Intraday or day trading is nothing but buying and selling of stocks within the same day. It can be highly rewarding but equally risky since prices can change rapidly. Effective risk management is the key to success in intraday trading. Here are simple risk management techniques to help you safeguard your capital while trading:

Set a strict stop-loss limit

Once you understand what is intraday trading, the next step is to set up a stop-loss order to start intraday trading. It automatically sells your position if the price hits a certain level, limiting your losses on a trade. Since the market can move quickly, setting a stop-loss ensures you don't hold onto a losing trade, hoping the market will turn around.

Never risk more than 2-3%

One of the important rules of risk management is to never risk more than 2-3% of your capital on a single trade. Even if you experience a string of losses, your account will still have enough capital to recover and continue trading. Limiting your risk per trade protects you from wiping out your capital due to consecutive losses.

Use proper position sizing

Position sizing is how much capital you set aside for every trade based on your risk tolerance. Proper position sizing allows you to manage your risk and control your capital. If you risk too much on a single trade, a loss could wipe out a large portion of your account. On the other hand, risking too little may lead to less returns.

Set realistic profit targets

While protecting your capital is crucial, setting clear and realistic profit targets is equally important. A predetermined exit strategy helps you take profits when the market moves in your favour and avoids holding out for unrealistic gains. Create a daily trading plan that includes your risk tolerance, stop-loss, profit targets, and the maximum number of trades you're willing to take in a day.

Avoid overtrading

If you are still learning about what is stock market, you should avoid overtrading to your capital safe. It happens when you take too many trades quickly, often out of impatience or emotional reaction to previous losses. Overtrading increases exposure to market risk and erodes your capital.

Diversify your trades

Diversification is not just for long-term investments; it also applies to intraday trading. While intraday trading aims to make profits quickly, spreading your trades across different sectors, stocks, or asset classes can help reduce risk. If one trade goes against you, others may perform well, balancing your portfolio.

Conclusion

Intraday trading is highly profitable, but it comes with significant risks. You can protect your capital while pursuing profits by implementing these simple risk management techniques, such as setting stop-loss orders, managing position sizes, diversifying your trades, and controlling your emotions.