in this strategy should do their own research and seek advice from a licensed financial advisor.