The Basics of Intraday Trading
Before understanding the basic of intraday trading, it is important to know that intraday trading or popularly known as “Day Trading” is nothing more than jumping in a pond full of fishes almost every day. Some days, you’ll find a big fish but and there would be days when you may even have to return empty handed. There is also a probability to lose a part of your body while fishing as some big hungry fishes can even chew your hand and make you disabled for lifetime or keep you wounded at least for some days.
Basically Intraday Trading is an act of buying or selling a financial instrument within the same trade day, taking advantage of small price movements. It is a lucrative proposition in the stock market. To master the art of day trading, one requires a good deal of technical knowledge, ability and skills.
The basics of intraday trading – Pros
- Except some stock it is highly liquid, one can enter and exit easily
- Advantage of leverage, you can control a large portfolio with around 40% of usual margin required.
- Eliminates overnight risk, as you exit the position during the day you are not carrying any risk of increase in volatility arises due to overnight change of global sentiment.
- Profits and losses are supercharged and fast.
However, one need to understand that although it appears easy, it can be a really challenging endeavor unless handle professionally.
The basics of intraday trading – Stock Selection
Compare a stock with the benchmark index. Never go against the market trend. Always trade in the direction of the market. You also need to find stocks that is strong.
You can use a basis technical analysis tool like, trend lines or moving averages. It can be a good guide to understand the next move and level of breakout.
Always try to trade on a fine trend line breakout with a consolidation. Sometimes pullback sharply after a breakout. Make sure, you book your profit at the right time. Prompt action is advisable.
Intraday trading appeals to a lot of people, primarily due to the potential high returns that most day traders are able to get. However, this does not indicate in any way that the entire process is risk free. In fact, with good returns comes even greater risk, especially when the strategy is prepared without research-based data points.
As intraday trading involves buying and selling of financial securities within the same trading day, it is a highly challenging task demanding immense patience, a solid risk management strategy and a sharp eye to monitor movements in the highly volatile market. It is very important to know about the basics of intraday trading.
Due to the potential returns offered by day trading, first-timers and novices are attracted to this form of engagement in the stock market. It is strongly suggested that all day traders take the help of investment advisors in order to plan all trades in a meticulous manner. Even with the help of advisors, the stock market can pose daunting challenges for new traders.
Let’s look at some of the major risks involved in day trading.
High Fluctuations in Price in Intraday Trading
For the untrained and initiated, price fluctuations in the stock market can be really stressful. These fluctuations are uncertain in nature and even the most experienced traders can sometimes get losses due to the high volatility.
No Trading Strategy for Intraday Trading
This is probably the biggest mistake that all traders make, especially when they are new to the stock market. Working without a properly framed strategy can lead to dire consequences with the actual loss exceed the expected numbers. The case is worsened when the person trades without any strategy. The stock market is the last place where you should go with your instincts.
Wrongly Timed Exit
This is a common risk associated with day trading. A wrong timed exit means that the trader pulls out of a trade in expected of experiencing a downward trend, whereas the actual market conditions indicate a positive movement just after. This can be avoid to some extent with back-tested research data and day trading recommendations.
Losing Control Over Emotions
One should never lose control over their emotions in the stock market. Whether it is joy or sadness, it is absolutely critical to be in control and analyse the situation based on numbers rather than going ahead with your emotional outburst. Even experienced traders have incurred loss by losing control of their emotions. Learning how to exercise and practice control on emotions cannot happen in a day. It takes years to be able to reduce the impact of emotions on crucial decision making.
What can go wrong and how we can ensure to avoid the same
Calmness and patience are the key.
Every coin has two sides to it, one is good, and another is bad. Intraday trading has proved to be a fairy-tale for some, but for some it can be worse than a nightmare.
Highly volatile markets bring high liquidity but the same can be a reason for high risk. One must follow strict rules to become a successful day trader. Fear and greed both can be reason to loss.
Here are some tips before you start intraday trading:
- Start small, focus on minimum targets you can achieve.
- It requires time. Make sure you are focused and dedicate full time to the market.
- Avoid penny stocks and prefer liquidity.
- Knowledge is the power, keep enhancing your knowledge about the market and stocks.
- Follow all the rules blindly.
- If unable to analyze the stock, take help from an expert.
Intraday trading can be a very risky form of trading if you are not aware about the basics of intraday trading. In that case, it is better to take the services of a SEBI registered investment advisor who can provide research based intraday trading recommendations which can help you navigate your investments through the pathway of intraday trading.
Author
CapitalVia
Pioneer in Investment Advisor
