7 Habits of successful intraday traders

  • 04 Jun 2024
  • Read 7 mins read

Most people would recollect one of the most iconic books of Stephen Covey, “The 7 Habits of successful people”. It had a generic life tone, but most of the intraday trading rules are applicable to your business too. For instance, if an intraday trader had to paraphrase the 7 rules of success intraday trading, what would they be? Typically, an intraday trader can buy and sell the stock by end of the day or they can sell and buy back the shares on the same trading day. Intraday trading is a leveraged game since the brokers allow you positions which are a multiple of your margins. The 7 rules are about the skills and mental makeup of an intraday trader compared to a delivery trader or investor. Here are the 7 habits for intraday traders.

Habit 1 – primary focus should be on managing risk

When it comes to intraday trading, returns manage less and risks matter more. If you can handle risk, then returns would follow eventually. After all, risk is what you can control, not returns, and is why trading success depends on a risk focus. Successful intraday traders set strict limits for capital erosion during the day, during the month and overall. They ensure that each trade is backed by a strict stop loss and profit target. They never get into a trading position without defining maximum loss willingness.


Habit 2 – it is important to learn quickly from mistakes

It is said that erring once is a mistake but erring twice is a habit; and a bad habit at that. Even the most successful intraday traders make mistakes in trading, but the difference is that they learn from the mistakes and make it a point never to repeat them. For instance, when stop losses are triggered consecutively, a good intraday trader sits back and evaluates the core reason and takes immediate corrective action. The good habit is that even if money is lost in the trade, the lesson must not be lost.

Habit 3 – it is all about flawless execution

Like in any business, a lot of intraday trading success lies in execution. Smart intraday traders are quick to shift to a sliced-order approach to buying when markets are volatile. They use market orders and limit orders to get the best price in the market. a good part of flawless trading is also the use of technical charts to minimize risk by buying as close to the support levels and selling as close to resistance levels. They minimize the costs of trading too.

Habit 4 –never lose sight of positive risk-return trade-off

What do we understand by a risk-return trade-off? It is return per unit of risk. Profit targets should be a function of the risk entailed in your stop losses. For example, you cannot have a stop loss of Rs.6 and a profit target of Rs.5. That is a negative risk-return trade-off. Smart traders always ensure that the profit target in any trade is a multiple of the risk and it is normally 2:1 or 3:1, although it can be lower for aggressive intraday trades. This keeps your return per unit of risk in perspective and ensures you do not take unnecessary risk.

Habit 5 – smart intraday traders chase realistic expectations

We spoke about risk-return trade-off. 2:1 is normal 3:1 is great but 5:1 risk return trade-off is impractical. Intraday trading is about realistic expectations. Smart intraday traders are quick to appreciate that there is nothing like a free lunch in economics and there is nothing like a risk-free trade in the stock market. whether you are looking at expectations of risk in a trade, expectations over a period of time or even returns per unit of risk, you need to ensure that expectations mirror the market reality.

Habit 6 – good intraday traders never try to beat the market

An intraday trader is not a future Warren Buffet or Peter Lynch with dreams of beating the market index on a consistent basis. Globally, most active investors find it difficult to beat the index, so you can imagine how tough it would to beat the market on an intraday basis. Seasoned intraday trader don’t worry about predicting the market but instead trade on the side of momentum. Just grasp the underlying trend in the market and remember that in intraday trading, market is the king.

Habit 7 – a disciplined intraday trader can beat most others

Intraday trading actually starts with discipline. Set your trading plan, keep a back-up plan of action ready and execute your trades. For successful intraday traders, discipline is a habit and a way of life! It just percolates the entire trading gamut.