7 Recommendation to Reduce Losses in Intraday Trading in India
In intraday trading, loss refers to the depreciation of the financial instrument asset held. Loss occurs when a person takes risk. Risk is defined as deviation from expected return. And another connected term is ‘reward’ which is the returns one books in after taking the risk. Risk can result in either of these outcomes- loss or reward. Higher the risk, higher is the potential reward.
But risk can also imply possibility of loss in the stock markets. In intraday trading, this loss can be caused due to a lot of reasons for example, not having a proper trading plan, not following a stop loss, overtrading etc. However, you can avoid losses in the stock markets by following the below mentioned recommendation.
7 Recommendation to Reduce Losses in Intraday Trading in India
1. Always Use Stop Loss
This is a golden rule for preventing losses. So much that this type of order which is placed in the direction opposite to that of the desired direction of the stock price is called a stop loss order. A stop loss plays an extremely crucial role in protecting your investing income from potential losses. Your stop loss and target ration at the minimum should be 1:1. For example, if you are buying a stock at Rs. 100 and are expecting an upside of Rs. 5 aiming to book returns at Rs. 105, then you should also consider the possibility of loss of Rs5 and place the stop loss at Rs. 95. Or you can also place the stoploss at Rs. 97.5, thus following a stop loss rule of Rs.2.5 for a potential upside of Rs. 5, thus maintaining a stoploss target ratio of 1:2. You must always follow this rule and trade within your stop loss.
2. Never Trade Against Trend
If you are among those traders who best on the opposite direction of the trend, then you are most likely to lose in the intraday markets. When the stock markets move in a particular direction, more or less all the stocks, which are considered good for intraday trading, move in the same direction. In such a case, always follow the saying ‘make trend your friend’. If you buy stocks in a falling market and sell them when a market is still trending upwards then you are adding to your losses. When a market is in control of the Bulls, you should always buy the stocks or hold on to any open positions. And if a market is showing a bearish move, you should also sell your stock and buy it later when the prices are about to touch the bottom Always remember, never place trades against the trend. Market gives a lot of opportunity to people to earn when they know how to place their trades right and respect the market movements.
3.Book Small Returns Across Multiple Trades
After facing a huge loss, if you are hoping to earn goodreturns, then it is quite likely that it might not happen as per your wishes and you may lose out money in the markets. A huge loss cannot be compensated by a huge returns in intraday markets. In intraday, you should not let your losses become huge – by using stop loss and should always try to book small returns across multiple trades. This technique is increasingly being used by people to earn a huge return in fragments in the markets, often with the use of robots. Placing only or two big trades using mot of your investing capital is likely to result in losses, whereas doing multiple trades of smaller volumes reduces this risk as not all trades will lead to losses.
4. Do not Trade if You Cannot Analyse the Markets
You should not trade in the markets if you cannot figure out a good strategy to enter or exit the market or if you do not see a good opportunity to earn returns. Not every day is meant to be traded. Do not trade in the markets just for the sake of it. You should always focus on trading with a properly formulated plan. If no such plan is ready, then avoid trading on that day. This can help you in losing money due to trading haphazardly.
5. Do not Get Emotional
Generally when a person gets emotionally affected in the form of anger, sadness, grief or panic, the person’s ability to make rational decisions gets hampered and it leads to losses. If during intraday trading, you encounter these feelings and are affected by it, then it is most likely that it will affect your trading and lead to losses. Under the influence of emotions, you may end up making rash decision without giving it a practical thought and this can lead to losses in the markets. If you face such emotions while trading in the intraday markets, then you should exit the position and stop trading for the day to prevent further losses. You need to have supreme control over yourself to achieve that. Only then can you be safeguarded against any losses caused by rash trading.
6. Do not Overtrade
Overtrading is another big mistake which leads to losses, if you have ten active positions and are not able to focus on all of them equally, then you may miss out on booking your returns in some of them. In Intraday trading, if you face losses in multiple trades, it is possible that your margin may get used up and your broker will ask for more margins to keep the trade going or square off the position in loss. Both the situations are harmful and can cause loss to your capital. The solution to this problem is to always trade within limits and to not use up your entire margin provided by the broker for placing trades.
7. Learn from Your Mistakes
Remember, in intraday trading, each day is a new day and each day gives you a chance to start afresh. You can become successful in only through regular practice. This means, not repeating the mistakes you have committed previously, learning from them and gaining experience from them. This is the best and the most effective way of minimizing losses, and ironically, you learn this only be losing out in the stock markets. You should always maintain a trading diary and should refer to it constantly and make entries of each trade you do. This helps in becoming and experienced intraday trader.
Conclusion:
Losses faced in the stock markets are similar to a fee that you pay to the markets to learn intraday trading. You cannot become successful without regularly paying this tuition fees to the market forces.However, a certified and registered investment adviser can help you minimize losses by making you a disciplines trader and helping you trade within the boundaries of you capacities and risk.
Author
CapitalVia
Pioneer in Investment Advisor
