Intraday trading is not suitable for everyone, especially for inexperienced
investors or those with a low risk tolerance. It requires a good understanding
of the stock market, technical analysis, and a well-thought-out trading
strategy. Traders should be aware that while there is potential for profit,
there is also a risk of substantial losses, and it is essential to manage risk
and position sizing prudently.
Some key aspects of intraday trading:
Same-Day
Trading: Intraday traders aim to
capitalize on short-term price movements in the market. They buy stocks at a
lower price and sell them at a higher price during the same trading session to
make a profit.
No
Overnight Holding: Unlike traditional
investing, where investors may hold onto their stocks for extended period,
intraday traders do not carry forward their positions to the next trading day.
All open positions are squared off before the market closes.
Margin
Trading: Intraday trading often
involves the use of margin or leverage provided by the broker. Traders are
required to maintain a margin amount with the broker to take larger positions
than they could with their available funds. However, marginal trading involves
higher risk.
Highly
Active and Fast-Paced: Intraday
trading requires constant monitoring of the market and making quick decisions.
Traders need to be well-informed, use technical analysis tools, and have a
disciplined approach to manage risks effectively.
Brokerage
and Charges: Brokers charge a
specific fee or brokerage for each intraday trade executed. It's essential for
traders to consider these costs, as they can impact overall profitability,
especially for frequent traders.
Risk
and Reward: Intraday trading can
offer the potential for high returns due to leveraging and multiple trades in a
single day. However, it also carries significant risk, as the market can be
unpredictable, and prices can swing rapidly.
Example:
I was working at a
private firm, receiving my salary on time but finding it insufficient.
Consequently, I began seeking opportunities to supplement my income. One day, I
visited my friend's office, where he was simultaneously managing office tasks
and monitoring the stock market. Having some basic knowledge of the stock
market, I inquired about his activities. He replied, "I'm engaged in
intraday trading to earn extra income," and proceeded to explain the
process to me. I was thrilled to discover this additional earning potential and
decided to start intraday trading myself.
For my initial attempt,
I purchased 100 shares of a company at Rs. 320 each when the market opened in
the morning. I closely monitored the stock, and after a few hours, its price rise
to INR 340 each, resulting in a profit of Rs. 2,000 (20 rupees profit per share
* 100 shares) for me. I was elated that day.
On the second day, I
decided to invest more and bought 500 shares of a company at Rs. 790 each,
again earning a good profit. However, on the third day, I had to skip trading
due to work-related meetings. On the fourth day, I made another purchase, this
time acquiring 5,000 company shares at Rs. 480 each. Unfortunately, greed got
the best of me that day, and the market experienced a sudden collapse. The
shares I had purchased dropped by Rupees 27 each, leaving me with no option but
to hold onto them. Lacking the capacity to weather the loss, I incurred a loss
of Rs. 1,35,000/-, not to mention the other charges. I was deeply upset.
Conclusion:
Control on your greed,
greed is an enemy of the human being. Without study and experience nobody can achieve
the goal. Need to invest patiently,
wisely in intraday.
Some Tips
Create
a Trading Plan: Develop a
well-defined trading plan that includes your financial goals, risk tolerance,
entry and exit strategies, and money management rules. Stick to your aim and
avoid hasty decisions.
Start
Small: If you are new to intraday
trading, begin with a small capital allocation. Whenever you gain sufficient
experience and confidence, you can slowly increase your size of trading.
Use
Stop Loss Orders: Always set
stop-loss orders to limit potential losses. This helps you exit a losing trade
before it incurs significant damage to your capital.
Limit Your Trades: Avoid overtrading. Focus on quality trades based on
your strategy rather than making numerous trades based on emotions or impulses.
Follow
Market Trends: Keep an eye on market
trends and identify potential entry and exit points using technical indicators
and chart patterns.
Avoid
Herd Mentality: Make your trading
decisions based on analysis and not just because everyone else is doing
it.
Stay
Informed: Stay updated with the
latest financial news, company announcements, and macroeconomic events that can
influence the market.
Risk Management: Never take risk to invest more than of your trading capital on a single trade. This will help
protect your overall portfolio from severe losses.
Trade
Liquid Stocks: Stick to highly liquid
stocks with sufficient trading volume. Illiquid stocks can have wider bid-ask
spreads, making it challenging to execute trades at desired prices.
Keep
Records: Maintain a trading journal
to track your trades, decisions, and performance. This will help you analyze
your strengths and weaknesses and improve your strategy over time.
Know
When to Stop: If you incur
significant losses during the day, know when to stop trading and step away.
Emotional trading after substantial losses can lead to more significant
problems.
