Strategic Planning: Understanding Intraday Trading

Intraday trading, also called day trading, is one of the most popular trading strategies. As the name implies, this involves entering and closing trades in a single day. Unlike long-term investments, this requires your full attention since your shot only lasts within the day.

The good thing is that this benefits beginner and even seasonal traders due to its fast-paced approach. But at the same time, traders may encounter fluctuations along the way, so it’s best to know the basics of intraday trading first before choosing this strategy. Besides, it’s not enough to know how to trade shares and other underlying assets; knowing at least the basics of your chosen strategy also matters.

In this article, we’ll help you get to know more about intraday trading and why you should try it at least once in your trading journey.

1. Let’s Start with the Basics

As mentioned, intraday trading is a short-term investment that lasts for a day. Traders buy and sell commodities, shares, and other financial instruments to gain profit on price fluctuations.

Since the trades happen in a day, there’s no holding of positions overnight which means there are no overnight fees. As a result, you don’t have to worry about overnight fees associated with the market fluctuations that happen when the market closes.

If you’re planning to try intraday trading, there are many things you should do to prepare. It includes doing research, having sufficient capital, understanding the right timing when placing a trade, and constantly altering your trading plans.

2. Market Liquidity and Volatility

If an underlying asset’s market liquidity is high, it can be easily bought or sold. On the other hand, volatility is the constant change in the value or price of an underlying asset which can be beneficial to traders, given that they know when the right timing is.

Meanwhile, market liquidity and volatility go hand in hand when planning for a successful trade. So, it’s ideal to understand the liquidity rate and volatility of your chosen financial market or asset before you start trading to make an informed decision.

3. Technical Analysis

Intraday trading happens so quickly that you should be prepared with a plan when it comes to the timing of entering and exiting a trade. In connection with this, you should be able to utilise technical analysis.

When doing so, you should be able to understand and analyse charts, patterns, and indicators which will help you predict your future moves. Most of the time, traders who lack the knowledge of technical analysis end up losing their capital.

If you’re starting to learn technical analysis, you can try your skills using a demo account. That way, you’ll be aware of whether your knowledge is enough to help you trade better.

4. Risk Management

Intraday trading, just like any other trading strategy, comes with risks which is why you need to come up with an effective risk management plan. Some of the most effective and popular ways to avoid potential losses are setting stop-loss orders, diversifying trades, and identifying risk tolerance.

In addition, you should allocate a specific percentage of your trading capital to trade per day, which you can risk losing yet you can continue trading for the following days.

When you start intraday trading, it’s common to have a few severe financial losses, but you should be able to utilise these losses as a way to craft a better way to manage your risks.

5. News and Economic Indicators

As an intraday trader, it’s essential to stay updated on the current news and economic development. Since these indicators can significantly affect the market, you should be able to adapt based on the changes you may encounter.

For instance, if you see unexpected news that may affect the price of an underlying asset, you should be able to look for trading opportunities or ways to prevent potential losses. However, it’s not enough to base everything on these indicators. Instead, you should also incorporate them with technical and fundamental analysis to come up with a better plan.

6. Emotional Discipline

Although knowledge and experience can help you come a long way in intraday trading, so is having emotional discipline. Traders commonly experience various emotions that can significantly affect their trading performance. Unfortunately, if they don’t know how to control their emotions, they’re more likely to make decisions they may regret later on.

7. Choosing the Right Broker

Another thing to consider is choosing the right broker. With the current situation in the trading industry, many brokers out there may not satisfy your trading needs. So when selecting a broker, consider factors such as offering low commission rates, having the right trading platforms and tools, and fast order execution.

Since intraday trading happens at a fast pace, having a reliable broker enables you to decide better in a split second.

Final Thoughts

Intraday trading may be known as a way to make fast profits, but it also demands extensive knowledge about the market and ways to come up with reliable trading plans. By understanding the basics of intraday trading, knowing the right way to manage risks, having discipline, and staying up to date with the latest news, you’ll be able to find more trading opportunities that may lead to having a successful trading portfolio.