Intraday trading allures a large number of investors. Intraday trades let the investor enter the market in the morning and leave with profits by day end. There is no time lost in demat and delivery and a trader can take a position multiple times of the funds he owns. However, there are certain Do’s and Don’ts to online intraday trading as it is not as simple as it appears to be. Let’s have a detailed look at these Do’s and Don’ts:
Do’s for Intraday Trading:
- A weak stock during today’s intraday trading might end up ranking high tomorrow. The reverse case might also be true.
- You should look for short stocks in minus when the index is in minus.
- The basis of intraday trading is protecting capital so if you manage to save your capital from reducing below a certain level, you will automatically get intraday profits.
- You must have a stop loss for intraday trading. Most trades would be better off with a stop loss but it is imperative for intraday trading. If there is no stop loss, the investor may have to face unmanageable MTM losses and may also end up holding positions.
- Pay the required charges and open a Demat account to do intraday trading.
- You can have your free trading account with leading broking firms too.
- If the index is positive compared to the previous day and your stock is in minus, then the stock should be cut and if the index is in buy for intraday trading, then buy a stock that is in plus.
Some More Points
- When there is good news in the market, the market is expected to make an upward movement. There is a general public sentiment to buy at that time. You should be very careful at such a time while trading in the market.
- Setting a stop loss is not enough, you also need to decide the profit you are targeting based on the risk-return tradeoff. Your profit targets should ideally be a multiple of your stop loss.
- The meaning of intraday trading is served when you trade in highly liquid stocks. For such stocks, you can quickly enter and leave the market; thus giving them a large volume.
- Your trading volume for intraday trading should ideally be constant. Keep trading in the same volumes for at least a month before deciding to increase or decrease them. A couple of days’ profit or loss should not form the basis of your change in trading volumes.
- It is wise to practice before actually investing in online intraday trading. You can opt to do paper trading first, and start actual trading when you start earning profits in paper trading.
Don’ts of Intraday Trading
- The meaning of intraday trading is entering a position in the morning and ending it by day end. However, it is not advisable to trade in a volatile market. When the speed and direction of the movement in the market can be predicted, it is a suitable time to enter online intraday trading.
- Do not go out of the limit on margin trading. Keep your worst-case loss under a check when you go for leverage on margin. If you stretch yourself beyond a point, your loss might get out of hand and become unaffordable in unfavorable circumstances.
- Don’t trade based on the opinions of others or trading tips, trade only when you are personally convinced. Don’t rely on the research of analysts and experts and do your own research when you trade intraday.
- Intraday trading is not only about buying and selling. Not trading in the market is crucial decision traders need to make when they trade intraday. You would be much better off sitting idle when others are losing money in intraday trades.
All these tips can save you from disastrous loss and help you turn your intraday trades into a profitable deal for you.
Benefits of Day Trading
- Trading on margins is allowed: The framework of Intraday trade is such that it allows buying on margins. For eg. A person has Rs.10/- and wishes to buy a share which is priced at Rs.15/-, he can take a loan of Rs. 5/- from the broker (concept of margin trading) to buy a share that was otherwise unaffordable.
- Conserves investor’s liquidity: During an Intraday trade, the investments are realized on the same day and therefore the funds are not blocked.
- Demat Account is not required: Since the trades are required to be squared off at the end of each day and there is no need to have a Demat account but a trading account is required where the actual trade takes place.
- Significantly less capital requirements: with margin trading and short selling being allowed for Intraday trades, the investor can make huge profits without huge capital requirements.
As it is a known fact that every coin has two sides, the above-mentioned benefits come along with a loss of no dividends and bonus earned. Also, online intraday trading needs constant monitoring of the share prices at the investor’s end failing which it can result in magnified losses.
Also read:- Young Adults Turn To Stock Trading In The Wake Of The Market Dynamics
