5 factors that affect intraday trading
Online share trading is an effective way of augmenting your income. Invest your savings wisely in the stock market and you could create significant wealth. One way to start buying and selling securities in the stock market is through intraday trading. Here, the trader profits from small fluctuations in price.
In intraday trading, you cannot hold a position for more than a day. This means that if stocks are bought at the beginning of the day, they have to be sold before the market closes. Or, if securities are sold at the start of the day, they must be bought back before market hours end. In case any positions remain open, the broker’s trading system automatically closes them at the current market price.
Now, intraday trading for beginners can be challenging and tricky. It is a lucrative option as the inflow of money can be big. But the losses can be massive as well. Even if you have entered the share market with a significant capital cushion, losses in day trading can be damaging. This is why day traders carry out extensive trend analysis and market research before making a trade.
Important factors in intraday trading
There are many market forces in play which can impact prices. It is important to understand these before taking a plunge into day trading.
1) Company performance
News about the organisation’s performance and governance, as well as public perception about the brand, are major factors. Stock prices are driven by news flows about the entities concerned. For instance, you might hear that Company A has snagged a massive new order or multiple projects. This is good news for Company A, and it will drive up the share price. Meanwhile, news that Company B is facing a ban on the international market will pull down its share price. In the same way, annual and quarterly performance announcements also impact these price swings.
Interest rates, inflation, rate of unemployment, and growth rate are all market-driving factors. Indicators of economic growth always interest the stock markets. Positive growth means more profits, which creates more stock value. Decreasing interest rates are also positive indicators that send the markets up. High inflation, on the other hand, signals an impending interest rate spike and is a negative indicator. Rising unemployment similarly signals a decrease in economic growth. However, if traders have already predicted these numbers, the markets may remain largely unaffected.
Any political development that causes investors to fear or wait for future developments can lead to market trends. Political turmoil, either domestically or internationally, can cause the market to rise or fall. For instance, the drone attack on the Aramco oil refinery in Saudi Arabia caused not only a spike in oil prices but also pulled the market down. Similarly, election results, government decisions, and new policies also affect the market based on how they are perceived by the investors.
4) Share market psychology
Investor psychology, in a sense, is the main cause of market spikes. Remember that it is human beings who buy and sell securities in the stock markets. Their willingness to trade or refrain from trading, as well as their interest in buying or selling, are sentiments that have impacts on the market.
5) Demand and supply
These concepts of economics are great influencers of market trends. Even a cursory reading of intraday trading charts will show you that if the demand for a stock is more than the supply, the price will increase. Again, if the supply is more than the demand, the price decreases.
Some experts believe that demand and supply, along with investors’ perceptions of demand and supply, are the only things that affect intraday trading. However, that would be putting things simplistically. As a day trader, you must also look at the other factors at play and make a thorough analysis based on them. It is thus a good idea to open an account with a full-service broker like Kotak Securities. You could use their resources and tools to monitor stocks and market trends in a better way while formulating your trading plan.