Intraday trading can give lucrative returns in one day if your strategy works and the stock price moves as per your expectations. Similarly, when strategy not worked you have to bear the loss. To maximize your returns and minimize the risk in intraday trading you need to trade with stop loss and set the target price to exit from the trade position timely.
A right target price will help you book the profits in a timely manner at the right levels while stop loss will limit the losses if the stock price does not move against your trading strategy. However, deciding the target point and stop loss is one of the crucial decisions to make your intraday trading successful. In this article to help you make your decision easy, we are going to discuss how to set the target price and stop loss in intraday trading.
Also Read: How to Do Intraday Trading: Best Stocks, Charts & Strategies
What is Target Price in Intraday Trading?
The target price is the point you expect the stock price can touch when there is any significant movement. In positional or delivery-based trading or investing you may not use the target point to book the profits, as you can hold your positions for unlimited days. But in intraday trading, you have only one day to book the profits timely before market closes.
Also Read: What is Profit Booking in Stock Market: Rules & Best Strategy
A target point helps the traders to book the profits and exit from trade positions. There could be multiple target points but you have to book some partial or full profits at the first target point to make your trade position profitable. So in case of a profitable trade, target price for a long trade will be greater than the buying price, while in short sell, the target point would be lower than the original selling point.
How to Decide or Set Target Price in Intraday Trading?
Deciding the target point could be challenging for you, especially if you don’t know about the technical analysis. But don’t worry about this we will tell you how you can decide or set the target price in intraday trading that can be achieved easily.
Also Read: Is Technical Analysis Useful or Useless or Enough for Trading
Support & Resistance Levels
Support and resistance are some of the best tools to decide the target points in intraday trading. When you trade in a long position or buy a stock you can use the next resistance level as a target point and choose anywhere just before the resistance levels. Resistance levels works as the resistance point beyond that price usually not crosses until and unless there is huge volume or breakout in the stock price and stock trading with bullish trend.
Also Read: What is Breakout & Breakdown How to Identify Breakout in Stocks
If you are short selling in intraday trading, you can use the support as the target point. The support levels work as a stop point for the stocks moving downward direction, and in short selling, you can choose any point just above the support point. To break down these support levels, there should be strong selling pressure in the stock. So usually prices bounce back from such points, so you have to book the profits and exit from your trade position here.
Use the Risk and Reward Ratio
Using the risk and reward ratio is one of the best to decide the target points in intraday trading. Risk reward ratio means, the level of risk you are ready to take on every point of given reward. Suppose you are comfortable with a risk-reward-ratio of 1:3 in your intraday trading strategy that means you are ready to take a risk of 1 point on every 3 points of rewards.
Also Read: Top 10 Different Types of Trading Strategies in Stock Market
As per this 1:3 reward ratio if your stop loss is Rs 10 on your underlying security price, then your target would be 3 times the stop loss and that would be Rs 30 above your buying price. Based on your risk-reward ratio you can adjust your target points.
Moving Average Crossover
Moving averages could be also used to choose the target points. Yes the crossover of short-term moving averages and long-term moving averages could be also used as the target points in the intraday trading. Though it could be risky or maybe not achieved in an intraday, the stock in the bullish or bearish trend can achieve such targets in intraday.
You can use the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). And set the target points above the moving average in long positions, while in short trade positions the target point should be below the moving average. However, you can also use the crossover of the short-term moving average with the long-term moving average as the target point.
What is Stop Loss in Intraday Trading?
When your long or short position move against your assumed direction, a Stop loss in that case is used for stopping you from incurring further losses. This is the point you choose to exit or close your trade position to stop the loss that you may incur when stock moves against the trend.
Also Read: How to Identify Momentum Stocks for Intraday Trading: 8 Tips
Just like setting the target points to book the profits to exit from your trade position, stop loss is also a point to exit from your trade position when the price does not move as per your expectations and moves in the opposite direction. Stop loss can be fixed or trailing that you can adjust as per the market conditions and based on your risk bearing capability.
How to Calculate and Set Stop Loss in Intraday Trading?
Just like setting the target in the intraday trading you need to calculate and set the stop loss at the right point. However, finding the accurate stop loss point is another challenging point if you don't have an idea of technical analysis and indicators to find the stop loss. To calculate the stop loss there are certain methods discussed below that you can use.
Also Read: Top 5 Best Technical Indicators for Intraday or Day Trading
Use the Percentage Method
This is one of the most popular and calculative ways to know how much stop loss to set in intraday trading. In percentage method you have to simply use certain percentage of the market price of the stock. Suppose you expect the stock can lose 5% or you are ready to take the risk up to the same percentage, then you can set the stop loss 5% below the market price of the stock.
For an example, if the market price of the stock is Rs 100 or you place the buying order at this price with the stop loss of 5%, then the stop loss price would be Rs 95, which means whenever before achieving the target price if the stock price goes below touching the price of 95, the stop loss will be triggered and your trade position will be closed at this point.
Support & Resistance Method
Support and resistance levels are not only useful in setting the target points, but you can also use these levels to set the stop loss in intraday trading. Support levels are the strong support points for a stock, below which the stock price not moves in normal trading conditions. Buyers are dominant at this support point and a falling stock bounces back from these levels.
Also Read: Five Best Support and Resistance Indicators in TradingView
Hence, in long intraday position you can choose the stop loss just below the support levels. Similarly, in short-selling you can use the resistance levels to choose the stop loss. At resistance levels, the uptrend stock stops further moving, a strong buying activity with strong volume can break this resistance levels. In intraday selling, you can choose to stop loss above this resistance that you can find using technical analysis and reading the candlestick chart patterns.
Also Read: How to Read, Analyse& Use Candlestick Chart Patterns for Trading
Moving Averages Method
Highly liquid stocks respects moving averages (MA) as support or resistance in intraday or in long term. Using the moving averages as stop loss level is another useful trading strategy that works for intraday traders. There are two types of moving averages – simple moving averages (SMA) and exponential moving averages (EMA) that are used to know the price trend and fluctuation in price. You can use these moving averages for setting up the stop loss.
Also Read: How To Use Best Moving Averages for Intraday or Day Trading
Intraday traders usually use the 10-day to 20-day moving average, for medium to long-term investors, they use 50-D and 200-D moving averages for participating in market. A stock trading above the MA is usually considered an uptrend, if you enter into a long position for intraday; you can use the stop loss just below the moving average.
Stock price going below the MA means there could be a trend reversal and downtrend might start in the stock price, but here stop loss will protect your trade position from major losses. In the same way, if the stock price is trading below the MA, it means there is a downtrend and you can short sell in intraday with the stop loss you can choose just above the moving averages.
Also Read: How to Use Moving Averages in Trading & Convergence Divergence
Why Trade with Target and Stop Loss in Intraday?
One of the main objectives of trading with a target price in intraday trading is booking some profits from your trade position. Apart from that, it also encourages you to perform the technical analysis and analyse the trend and various other aspects of the stock price that helps you to choose a right intraday trading strategy to make your trade position profitable.
Also Read: Technical Analysis vs Fundamental Analysis: Which is Better
On the other hand, trading with stop loss is very important from various perspectives. While deciding the stop loss you ascertain your risk level or how much loss you can incur and trade with a balanced risk and reward ratio. It helps to keep your funds safe that you don’t want to lose in intraday trading. And most importantly you learn to trade with discipline and keep your emotions under control so that you can keep focusing on trading strategy only.
Also Read:7 Biggest Mistakes To Avoid While Doing Intraday Trading
Wrapping-up
Choosing the right target price and stop loss in intraday trading will not only help you to book the profits at the right time and exit from trade positions timely but also minimize the impact of risk caused by potential losses if the stock price is not moved as per your expectations. Your profitability ratio against losses might increase if you trade with these stick rules for intraday trading.
Also Read: Golden Rules for Trading in Stock Market: Top 10 Basic Rules
While deciding the target point and stop loss in intraday trading, you can use the moving averages and support & resistance levels. However, for setting the targets you can also use the risk and reward ratio and you can use the percentage method to calculate the stop loss. But without a proper price chart and indicators, you cannot find these levels.
Here you need the best online trading platform, to read such data on a real-time basis with candlestick chart patterns and technical indicators to apply on the price chart to find the best target points and stop loss levels in intraday trading or for short-term trading.
Also Read: Short Term trading v/s Intraday trading: which one is more profitable
You can choose Moneysukh, a one of the best discount brokers in India offering all such facilities at lowest brokerage charges. So, what are you waiting for open a demat account and enjoy unlimited trading into equities, commodities and currencies?
Also Read: Top 10 Things You Should Know Before the Stock Market Opens
