Intraday trading, also known as day trading, refers to the practice of buying and selling stocks within the same trading day, meaning that all positions are squared off before the market closes.
The primary objective of intraday trading is to capitalize on short-term price movements and market volatility to generate quick profits.
Traders utilize various technical analysis tools, chart patterns, and market indicators to make informed decisions. Since intraday trading involves frequent transactions and rapid decision-making, it requires a thorough understanding of market trends, risk management strategies, and disciplined execution to minimize potential losses.
How Intraday Trading Works?
Intraday traders aim to profit from short-term price movements within the same trading day. They follow different strategies and use technical analysis to make informed decisions.
Buying Low and Selling High: Traders purchase stocks at a lower price and sell them at a higher price if they anticipate an upward movement.
Selling High and Buying Low (Short Selling): If traders expect a stock's price to decline, they first sell it at a higher price and later buy it back at a lower price, making a profit from the difference.
Technical Analysis: Traders use charts, indicators, and historical price data to identify stocks with potential upward or downward trends.
Leverage and Margin Trading: Many traders use leverage provided by brokers, allowing them to trade larger positions than their actual capital. While this can amplify profits, it also increases potential losses. Risks and Rewards of Intraday Trading.
Potential for Quick Profits and Losses: Since intraday trading relies on short-term market fluctuations, traders can make rapid gains but also face substantial losses.
Taxation on Gains: Profits from intraday trading are classified as speculative business income under tax laws and are taxed accordingly.
Mandatory Position Closure: All intraday trades must be squared off before the market closes. If traders fail to do so, their broker will automatically close their positions at the prevailing market price. Intraday Trading Strategies.
Momentum Trading: Traders buy stocks that show strong upward momentum and sell stocks that are trending downward. This strategy relies on identifying stocks with high trading volumes and strong price movements.
Short Selling: Traders sell a stock first at a higher price, anticipating a decline, and later buy it back at a lower price to book a profit. This strategy is commonly used in bearish market conditions.
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