How Does Intraday Trading Work?

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  • 11 Jan 2023

Intraday trading, also known as day trading, is a dynamic and fast-paced trading style where market participants aim to profit from short-term price movements. To engage in successful intraday trading, it is essential to understand the underlying working mechanism and the key elements that drive this exhilarating form of trading.

To ensure success in intraday trading, it’s vital to understand what goes behind its working and execution.

  • Market Analysis: As an intraday trader, you must begin your day by conducting a thorough market analysis. Assess factors such as market trends, economic indicators, news releases, and company-specific information. This analysis helps you identify potential trading opportunities and determine the most suitable securities.

  • Set Entry and Exit Points: Establish entry and exit points based on your market analysis. Rely on technical analysis tools such as chart patterns, trend lines, support and resistance levels, and oscillators to determine favorable entry and exit levels. These levels help you execute trades with predefined profit targets and risk management strategies.

  • Trade Execution: Once you identify entry and exit points, execute your trades through online trading platforms or direct market access (DMA) platforms. Submit buy or sell orders with specific quantities and price limits. Intraday traders often use market orders or limit orders to ensure swift execution. Market orders are executed at the prevailing market price. On the other hand, limit orders allow you to set a certain price at which you are willing to buy or sell.

  • Monitor and Manage Trades: Continuously monitor your trades throughout the trading session. Keep a close eye on price movements, market volatility, and any news or events that may influence your positions. Use stop-loss orders to manage risk by automatically closing out positions if prices move against them beyond a certain predefined level. Similarly, you may set profit targets to secure profits and exit trades when your desired profit levels are reached.

  • Adaptation to Market Conditions: Among several intraday trading tips, one that's widely followed is that you must be adaptable and flexible in response to changing market conditions. Adjust your trading strategies or modify your positions if the market dynamics shift unexpectedly. Also, remain vigilant for potential signs of reversals or trend changes, which will allow you to exit positions and lock in profits or limit losses.

An effective intraday trading strategy encompasses choosing the right stocks. While the intraday trading landscape can be dynamic and volatile, employing a systematic approach to stock selection can enhance your chances of identifying profitable opportunities. Read More: how to choose stocks for intraday

  • Focus on High Liquidity: Opt for stocks that exhibit high liquidity in the market. Liquidity ensures ample trading volume, enabling you to enter and exit positions swiftly without significant price slippage. Stocks with higher average daily trading volumes are preferred as they offer greater trading opportunities and tighter bid-ask spreads.

  • Volatility and Price Movements: Intraday traders thrive on price volatility. Look for stocks that demonstrate sufficient intraday price movements and volatility. Higher volatility increases the potential for quick profits within the trading day. Utilize tools like Average True Range (ATR) or historical volatility indicators to gauge a stock's price volatility and choose securities that align with your risk appetite and trading strategy.

  • Study the Market Trend: One of the most essential intraday trading tips is considering the overall market trend when selecting stocks. It is generally easier to trade in the direction of the broader market trend as it enhances the probability of successful trades. Analyze market and sector indices to determine the prevailing market sentiment and align your stock selection accordingly.

  • Stay Informed About the Latest News: Keep yourself updated about the latest news, corporate announcements, earnings releases, and economic data that can impact stock prices. News-driven events can create significant intraday trading opportunities. Focus on stocks that are influenced by recent news or have upcoming catalysts, as they tend to exhibit heightened volatility and offer potential trading opportunities.

  • Sector and Industry Analysis: Consider sector and industry analysis when selecting stocks for intraday trading. Some sectors or industries may exhibit more volatility and trading opportunities than others. Stay updated with sector-specific news, events, and earnings reports that can impact stock prices within those sectors. Select stocks from sectors that align with your trading strategy and offer favorable intraday trading conditions.

  • Paper Trading and Backtesting: Use paper trading or virtual trading platforms to test your stock selection strategies before committing real capital. With it, you can gauge your approach's effectiveness without risking actual money. Additionally, perform backtesting on historical data to evaluate the performance of your stock selection criteria and refine your strategies based on the results.

Watch and Learn
Intraday Trading Guide
Tune in to this video where Indu Choudhary will explain what intraday trading is in simple language along with examples. We will also take you though five key important rules you must keep in mind as an intraday trader.

To embark on your intraday trading journey, it is imperative to establish a trading account and a Demat account. Creating a dedicated account solely for intraday transactions is advisable for seasoned traders interested in intraday trading. This segregation facilitates effective tracking and streamlines tax calculations, as intraday trades are subject to distinct tax regulations.

Once your accounts are in order, it is vital to have the correct tools to facilitate intraday trading. After setting up your accounts, acquiring suitable tools becomes a priority. Before diving into the market, dedicating time to analyzing daily charts is highly recommended. This enables you to be familiar with patterns of price movement. Additionally, a wide range of technical analysis tools available can prove invaluable in enhancing your trading decisions.

In Conclusion

Intraday trading is a thrilling endeavor that demands a deep understanding of market dynamics, technical analysis, risk management, and discipline. Traders engage in market analysis, set entry and exit points, execute trades, monitor positions, and adapt to changing market conditions.

Successful intraday trading relies on a combination of sound strategies, effective risk management, continuous learning, and the ability to adapt swiftly. By grasping the working mechanism of intraday trading, you can navigate the dynamic nature of the markets and strive for profitable outcomes.


This form of trading refers to the buying and selling securities on the same day.

Overtrading, ignoring risk management, chasing rumors, and lack of discipline and self-control are some common mistakes to avoid in intraday trading.

It varies depending on individual circumstances and trading goals. Generally, it is recommended to have sufficient capital that you can afford to lose without jeopardizing your financial well-being.

You can do so by keeping a trading journal, calculating the win-loss ratio, and tracking average return per trade. Additionally, you can compare the performance against relevant benchmarks to see how your trading strategy stacks up against the broader market.

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