Learn intraday - day trading approach

WHY this approach exists: Stock prices fluctuate constantly due to order flow, news, and trader psychology. Day traders exploit these micro-movements, capturing0.5-3% moves multiple times per day instead of waiting months for 20% returns.

WHAT makes it different from investing: Zero overnight exposure, high frequency technical (not fundamental) focus, and leverage usage.

Core Mechanics: How Day Trading Actually Works

The Risk-Reward Framework:

$\text{Risk per trade} = \text{Account size} \times \text{Risk percentage}$

WHY this matters: If you have₹100,000 and risk 1% = ₹1,000 max loss per trade.

Now, your stop-loss determines HOW MUCH the price can move against you:

$\text{Risk per share} = \text{Entry price} - \text{Stop-loss price}$

HOW MANY shares can you buy? Divide total risk by risk per share:

$\text{Position size} = \frac{\text{Risk per trade}}{\text{Risk per share}}$

EXAMPLE: Entry at ₹500, stop at ₹495(₹5 risk per share), total risk ₹1,000: $\text{Shares} = \frac{1000}{5} = 200 \text{ shares}$

This means you buy 200 shares. If stopped out, you lose exactly₹1,000. If target is ₹508 (+₹8), your reward =200 × 8 = ₹1,600 (risk-reward = 1.6:1).

Day Trading Strategies: The Core Approaches

Strategy 1: Momentum Trading (Most Common for Beginners)

WHAT: Enter when price breaks a key level with high volume, ride the wave.

WHY it works: Strong moves attract more buyers (FOMO + algorithmic triggers), creating self-fulfilling momentum.

Step 1: Price breaks ₹205 with 300K volume spike (3× average)
→ WHY this step? Volume confirms genuine buying interest, not a fake breakout.

Step 2: Enter at ₹205.50 (don't chase, wait for 1-2 candles confirmation)
→ WHY? Avoids bull traps where price immediately reverses.

Step 3: Set stop at ₹203 (below breakout level)
→ WHY? If price goes back below ₹205, breakout failed—exit immediately.

Step 4: Target ₹210 (previous resistance level)
→ WHY? Risk here is ₹205.50 − ₹203 = ₹2.50 per share; reward is ₹210 − ₹205.50 = ₹4.50 per share, giving a reward-risk ratio of 4.50 / 2.50 = 1.8:1. Momentum trades often move 2-5%, but take profit at reasonable levels.

Step 5: Exit at ₹209.80 when volume drops (sign of exhaustion)
→ WHY? Don't be greedy; momentum fades fast.

Profit: (209.80 - 205.50) × shares = ₹4.30/share

Strategy 2: Scalping

WHAT: Ultra-short trades (seconds to minutes), targeting₹0.50-₹2 moves.

WHY it works: Bid-ask spread inefficiencies, order book imbalances, and high-frequency price oscillations.

Step 1: Place a buy limit at ₹1,499.50 (join the bid) OR hit the ask at ₹1,500 for immediate fill
→ WHY? A buy limit at ₹1,499.50 only fills when a seller crosses down to your price; a market buy fills instantly at the ₹1,500 ask but pays the spread. You trade off fill-certainty against price.

Step 2: After getting filled (say at ₹1,500), place a sell limit above the current best ask, e.g. at ₹1,501
→ WHY? A limit order does NOT execute immediately—it rests in the order book and only fills when a buyer's bid rises to meet ₹1,501 (or a market buyer sweeps up to it). You are waiting for the price to tick up ₹1, not "instantly selling on the ask."

Step 3: If the sell limit is not filled in ~30 seconds, cancel and re-assess (or exit at market to cut risk)
→ WHY? Scalps depend on quick order-book movement; a stale unfilled order means the edge is gone and holding = risk.

Requirements: Fast internet, low brokerage (₹20/trade kills scalping profits), Level-2 data.

Risk Management: The ONLY Thing That Matters

$\text{Max daily loss} = \text{Account size} \times 0.02 \text{ to } 0.06$

WHY this exists: A bad day shouldn't wipe out a week of profits. With3% daily limit on₹100K account = ₹3,000 max loss. After hitting this, STOP TRADING for the day.

Derivation from probabilities:

• Assume 50% win rate, 1.5:1 reward-risk
• If you lose 5trades in a row (0.5^5 = 3% probability), that's 5 × 1% = 5% loss
• A 6% limit allows recovery, while 10%+ losses cause emotional trading (revenge trading)

Mistake 1: Not Using Stop-Losses
Why it feels right: "The stock will come back, I just need to wait."
The reality: Intraday moves can be 5-10% against you in minutes. A₹500 stock at ₹480 =4% loss. With leverage (5×), that's 20% account damage.
Fix: ALWAYS set stop-loss before entering. No exceptions.

Mistake 2: Overtrading (FOMO)
Why it feels right: "More trades = more profit opportunities."
The reality: Each trade has brokerage, slippage, and psychological cost. 20 trades/day with 50% win rate often loses money due to costs and decision fatigue.
Fix: Focus on 2-5 HIGH-QUALITY setups. Quality > quantity.

Mistake 3: Holding Losing Positions ("It's just a small dip")
Why it feels right: Selling at a loss feels like admitting defeat.
The reality: Day trading is INTRADAY. Holding a loser overnight exposes you to gap-down risk (next day opens5% lower).
Fix: Close ALL positions before market close. Accept small losses as business costs.

Mistake 4: Using Full Leverage
Why it feels right: "5× leverage means 5× profits!"
The reality: Also5× losses. A 2% adverse move = 10% account loss.
Fix: Use leverage conservatively (2-3× max), only high-conviction trades.

Tools & Requirements for Day Trading

Technical Indicators Used:

• VWAP (Volume-Weighted Average Price) – Institutional benchmark
• RSI (Relative Strength Index) – Overbought/oversold
• EMA (Exponential Moving Average) – Trend direction
• Volume – Confirmation of moves

The Psychological Reality

The winning mindset:

• Treat it as probability management, not gambling
• Accept that 40-50% of trades will lose (even pros)
• Focus on process, not individual trade outcomes
• Keep detailed trade logs (review weekly)

Day traders do this with stocks. They look at charts (like game maps) to find patterns. When lots of people suddenly want to buy a stock (like a popular toy everyone wants), the price goes up fast. Day traders jump in, ride the wave up, and sell before it drops.

The trick? They use "stop-losses"—automatic sell buttons that trigger if the price goes down too much, like a safety net. They risk only a tiny bit of money per trade (like betting 1 coin when you have 100 coins), so even if they lose 5 trades, they're still in the game.

Most people fail because they get emotional—they hold losing trades hoping they'll magically recover (they usually don't), or they make too many trades without a plan. Winners follow strict rules, even when it feels boring.

• FOMO kills accounts (wait for YOUR setup)
• Overtrading = death by1000 cuts
• Momentum needs volume confirmation
• Overnight holding = NOT day trading

Connections to Other Concepts

• Stock Market Basics – Day trading requires understanding order types, market structure
• Technical Analysis Fundamentals – Charts, indicators, patterns drive decisions
• Risk Management in Trading – Position sizing, stop-losses, portfolio heat
• Market Microstructure – How order flow creates short-term price movements
• Trading Psychology – Emotional control, discipline, tilt prevention
• Swing Trading – Contrast: holds2-10 days vs. intraday only
• Options Day Trading – Using options for day trades (higher leverage, complexity)

Flashcards

#flashcards/stock-market

What is day trading? :: Buying and selling securities within the same trading day, closing all positions before market close to profit from intraday price movements.

Concept Map

Hinglish (regional understanding)