The name “intra-day trader” refers to a stock trader who opens and closes a position in a security in the same trading day. This can be buying and selling to capitalize on a potential rise in a security's value or shorting and covering the short to capitalize on a potential drop in value. Intra-day traders capitalize on small moves in the value of a security by using "leverage" or "margin", which basically means borrowing money.

Day traders and intra-day traders are at the top of the risk spectrum. They participate in rapidly changing market conditions, looking for quickly developing profit opportunities. Mostly these traders employ technical analysis to determine when conditions are right to enter either long or short, and then to exit (hopefully with a profit).

With the elevated risk comes the potential for extraordinary ROI (Return on Investment).

Intra-day traders are mostly full time traders and it is imperative that they dedicate themselves to the task during whatever market hours they trade. This usually requires the trader to dedicate themselves to continuous monitoring of one or (preferably) several screens of data in order to identify the most favorable market conditions and moments to enter and exit trades. Many intra-day traders have developed automated systems. They simply start their trading programs and let the computer do its job.

Determining where to enter trades is one of the primary challenges facing intra-day traders. By analyzing specific price-volatility patterns and the previous day’s price action, traders can better determine when trade entries are most likely to be followed by strong breakout moves. Developing the skills to quickly recognize patterns based on “price elasticity,” trading range, and cup depth can help them focus on these opportunities.

Rules employed by intra-day traders

Many intra-day traders follow certain guidelines to limit losses. They:

  1. Invest what they can afford to lose - Intra-day trading carries more risk than investing in stocks and an unexpected movement can wipe out their entire investment in a few minutes.
  2. Choose highly liquid shares - Intra-day traders must square their positions at the end of the trading session.
  3. Trade only in two or three scrips at a time - There is a need to closely monitor the stock movements.
  4. Research watch list thoroughly.
  5. Fix entry price and target levels - The psychology of the buyer changes after they have bought a stock, which could interfere with their judgment and nudge them into selling too quickly even if the price moves up marginally.
  6. Use stop losses to contain impact - This helps the trader limit losses in case the share belies expectations and moves down (or up).
  7. Are not investors - Shares are bought with an ultra short-term horizon.
  8. Book profits when targets are met - Greed and fear are the two biggest hurdles for the intra-day trader.
  9. Don't fight the market trend - Even the most sophisticated analysis cannot predict which way the market will move.
  10. Remember small is beautiful - While stock investments can yield stupendous returns, be content with small gains from intra-day trading.
Because intra-day traders close out their positions in the stocks they own at the end of the day, whether winning or losing, some of the risks are limited. There is no hangover. Each day is a new day, and nothing can happen overnight to disturb an existing profit position.

Next: Intra-Day Scalp Traders »

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