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.
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.
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.
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.
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.
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.
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.
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.
