How to Start and Exit Day Trading

Finance Industry

When you take your first steps in the world of intraday trading, you may struggle a bit. Intraday trading for beginners is not easy to master. It requires patience, discipline, and a clear intraday trading strategy to give you a sense of direction while trading. So, here are some tips to help you with the basics of entering and exiting a trade.

Starting a Trade

Knowing the right time to enter a trade can set you up for online share trading success. To begin with, you will need to select your working hours and follow the routine with discipline. Some traders place trades throughout the trading day. Others set aside a few hours for day trading.

In general, the first couple of hours after the market opening see a lot of activity. This is beneficial for day traders who essentially aim to profit from small changes in prices. When it comes to intraday trading for beginners, however, experts suggest that you put your trades on hold for the first 15 to 20 minutes. Wait until clear patterns and trends start to emerge. While the middle hours of the trading day tend to be more peaceful, activity picks up again near closing time. So, the closing hours may offer good trading opportunities as well.

Also, limit your exposure to risk. Many day traders devote only around 1% of their total trading capital to a single trade. If a trade goes bad, they stand to lose just that 1% and no more. It may also help to set a daily loss limit. Say, you have a limit of 3%. That means you should stop trading for the day once you hit the 3% cap to safeguard your overall trading capital.

Closing a Trade

Your exit strategy should be good and ready at the time of entering a trade. Set a profit target to ensure the trade closes when the price hits the mark. Wait too long and you might face a sudden price reversal that eats into the returns. Meanwhile, to keep losses manageable, set up a stop loss. The trading platform will close the trade for you once the price hits the stop loss trigger.

Choosing the Right Strategy

Beginners can try out different approaches to finetune their trading plan. Here are a few methods that you could consider.

  1. Reward–Risk Ratio: Say, you begin with a reward–risk ratio of 2:1 and are looking at a stock that’s trading at Rs 10 per share. If you set a stop loss at Rs 9.80, the potential loss would be Re 0.20. This means (given your 2:1 reward–risk ratio) your profit target should be double the potential loss: Re 0.20 x 2. This would take the price target to Rs 10.40. You could test out other ratios such as 1.5:1 or 3:1 too. See what works best for you.
  2. Measured Move: Chart patterns like triangles and trading flags can help you decipher the intraday range of stocks. Say, a stock moves between Rs 10.50 and Rs 10.95 intraday. If the price moves out of this range, assess whether the trend will continue, stagnate, or change course. Use these estimations to make informed trades.
  3. Price Tendencies: Does the stock show any past market tendencies? Are there strong levels of support and resistance? Note down the trends. For instance, if you see price resistance at a certain price, set your profit target below this point. Avoid a trade if your profit target is below the support level.

Conclusion

For an intraday trader, the strategy is everything. Review it, tweak it, and fine-tune it until you start seeing good results. Open a Demat Account with an experienced brokerage firm like Kotak Securities to access products and resources that help improve your online share trading strategy over time.