10 Step Guide to Earn Profit in Intraday Trading

You may surely find this quite amusing! What are there steps to being profitable in intraday trading? Actually, there is no real guide that can help you to consistently make profits in intraday trading. But intraday trading is all about managing your risk and the returns normally follow logically. While they still cannot guarantee profitability, adhering to these 10 steps will substantially increase your chances of being profitable in intraday trading. Here are the 10 steps.

Start with your trading rule book

That is your basic constitution for intraday trading. It basically lays down all the rules and regulations for your intraday trading. How much loss you are willing to take, how much capital depletion you can afford, and what should be your risk-reward ratio. The trading rule book will define how to identify stocks for intraday trading, how to actually zero in on stocks and how to execute and monitor the trades. The idea is to adhere to your trading rule book stringently.

Define the loss you are willing to take at various levels

We have not yet to come to the trade specific stop-loss here. First, you need to define how much of your capital you are willing to lose. At that point, you must stop trading and get back to the drawing board. You must also define how much maximum you are willing to lose in a day. If that loss occurs in the first one hour, then your terminal is shut for the rest of the day. Also, define your risk-reward which is the relationship between your stop loss and your profit target.

Define clear stop loss for each trade and adhere to it

Every intraday trade, whether on the long side or on the short side, must have an in-built stop loss. You can set these stop losses around the supports and resistances or at the level you can afford. But don’t wait to input the stop-loss after the trade is executed. When the stop loss is triggered, you must just close your position. Don’t try to average your trade just because it goes against you.

Set clear profit targets and stick to it

Whether you are long or short in the market, your intraday trade must have a profit target that is set in advance. These profit targets must be imputed in the system as part of the bracket order so that once the stop loss or profit target is triggered; the other leg automatically gets cancelled. Don’t wait to put profit targets subsequently, but you can always have the luxury of a trailing stop loss when you are banging on the trend.

Buy on rumours and sell on news

This may sound a little off track but is important in intraday trading. Normally, when an announcement is made the impact is already there in the price or it does not leave much on the table for you. Hence you will have to initiate the trade based on expectations and then look to book your profits when the actual announcement is made. That is the best to realize the maximum alpha from your intraday trade. Of course, don’t go too much by tips and rumours in the market but do keep your ear open and listen to the grapevine.

Be your own chartist and don’t rely on tips and recommendations

If you thought that technical charting is rocket science then you are grossly mistaken. Basic measures of technicals charts like supports, resistances, Bollinger bands, EMA breakouts, retracements etc can be deciphered by you with a little bit of effort and training. If you are an intraday trader, the basic route to being successful is to be your own chartist.

Don’t keep too many positions open at any point of time

This is the fundamental mistake many intraday traders make. When you have numerous positions open you are not able to do justice to all these positions as you can only track a limited number of positions in terms of fundamentals, charts and news flows. If you keep too many intraday positions open, you are likely to overlook some of them resulting in losses. Ideally, let your open positions not be more than 4-5 at any point in time.

If market is too confusing, just do nothing

In intraday trading, there are 3 basic strategies viz. buying, selling and doing nothing. It sounds ironical but you really make money in intraday trading by doing nothing. What we mean is that when the market gets too confusing, it is best to stay out of the market rather than try to fish in troubled waters. That way you will keep liquidity available when better opportunities present.

Trade the trend and never try to outsmart the market

The intraday traders who lose money in the market are those who try to behave like value diggers. That is the job of a fundamental analyst. As an intraday trader, the trend is your friend. When the market shows a trend it is trying to send a message across to you. It is your job to listen to that message and trade accordingly. Market is always smarter than you and once you develop that humility in intraday trading, you are automatically on the profitable path.

Maintain a trading diary and record diligently

What do we understand by a trading diary? It is not just a record of the trades and its justification but also a daily EOD evaluation of how it fared. You also make diligent notes on where you went wrong and how you could trade better. Over time, this will help you fine-tune your intraday trading and keep you closer to profits.