Intraday Trading Rules: Intraday trading is a popular form of trading that involves buying and selling financial instruments within the same day.
This type of trading is popular among short-term traders and investors who seek to take advantage of short-term price movements.
However, intraday trading can be a risky business, so it is important to have a clear understanding of the rules and principles that guide this type of trading.
In this article, we will provide an overview of the key intraday trading rules that traders should keep in mind.
Intraday Trading Rules
There are two crucial steps in the process of intraday trading. The first one involves the rules for selecting stocks and the second are the rules to be followed while executing the trades.
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Intraday Trading Rules For Selecting Stocks
The following outlines the rules for selecting stocks in intraday trading, Keep reading to learn more.
1. Look For Liquid Stocks
Liquidity is the most important factor when selecting stocks for intraday trading is liquidity. The price fluctuates quickly when you are trading on an intraday basis and strong liquidity in the stock will ensure that you can buy and sell the stocks quickly at any point.
Another importance of liquidity is its huge volumes. Stocks having huge volumes can be bought and sold in large quantities without affecting the stock price and which causes an unnecessary commotion in the market.
2. Look For Volatile Stocks
As you are aware, intraday trading is completed within the same day and you can only make profits if the stock moves in your favor.
Stock will only have good movement if it is volatile in nature. Thus, it is recommended to pick stocks with medium to high volatility.
But it is also important to note that picking volatile stocks can also prove to be counterproductive if they move against your views. Thus it is crucial to place a stop-loss whenever engaging in intraday trading
3. Select Stocks That Move With The Market
Markets tend to frequently rise or fall based on economic, political, social, and other reasons. And it is best advised to enter those stocks that move with the general trend of the market.
Thus while picking stocks for intraday trading, pick the ones that replicate the movement of the market. This increases the likelihood of making profits
4. Trade Based On Sectoral Trends
A number of sectors make up the stock market. Being knowledgeable about various economic sectors is important for intraday traders.
If you notice any news that is trending and has an impact on a particular industry, you can select stocks from that sector and execute suitable transactions.
5. Monitor Select Stocks
There are thousands of stocks that are traded in the market and it is impossible for an individual to keep a track of all the stocks. Thus, it is advised for traders to focus on a small number of shortlisted stocks.
Doing so can help the individuals become more familiar with the stocks, which will enable them to make better trades. The best and simple approach to do this is to already have a watchlist of stocks for Intraday Trading.
Intraday Trading Rules While Executing Trades
The following lists the guidelines for executing trades in intraday trading, let’s take a closer look.
1. Have A Well-Defined Trading Plan
One of the most important intraday trading rules is to have a well-defined trading plan. Before entering any trade, you should have a clear understanding of your entry and exit points, stop-loss levels, and profit targets.
This will help you make informed trading decisions, even in fast-moving markets. Your trading plan should be based on your risk tolerance, investment goals, and market analysis.
2. Stay Disciplined
Intraday trading can be stressful, and it is easy to make impulsive decisions that can lead to significant losses. Thus, it is important to stick to your trading plan and avoid making bad decisions based on emotions.
By staying disciplined, you can avoid making costly mistakes and increase your chances of success.
3. Monitor The Markets
Intraday trading requires constant monitoring of the financial markets. This means that you need to be prepared to act quickly when opportunities arise.
You can use technical analysis tools such as charts and indicators to help you make informed trading decisions. It is important to keep up-to-date with the latest market news and events, as these can impact your trades.
4. Manage Risk
Intraday trading is inherently riskier than longer-term investments, so it is important to manage your risk properly. This can be done by using stop-loss orders, which automatically exit a trade when the price reaches a certain level.
You should also limit the amount of capital you invest in any single trade, as this can help to reduce the potentially big impact of any losses.
5. Keep Emotions In Check
Emotional trading decisions are often costly, so it is important to keep your emotions in check. Stay focused, and disciplined, and maintain a level head when making trading decisions.
Avoid making decisions based on fear, greed, or any other emotional state. Instead, focus on your trading plan and the market analysis that underpins it.
6. Stay Informed
Intraday trading requires constant monitoring of the markets and staying informed about the latest news and events that may impact your trades.
This means that you should keep up-to-date with the latest market news and events, as well as conduct regular market analysis to inform your trading decisions.
7. Avoid Over-Trading
Over-trading is a common mistake made by many intraday traders. This involves entering too many trades in a short period of time, which can increase the risk of losses.
To avoid over-trading, it is important to stick to your trading plan and only enter trades when the conditions are favorable.
Also Read: 8 Best Books For Intraday Trading – Top Reads For Beginners!
In Closing
In this article, we discussed the intraday trading rules that trading traders should follow while selecting stocks and executing trades.
Though these rules can make your trading journey easier, there is no guarantee that they will always help you earn profits. You can experience a few losing trading days when you first start out but you should not let this discourage you.
Rather, you should see where you went wrong and learn from those mistakes which can help you avoid them in the future. Thus, making you profitable in the long run.
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