What precautions should intraday traders take?

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Many people think that intraday trading will get you rich. Yes, the potential for returns is great. But success in the field comes not from luck but with careful study and analysis. Seasoned intraday traders are not gamblers. They are disciplined individuals who take measured trading decisions. The following intraday tips highlight precautions that every intraday trader should take:

  1. Focus on risk management

Capital protection is very important for intraday traders. While profit generation is the goal, it is necessary to limit one’s losses. How can you achieve that? By developing objective exit guidelines. For instance, experts often suggest not to lose more than  2–3% of the invested capital on a single intraday trade. And it is advisable to bow out for the day if your overall losses across trades amount to 4–5% of your total capital. Once you have the actual numbers in place, knowing when to stop will become easier.

2. Move with the momentum

If you study the price charts regularly, you could spot indications of which way the market might move. Maybe you think a bullish trend will reach its exhaustion point or are expecting a trend reversal. Until this is reflected in the market, it is just speculation on your part. Rather than try to outsmart the market at this stage, you should move with the trend. Just keep monitoring the charts for when the actual shift takes place. If you are ready, you will be able to grab the opportunity quicker than most. 

3. Study the charts

Beginners must devote enough time to learning to read intraday charts. Even if you are new to it, you can use the support and resistance numbers to make your initial trades. In time and with practice, you should be able to spot trends, reversals, breakouts, and various other patterns with greater accuracy. It may also help to open an account with a broker like Kotak Securities that provides a range of charting tools.

4. Trade both ways

Resist the temptation to trade only long or short positions. As an intraday trader, you have the potential to benefit from bullish and bearish markets. Buy stocks when the momentum is good; sell when it is on the decline. In fact, you could even benefit when a sideways-moving stock finally breaks out of its price range. Let the market dictate your movements. 

5. Maintain a trade log

It is good practice to record all of the day’s trades and review them at the end of each day. Assess the strengths and weaknesses of each strategy, and think about ways to improve your day trading game. A trade log could help you to weed out the techniques that do not bring results and focus on those that do. 

Summing up

All of these precautions are geared to encourage the day trader to stay on plan. A trader who has no fixed strategy could fall prey to stress, fear, or greed, and start making irrational decisions. Keep in mind that intraday trading is a crowded field and you will have to do your homework to stand out. A clear strategy that is based on data, chart analysis, and thorough research will help you leave your mark.