Intraday Trading Rules

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When it comes to intraday trading, the potential for both immense profits and huge losses knows no bounds. Thus, to navigate this unpredictable market, it is crucial to follow a set of well-defined rules to protect yourself from greed and fear. If you are an intraday trader looking to increase your chances of success in the stock market, then you have come to the right place. 

Here, we will discuss fundamental intraday trading rules that can help you become an experienced trader and share new SEBI rules for intraday trading, including SEBI's new rules for intraday margin and intraday profits.

Understanding Intraday Trading Rules

Regarding the stock market, there is no limit on how much you can profit from it. Also, there is no limit on how much you can lose. Therefore, following predefined rules is crucial to prevent falling victim to greed and fear in the stock market.

The following intraday trading rules will help you become a long-term trader by protecting you from the stock market's unpredictability.

Rule 1:Trade at a Specific Time Point

In intraday trading, the key is to catch the right momentum. The market opens at 9:15 AM and closes at 3:30 PM. However, there are certain times when markets pick up momentum throughout the session. The rest of the time, prices don't move much or act very volatile. You can avoid these times. In general, intraday trading is best between 9:30 & 11 a.m. and 1 & 2:30 p.m.

Rule 2: Make Trades Based on Your Setup

Don't trade randomly. It's important to have a setup that lets you enter and exit trades. If you have the right setup, you'll be able to trade with confidence. Moreover, always follow your setup's trigger points and place orders when they're triggered.

Rule 3: Gradually Increase Your Position

Keep the quantity small at first. Eventually, you'll be able to scale up the position as you gain confidence about your setup. When you start with a big position, the losses can be big, which can deplete your confidence and capital.

Rule 4: Invest Only in Liquid and Volatile Stocks

Liquidity is essential for buying and selling shares on the same day. In other words, there must be more buyers and sellers. Otherwise, illiquid shares make it hard to find sellers at the target price if you buy them. Eventually, that makes you sell at lower levels, reducing your profits.

Rule 5: Get Your Trades Done by 3:30

Often, new intraday traders carry over their positions to the next day in hopes of hitting their target price the next day. However, there's a good chance the price will go down the next day too, so you'll lose more money. Thus, to become a successful intraday trader, you've got to stick to the rule and square off all trades before 3:30 PM, regardless of profit or loss.

Rule 6: Monitor the Market Constantly 

If you regularly trade in liquid shares, you should scan all those shares throughout the day for any opportunities. It helps you stay focused and not get lost during trading. In intraday, you need to be constantly scanning your trading terminal for trades during the few hours you work.

Rule 7: Never Trade on Hope

It is not good to have false hope in the stock market. To further grasp this rule, let's look at an example. Assume that your setup produced a buy signal, and you purchased the shares for Rs. 150. Although the price rose up to Rs. 155, where your setup indicates a sell signal, your objective was set at Rs. 160. In response to the sell signal, you should close your trade at Rs. 155 and not hold out hope that the price will rise to your objective. In these kinds of situations, you usually wind up taking a stop loss. Thus, you should avoid holding onto hope when trading intraday.

These intraday trading rules will help you become a successful intraday trader. Additionally, the Securities Exchange Board of India, or SEBI, regulates stock market transactions through its rules and guidelines. On SEBI's website, new intraday trading rules are notified and updated regularly for investors. 

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Table of Content

  1. Understanding Intraday Trading Rules
  2. New SEBI Rules For Intraday Trading
  3. SEBI New Margin Rules For Intraday Trading
  4. Lien on Pledging of Shares
  5. New Rules On Intraday Profits
  6. Important Tips and Strategies for Intraday Trading

New SEBI Rules For Intraday Trading

The impact of SEBI's new rules for intraday margin, deadlines, and procedures can affect your bottom line as an investor, so it's important to stay up to date. Following are the new SEBI rules for intraday trading:

SEBI New Margin Rules For Intraday Trading

Starting December 1, 2020, SEBI's new rules for intraday margins reduce margins by 25% every three quarters. If the margin was 100% before December 2020, it will go down to 75% after that.

Let us understand Sebi's new margin rules for intraday trading:

December 1, 2020 - 25% less

March 1, 2020-25+25= 50% less

June 1, 2021- 25+25+25= 75% less

September 1, 2021 - No margin

SEBI's new margin rules for intraday trading from September 2021 say that stockbrokers can offer traders a maximum of 5X margin. Before the SEBI margin rules, this was as high as 40-50 times.

In terms of margin requirements, the trader must maintain 50% of the investment value as the initial margin. Apart from this, the maintenance margin must be 40% of the current market value. By the end of the market session, the stockbrokers checked these requirements. However, after the implementation of the SEBI's new margin rules for intraday trading, a trader must fulfil all margin requirements before the market opens.

Lien on Pledging of Shares

When you give your shares as security for the money you borrow to trade, you don't have to move the shares from your account to the broker's account anymore. Instead, the broker puts a special mark on your shares to show that they are being used as security. This mark is called a lien. It means that the broker can use your shares as a guarantee with another organisation that makes sure everything is fair in the trading.

Moreover, to make sure your shares are protected and secure, the broker has to get a special password from you before using your shares as security. This extra step makes trading safer and reduces the chances of error.

New Rules On Intraday Profits

The SEBI has prohibited traders from using intraday profits for additional stock market trading on the same day. Profits can only be used two days later for trading. To trade intraday, traders need to meet the minimum margin requirement.
click here to read more about Intraday Turnover Calculation.

Important Tips and Strategies for Intraday Trading

Here are some of the essential tips & strategies for intraday trading:

Here are some of the essential intraday trading tips and strategies

Technical Indicators

Since technical analysis forms the basis of most intraday trading, utilising an indicator appropriate for your trading setup may increase accuracy and prevent you from making bad bets.

Small Time Frame Charts

The stock charts are offered in a range of time intervals, from one minute to one month, with each candle representing the chosen interval. You have to limit your intraday trading to shorter time frames, such as one minute to fifteen minutes.

Utilise Multi Time Frame Analysis

Evaluate shares using a daily time frame from the previous day and confirm trades by examining smaller time frame charts. This approach enhances the probability of identifying high-potential trades. With practice, analysing stocks across multiple time frames becomes more efficient.

Avoid Early Trading Activity

Steer clear of trading in the initial 15 minutes (9:15 AM to 9:30 AM), as emotions often drive this period. The market's reaction to the previous day's news dominates early activity, while the day's trend begins to take shape afterwards. Waiting for this initial period to pass helps in making more informed trading decisions.

Target a Favorable Risk-Reward Ratio

Focus on achieving a higher risk-reward ratio (RR ratio). Define the amount of risk you are willing to take to earn a specific reward. For instance, if risking Re. 1 on a trade, aim to earn Rs. 2 to Rs. 3 as a reward. Striving for greater rewards while minimising risk should always be a priority in your trading strategy.

In order to minimise your risks and maximise your chances of success, it is crucial to follow a set of well-defined intraday trading rules. Intraday trading rules include following a trading setup, gradually increasing positions, investing in liquid and volatile stocks, completing trades before the market closes, and continuously monitoring the market with a reliable stock market app.

Additionally, SEBI has introduced new intraday trading rules. These rules include changes to margin requirements, which will gradually decrease over time, as well as limitations on the leverage provided by brokers. It is important for you to understand these intraday trading rules and stay current with SEBI regulations in order to enhance your trading strategies and protect your investments.

Intraday trading rules FAQs

In the past, clients could trade with the entire margin received on pledging securities. With the new margin rule, w.e.f. May 2, 2022, clients can now use only 50% of their margin against securities, with the remaining 50% required in cash (bank) with the broker.

SEBI has prohibited traders from using intraday profits to conduct additional stock market trading activities on the same day. Profits can only be used two days later for trading activities. 

3:30 PM is the last time to exit intraday trading.

The tick chart is one of the best intraday trading references.

On a daily basis, Indian markets carry out intraday trading from 9.15 am to 3.30 pm.