InvestorQ : What are some key precautions that traders need to take in intraday trading?
Bhavik Nehru made post

What are some key precautions that traders need to take in intraday trading?

Bhavik Nehru answered.
3 years ago

There are many precautions to be taken because intraday trading is largely about risk management. Here are few of them

Since you are getting into intraday trades by paying a margin always trade intraday only with strict stop losses. This will avoid huge losses due to sharp volatility in stock prices. Remember that leverage is a double edged sword and can really work against you.

Trading both sides is the advantage of intraday trading. As an intraday trader, you can initiate long or short trades. That means you can buy a stock and then cover it before end of trading or you can sell the stock and then buy it back before end of trading. Be cautious when you are selling short intraday (selling without delivery). Ensure that you don’t forget to square of your short trades as it can result in auction trades with huge loss implications. If you sell the shares and do not square it off intraday, then it will result in short delivery and go into exchange auction. Such auction can result in huge losses to you.

There is beauty in liquid stocks and that is what you should stick to in case of intraday trading. When you are trading intraday, always stick to liquid stocks. You do not want to get into a trade and then realize that the bid-ask spreads are too wide and resulting in huge losses. Restrict your intraday trading to the 200 most liquid stocks only.

Have you heard of trade-to-trade stocks? They are stocks in which delivery is compulsory and intraday squaring off is not permitted. This is also the case with Z-group stocks. Be cautious of T2T (Trade to Trade) stocks. These are stocks where only delivery is permitted so if you buy these T2T stocks in the morning then you cannot square off these stocks intraday. You have to necessarily take delivery. Ensure beforehand not to sell T2T stocks in case you do not have delivery in your demat account.