Intraday Trading Rules

Why do we have rules in our lives? There are social, civil, professional and other kinds of rules that make the corresponding pattern a bit systematic and uniform. Similarly, Intraday trading rules bring a sort of uniformity to trader’s lives.

But how does that work? Let’s try and understand in this quick review where we discuss 11 such rules of stock market trading and the need of those.

Intraday trading involves taking long or short positions in the securities and squaring-off the positions before the end of the trading day.

The market is very volatile, and the profits do not just depend on the markets going up but profits can also be made even in downtrends.

Therefore, day traders can make money irrespective of whether the market is going up or down!

This may sound easy and quick way of making profits, however, it is not as actually easy as it sounds.

The market trends have to be isolated from the surrounding noise and then capitalised on. The day trading markets are, in fact, the easiest ways of losing money if the proper intraday trading strategies and techniques are not used.

Most money is lost in day trading due to greed or due to fear. So, to be successful in intraday trading a lot of discipline is required.

Rules have to be formed and abided by at every given time, in every given trade. These rules are not mandatory to be followed, but of course, they are quite valuable.

Day trading may present the traders with many heats of moment scenarios, as intraday trading is very fast-paced. To prevent yourself from uncertainty, it is good to know all the rules of share market.

In such scenarios, the traders may be tempted to let go of the rules and follow their eyes and ears, but that usually results in disastrous results.

As a bottom line, intraday traders have to be very quick and on their toes, along with making sure that they do not flow away with the moment and still stick to their Intraday Trading Rules.

11 Intraday Trading Rules You Must Follow

There are certain golden Intraday Trading rules that must be followed, in order to make profits in day trading. Some of them are as follows:

1. Have a Consistent Trading plan

Becoming an intraday trader is not a cakewalk. One must know what he is getting into and be sure of it. Start with knowing whether you should do day trading or delivery trading, as with have their own pros and cons and each may not be suitable for all traders.

An investor cannot be a day trader and a day trader cannot be an investor.

Once it is decided that day trading is what you want to do, make an elaborate plan for intraday trading. Strategies must be practised and then the most suitable ones must be picked.

There must be a plan before the start of each trading day and journals of profits and losses must be kept to keep a track of whether or not the strategy worked. There also must be a trading plan for each trade, depending upon what the targets must be and what the stop loss must be.

Intraday trading requires a lot of discipline and making and following a trading plan is a critical part of that discipline.

Let’s discuss these Intraday Trading Rules and it is advised that you make these rules part of your trading nature, over a period of time. Doing this will certainly help you to avoid any loss-making trades and focus objectively towards profitable opportunities.

2. Trade with the Current day trend

Intraday markets are like waves, going up and down periodically. It is extremely important for an intraday trader to go with the current market trends.

An intraday trader must follow the movements and go along. When the market is bullish, an intraday trader must choose the stocks that have the potential to go up and when the markers are bearish, he must look for stocks that may go down.

Quick reversals in trends also occur in day trading, and these reversals have to be carefully observed, spotted and followed.

When the markets are moving up, some stocks move more aggressively and these are the stocks to be traded, as they hold potential for more profits and less risk; similarly, when the markets are going down, the day trader must short sell the stocks that are dropping more than the market.

A day trader must not fight the trend and try to capture the market moves.

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3. Keep the emotions aside

Being emotional is the biggest mistake that trader can make and is certainly one of those most crucial Intraday Trading Rules that one must take care of.

Intraday trading involves a lot of volatility; in terms of market, prices, profits and losses, and thus the emotions.

An intraday trader must keep his emotions at bay and not be overly affected by either the profits or the losses.

In fact, losses must be taken in stride and must be learnt from. As a rule, an intraday trader must know when to leave. A day trader must be patient and should wait for the pullback so that he has a low-risk entry and exit.

Also Read: Pullback Meaning

Also, a day trader must never blame the market for losses in intraday trading; disciplined traders do not blame the market, the government the companies, or anyone else for their losses.

The market provides huge opportunities, it is in the hands of the trader to recognize them without being overpowered by any emotions like fear or greed.

A day trader must be confident of his moves and should stick to them, and at the same time, he must not be afraid to put a trade.

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4. Gather the Profits while you can

During intraday trading, all the ups and downs happen very quickly.

When the profits are earned, the trends may reverse themselves immediately and start going against the trader. Therefore, an effective intraday trader must follow the rule to not be carried away by greed and convert his paper-profit to real profit as soon as possible.

The trader must take the profit and exit the position when his objective is achieved.

The time available to capture and convert these profits is very less and should be utilised effectively.

There are two important rules for reaping and converting the profits: in a long position, take profits at or a little above the former price high and in a short position, take profits at or a little below the former price low.

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5. Avoid Overtrading

A common Intraday Trading mistake done by the day traders is to take positions at all times of the day, every day. This is not how Intraday Trading Rules work.

There are times when markets do not trend. Intraday trading is not to be done at these times, just to check waters or to impress others.

For better understanding get across some golden intraday tips.

This helps to plan strategically and thus increasing the chance of earning profit.

A disciplined intraday trader goes slow when the market is choppy and may even not trader when the market is horizontal and does not trade until the market is stabilized.

Make sure that the range of movements of prices is high enough so that the rewards exceed the potential risk.

Don’t trade when the market is not moving. Also, an intraday trader must keep the volumes constant at least in the beginning and must trade only a few scripts at a time.

Till the time a trader is satisfied that he has learnt a lot, the number of lots must be kept constant and not increased and decreased drastically depending on the previous day’s self-performance.

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6. Market positions with Limit orders instead of Market orders

This is one of the most important and basic intraday trading rules.

A market order is an order to buy or sell immediately at the current market price and it is filled as long as there are willing buyers and sellers; the price of execution is not a factor in this case.

However, in a limit order, the maximum purchase price is set for a buy order and a minimum selling price is set for a sell order; so if the market does not reach the limit price, the order is not executed.

Therefore, to ensure that there are no untoward losses, it is highly advisable to set limit orders instead of market orders.

Market orders show obvious drawbacks at the time of highly volatile conditions like market crashes where limit orders can help to contain the losses.

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7. Keep learning

Intraday trading is a job where learning never ends.

Each trade and each aspect of trade teaches something new. An efficient intraday trader must be very open-minded to new learnings instead of being stubborn and rigid. He must learn from his profits as well as losses.

A journal must be kept of daily profits and losses and reasons for the same must be analysed to know which strategies work under which circumstances.

Try the strategies and find out which work the best for you.

Also, intraday trading is highly affected by the daily national and international events. So, a day trader must keep himself aware of all the happenings around the world to be on his toes and well-prepared for what is coming his way.

One of the most popular rules of intraday trading is to perform appropriate research and analysis.

The trader must be aware of the price of the stocks, their support and resistance levels, ranges, quarterly and annual results of the companies and so on. All this information helps a day trader to take well-informed and success-enabling decisions.

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8. Treat trading as a business and not adventure sports

Another very important rule of intraday trading is not to take unnecessary risks. Intraday trading is not an adventure sport to go all-in. It requires a lot of patience and maturity and must be handled with care.

Losses are acceptable and a part of the business, but all efforts must be made to curtail them. Day trading must be looked at as a business, with the bottom line as profit-making.

When there are losses, a professional day trader will sit back and analyse what he did wrong and learn from his mistakes and then will make the next moves in sync with the market.

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9. Trade only with the money that you are ready to lose

One of the most critical intraday trading rules is to not be reckless.

The beginners who end up making good money in a short time may come under the impression that day trading market is the best way to make quick money and they may end up putting huge amounts in trade, which may result in drastic losses.

So, for a seasoned and successful trader, it is very important to be aware of losses and put in only the amount of money that they can afford to lose. Profits, when realised, must be kept away as cushions and not stowed back into the trades.

Owning a cushion may lead to less stress while trading and may prevent some unprofessional decisions.

Day trading is like walking a tightrope; so the day traders need a strong cushion to fall back upon. It is highly risky and must be done only using the spare money that the trader can bear to lose.

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10. Use strict Stop Loss

Just the way an intraday trader must know when to enter the market, more importantly, one must know when to exit the market as well.

This rule of intraday trading saves hefty losses. Stop loss helps to stop the losses at a particular point and it covers the position if the price moves beyond a specific limit.

Thus it does not let the trader be carried away by emotions and the movements and the capital is kept safe and enormous losses are avoided by using a stop loss.

Once the stop loss is triggered, the day trader must exit his positions for the day. So, a proper exit strategy is equally important as the entry strategy. A life-saving rule of intraday trading is the three Es: having an entry price, exit price and escape price, to be utilised in the worst-case scenario.

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11. There are no rules or books to follow that promise Profits

The most phenomenal rule of intraday trading is that there is no fool-proof intraday trading formula for success. There are no gadgets or softwares that can promise assured success.

If there were, then huge investment banks and other big trading firms would only earn profits and hit no losses.

This is not the case. A lot of help and guidance can be taken from the technical indicators, tools, softwares and tips, but at the end of the day, each trade is unique.

There is no magical key to success. Every day trader needs to identify his own trading style, strategies, and setups that he is comfortable with and which work for him.

Again, a particular strategy may not work for the same trader for every trade. Adaptability is the key and the confidence in one’s own self and the trading skills takes the game further up. 

Take these Intraday Trading Rules into your stride and go out there, conquer the stock market trading world.

Other than the above-discussed rule, there is one specific rule going to be added to the list. This rule is related to the margin trading facility provided to the intraday traders to increase the chance to earn more with leverage offered to them.

But the SEBI new margin rules have changed the picture and now the traders would be able to grab the leverage of up to 5 times which was earlier arount 20 to 40 times for some trades.

Happy Trading!

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