Intraday trading is a popular and exciting form of trading that involves buying and selling stocks within the same trading day. Intraday traders aim to profit from the short-term price movements of the stocks, rather than holding them for long-term gains. Intraday trading can be rewarding, but also risky, especially for beginners who are not familiar with the market dynamics, strategies, and rules. In this blog post, Lares will cover some of the dos and don’ts of intraday trading for beginners, to help you start your intraday trading journey with confidence and caution.
What is Intraday Trading?
Intraday trading, also known as day trading, is a type of trading where traders open and close their positions within the same trading day. Intraday traders do not carry over their positions to the next day, and hence, avoid the overnight risk of price fluctuations. Intraday traders use various technical analysis tools, indicators, and charts to identify the entry and exit points of their trades, based on the price patterns, trends, and signals. Intraday traders also use leverage, or margin trading, to amplify their returns by borrowing money from their brokers.
How is Intraday Trading Different from Regular Trading?
Intraday trading is different from regular trading in several ways. Some of the key differences are:
Time horizon: Intraday trading is short-term, whereas regular trading can be long-term or medium-term. Intraday traders usually hold their positions for a few minutes to a few hours, whereas regular traders can hold their positions for days, weeks, months, or even years.
Risk and reward: Intraday trading is more risky, but also more rewarding, than regular trading. Intraday traders can make higher profits in a shorter time but also face higher losses if the market moves against them. Intraday traders also have to pay higher brokerage fees, taxes, and interest charges, than regular traders.
Strategy and analysis: Intraday trading requires more strategy and analysis than regular trading. Intraday traders have to constantly monitor the market movements, news, and events, and adjust their trades accordingly. Intraday traders also have to follow strict discipline, risk management, and money management rules, to avoid emotional trading and overtrading.
The Dos of Intraday Trading for Beginners
We are discussing in the section about dos before starting intraday trading for beginners who want, here are some of the dos that you should follow:
Do your homework: Before you start intraday trading, you should do your homework and learn the basics of the stock market, trading terminologies, trading platforms, and trading tools. You should also research the stocks that you want to trade and study their historical and current performance, financials, fundamentals, and technicals. You should also have a clear trading plan, with your trading goals, capital, risk appetite, and trading style.
Do choose the right stocks: Not all stocks are suitable for intraday trading. You should choose stocks that have high liquidity, volatility, and volume, as they offer more trading opportunities and price movements. You should also avoid stocks that are affected by external factors, such as news, events, rumors, or announcements, as they can cause unpredictable price fluctuations. You should also diversify your portfolio and trade in different sectors, industries, and segments, to reduce your risk and increase your chances of success.
Do use the right strategies: Intraday trading requires the use of the right strategies, depending on the market conditions, trends, and signals. You should use the strategies that suit your trading style, personality, and experience level. Some of the common intraday trading strategies are scalping, breakout, momentum, reversal, and range trading. You should also use various technical analysis tools, such as indicators, oscillators, moving averages, trend lines, support and resistance levels, and chart patterns, to identify the entry and exit points of your trades.
Do follow the rules: Intraday trading is governed by various rules and regulations, such as the margin requirements, circuit breakers, stop-loss orders, and square-off timings. You should follow these rules and comply with the norms of your broker and the exchange. You should also follow your own rules, such as your risk-reward ratio, position size, profit target, and loss limit, and stick to them. You should also keep a trading journal, where you record your trades, results, and learnings, and review them regularly.
The Don’ts of Intraday Trading for Beginners
We are discussing in the section about don’ts before starting intraday trading for beginners, here are some of the don’ts that you should avoid:
Don’t trade without knowledge: Intraday trading is not a game of luck or chance. It requires knowledge, skills, and experience. You should not trade without having a proper understanding of the market, the stocks, and the strategies. You should also not trade based on tips, rumors, or recommendations, without doing your analysis and verification. You should also not trade blindly, without having a trading plan, a trading system, and a trading edge.
Don’t trade with emotions: Intraday trading is a highly stressful and demanding activity, that can trigger various emotions, such as fear, greed, excitement, frustration, and anger. You should not trade with emotions, as they can cloud your judgment, impair your decision-making, and lead to irrational trading. You should trade with logic, reason, and discipline, and keep your emotions in check. You should also not let your ego, pride, or overconfidence, interfere with your trading.
Don’t trade with money you can’t afford to lose: Intraday trading is a risky venture, that can result in losses as well as profits. You should not trade with money that you can’t afford to lose, such as your savings, emergency funds, or borrowed money. You should trade with money that you are willing to risk, and that you can accept to lose, without affecting your financial stability, security, or well-being. You should also not trade with money that you need for your other goals, obligations, or commitments.
Don’t trade without stop-loss and target: Intraday trading is a fast-paced and dynamic activity, that can change in a matter of seconds. You should not trade without setting a stop-loss and a target for your trades, as they can help you protect your capital, lock your profits, and exit your trades at the right time. You should also not modify or cancel your stop-loss and target, once you have placed them unless there is a valid reason or a change in the market scenario.
Best Book for Intraday Trading
If you are looking for a book that can help you learn the intraday trading for beginners, you can check out the following book:
How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology by Andrew Aziz. This book is a comprehensive and practical guide that covers the essential aspects of intraday trading, such as trading strategies, trading platforms, trading tools, trading psychology, risk management, and money management. The book also provides real-life examples, case studies, and exercises, to help you apply the concepts and techniques to your trading.
Tax on Intraday Trading
Intraday trading is considered as a business income in India, and hence, it is taxed accordingly. The tax on intraday trading depends on various factors, such as your income slab, your turnover, your expenses, and your deductions. The tax on intraday trading can be calculated as follows:
Income tax: You have to pay income tax on your net profit from intraday trading, as per your income slab. The income tax rates for the financial year 2023-24 are:
Income Slab – Tax Rate
Up to Rs. 2.5 lakh – Nil
Rs. 2.5 lakh to Rs. 5 lakh – 5%
Rs. 5 lakh to Rs. 10 lakh – 20%
Above Rs. 10 lakh – 30%
Turnover tax: You have to pay turnover tax on your gross turnover from intraday trading, irrespective of your profit or loss. The turnover tax rate is 0.00325% of your gross turnover.
GST: You have to pay GST on your brokerage and turnover tax, at the rate of 18%.
SEBI charges: You have to pay SEBI charges on your gross turnover, at the rate of 0.00015%.
Stamp duty: You have to pay stamp duty on your contract note, as per the rates prescribed by your state government.
Expenses: You can claim expenses related to your intraday trading, such as brokerage, internet, electricity, phone, rent, depreciation, etc., as deductions from your gross income, to reduce your taxable income.
Deductions: You can claim deductions under Sections 80C, 80D, 80E, etc., as per the eligibility and limits, to reduce your taxable income further.
You can use the following formula to calculate your tax on intraday trading:
Tax on intraday trading = Income tax + Turnover tax + GST + SEBI charges + Stamp duty – Expenses – Deductions
You can also use online tax calculators, such as this one, to estimate your tax on intraday
Conclusion
Intraday trading for beginners is a challenging and rewarding form of trading, that requires knowledge, skills, discipline, and patience. Intraday trading can offer you many benefits, such as flexibility, and diversification, but also many risks, such as losses, stress, and uncertainty. If you are a beginner who wants to start intraday trading, you should follow the dos and don’ts of intraday trading, as discussed in this blog post, to improve your chances of success and avoid common pitfalls. You should also read the best book for intraday trading, and understand the tax implications of intraday trading, to enhance your learning and compliance. Intraday trading is not a get-rich-quick scheme, but a serious and rewarding profession, that can help you achieve your financial goals if done right.
