What are Intraday Returns?

Intraday return signifies a store's profit or loss within regular trading hours, spanning from the market's opening to its closing. Many traders often come across the common query which is the intraday returns. Understanding a stock's performance involves dissecting its daily returns, comprising various components. Together, these components constitute the total daily return of a stock, reflecting its overall fluctuations.

This comprehensive measure provides insights into how stock price works within market hours versus its performance across successive trading days. This article details intraday returns' significance and answers what are intraday returns, their relationship with overnight returns, and their combined influence on a stock's daily performance.

What are Intraday Returns?

Intraday returns are one of two components of a stock's overall daily return. During regular trading hours, intraday returns measure how much stock makes based on the price change from the start to the end of the day. Intraday returns are also known as daytime returns.
 

Additionally, intraday returns and overnight returns together make up the total daily return on a stock. The total daily return is based on the price change of the stock between the close of one day and the close of the next. The intraday returns are a bigger contributor to the total return than the overnight returns. It suggests that overnight returns and intraday returns are negatively correlated.
 

Also Read: 7 Habits of Successful Intraday Traders

What is Intraday Trading?

The term intraday trading refers to trading stocks on the same day. So, when buying stock for a company, you must specifically indicate ‘intraday’ in the platform's portal. This lets you buy and sell stocks of the same company before the stock market closes. In this trading, profits are earned by following market indices. It's also known as day trading.

Uses of Intraday Trading Returns

• Intraday price and volume data are often used in technical analysis and investment strategies to exploit security momentum, moving averages, and unique cycles.
• Furthermore, intraday returns are important for brokerage margin accounts and collateral exchanges between international financial institutions.
• When intraday returns are high, brokerage firms may trigger margin calls to clients if they have extended margins.

Intraday Returns vs. Overnight Returns

Understanding the differences between overnight and intraday returns is essential to understanding the dynamics of a stock's performance. Intraday returns track a stock's price movement from starting to closing during regular trading hours. This measure highlights gains or losses made throughout the trading session and captures the daily price movement.
 

Conversely, overnight returns indicate how much a stock has changed in value between the end of one trading day and the end of the next. It displays the effects of outside variables like market mood, world events, or news about a particular firm that breaks after the market closes. Because overnight events may significantly alter intraday returns, overnight returns are important for evaluating a stock's overall volatility and behaviour.
 

Analyzing both intraday and overnight returns provides a comprehensive understanding of a stock's daily performance, aiding traders and investors in making informed decisions regarding their trading strategies and risk management.

How to Calculate Intraday Returns?

Many brokerages offer daily return statistics immediately, saving investors the trouble of doing computations by hand. Nonetheless, knowing how to calculate intraday returns is still useful. One needs to multiply by the number of shares owned after deducting the opening price from the closing price.

For example, take ownership of 100 shares of ABC stock. A gain of ₹20 per share is realised on a day when the stock begins at ₹100 and closes at ₹120. This gain, multiplied by the 100 shares that are owned, results in a daily return of ₹2,000.

On the other hand, some investors like dealing in percentages. Divide the gain per share for the day (₹20) by the opening price (₹100) to find the percentage gain (0.2). The daily return of 20% is obtained by multiplying by 100, which represents the percentage rise in the stock's value for that trading day.

How to choose stocks for Intraday Trading?

In intraday trading, picking the right stocks is the first and important step. Below are the points on how to pick a good intraday stock:
 

• Don't buy volatile stocks: It's always better to avoid stocks that look unstable. Thus, it's a good idea to track stock behaviour and consider trading over potentially stable stocks.
• Make a correlation between stocks and geopolitics: You should invest in stocks that correlate with major sectors.
• Take the time to research: It is highly advisable to do a thorough research before trading.
• Analyze trends: Find out what stocks are generating the major interest from traders or what the general flow is in the market.

Mistakes to avoid while doing intraday trading

Intraday trading is challenging and risky. Hence, the key is managing risks and staying focused on the current market trends. Below are the major intraday trading mistakes to avoid:

1. Not Analysing the Past Performance of the Stock

To make decisions, traders should study and analyse the past performance of stocks and companies. One of the major mistakes intraday traders make is picking stocks too fast.

2. Going by Tips

Profitable tips are easy to get, but making money with these tips is not. Also, it is not always profitable to get tips from experienced traders. To trade effectively, you must learn the intraday chart patterns, understand the structure, and trade independently.

3. Not Placing a Stop-loss Order

The purpose of a stop-loss order is to instruct the broker to sell the stock as soon as possible when the market drops below a predetermined price. When the market falls, this order gets executed immediately, preventing losses. However, the high-risk appetite of day traders makes them look to earn more profit. As a result, they forget to place a stop-loss order.

4. Trading in Illiquid Stock

One of the known intraday trading mistakes is trading in illiquid stocks without proper research. Intraday trading depends heavily on the liquidity of a stock.

5. Not looking at the whole market

Traders often catch the trend and ride it until they close, but it's not that simple. Fundamental investors must go in-depth and analyze stock performance. To better understand the market, intraday traders must understand the trend running through the market and take a 360-degree view.

6. Being too Emotional

In intraday trading, the primary rule is not to get too attached to profits and losses. Traders should always keep emotions aside and not let losses affect their trading.

7. Avoiding Trading Plans and Trading Diary

Trading plans outline how intraday trades should be conceived and executed. A trading diary helps traders identify weak areas and improve their strategies. A trader who ignores the trading plan and the trading diary will have trouble succeeding as an intraday trader.

Conclusion

By buying and selling stocks within a single trading day, intraday traders try to take advantage of price fluctuations. The intraday returns, which measure price changes during trading hours, are key to technical analysis and margin accounts.

Moreover, a good stock pick involves avoiding volatility and considering market conditions. Which is why, in-depth research, trend analysis, and risk management are essential. Also, try to avoid mistakes such as neglecting past performance analysis, relying on tips, and not using stop-loss orders.