As they say, the stock trading game can last a lifetime. You have your whole life to hone your skills and perfect your trading strategies. It is true that intraday trading carries a high element of risk but the chance to make profits also exists. So, to give yourself a good chance at making a profit, you must learn some smart tricks of the trade.
Day trading or intraday trading, true to its name, means completing the trade during market hours. You can enter and exit in a single day and the stock holding happens over a small period of time. The idea is to exit following a value appreciation, thereby gaining from it.
Short and long positions
Long and short trading are popular investment strategies. A long position is when you buy the shares intending to sell it in the long term for a profit. A short position is when you borrow shares to sell to another investor expecting a price drop. In this way, you sell the shares and buy them later at a much lower price, thereby making a profit.
From a certain standpoint, day trading alleviates the risk of trading. It eliminates the overnight and weekend risks of market forces. This is because day traders do not hold their positions beyond the day.
Day trading also focuses on profits resulting out of small movements in price. It is not a magic wand for getting rich overnight. Day trading developed a bad name in the 1990s. Many traders participated in reckless trading and lost a lot of money in the process.
Day trading happens when the market is at its most volatile. This would be between 9.30 a.m. to 11.30 a.m.
Strategies to follow if you’re just getting started
Here are some common intraday trading strategies that may come in handy.
- Imbalance of demand and supply should be your entry point. As per the rules of economics, low supply with willing buyers will push prices up. Excess supply and no willing buyers will see the price go down.
- Set a target before the trade. In case of a long position, decide on the profit amount and stop loss. Change your position only in case of strong trends and once the initial target has been met.
- Set a moderate risk–reward ratio. A ratio of 3:1 is acceptable. You can increase the ratio once you gain experience.
- Be patient and wait for the right opportunity. Successful day traders take calculated risks.
- Any trading takes discipline. Make a plan and stick to it.
- Bring money into day trading that you can afford to lose. Don’t take undue risks and end up in a debt trap.
- Never risk too much capital on one trade. Do not put in more than 10% of your budget into a single trade.
- Look beyond stocks. Forex, futures, and options can also help with wealth creation.
To sum up
Trading is a preferred avenue for wealth creation. With sound financial planning and some expert help, you can earn good profits. Generally, experienced traders consume just half of their total sum and keep the rest as back-up. A good broker like Kotak Securities will also offer you practical tips and recommendations to make trading easy. So, what are you waiting for? Start trading today.