What is Day-Trading, And What Are the Benefits?
Day trading is buying and selling of stock in a very small-time frame, (the time frame can vary from 5 min to few hours) where you square off your positions in a particular stock on the same day's time. You don't carry forward the position to the next day. Most of the day traders will have a concrete trading plan.
Let's look at some benefits of day trading.
Almost all brokers will provide high leverage to day traders.
As you will not carry your positions to the next day, there is no overnight risk involved. Overnight Risk :- As you know, the world markets are dependent on each other, a considerable downfall in US markets can have a significant impact on the India Markets.
Day trading is less time-consuming and one can exit the positions once a certain target or stop loss is done.
Is day-trading profitable?
The most difficult question to answer about day trading /Intraday trading is that is it profitable.
The simple answer is “Yes”, day trading is “Profitable”, but the answer comes along with too many * (asterisk) marks. Let's look at them one by one.
*Risk Management is the most important factor to consider if you are day-trading. #Note:- Almost everyone will fail in managing risk.
*Controlling Greed :- Almost all of us will get greed when your stock pick runs in our favour and we either tend to increase our positions or we tend to increase our target price shortly to see our price starts falling.
*Being Dependable on others :- We are always scanning internet for Telegram Channels, WhatsApp groups or people who provide paid trading calls. Believe me, many people have lost huge amount of capital listening and following these groups and channels.
So, what's the way out?
Keep it simple :- Trade only in Nifty 50 or Sensex 30 stock, these stocks have good volumes and the chances of getting stuck is very less.
Do your research and do not depend on others for trading call.
Have a trading plan before you enter a trade. Don't make a trading plan after you have entered.
Finally, your success as a day trader depends more on your trading habits and the disciplines you follow than the quality of your trading calls.
Day Trading Strategies for Beginners That Can Help Grow Your Portfolio.
Strategies for day trading.
Scalping:- Selling a position as soon as a trade becomes profitable, after covering commissions, interest costs, and overhead. In this strategy, a trader tries to catch the quick moment in the stock price. And exists the trade as soon as the stock price moves in the opposite direction.
Fading:- Many traders short sell stocks with rapid upward movement, anticipating that other investors may take a long position. The combination of short-sellers and those taking a profit creates an imbalance between buys and sells, driving the stock downward.
Daily Pivots:- Anticipating that many stocks trade in a daily range, day traders may buy at the low price (a “support” level) and sell at the high price (a “resistance” level) or, conversely, short sell the stock at resistance and buy back the position at support. Check my post on Instagram to know more on Pivot Points.
Momentum:- A trade based on volumes, Traders buy a stock if it is moving upward with increasing volume. They sell when the price is trending downward with volume, assuming that the price direction continues after they take a long or short position, so they can close the transaction with a profit.
Managing Risk & Considerations for Trading Systems
Your profitability as a Day trading largely depends on your risk management system.
Let's make a risk management plan for you. Consider Rs 1 lakh as your initial trading capital.
Don't risk more than 1%-2% of your capital, i.e. : MAX loss including commissions, charges should not be more than Rs 2000.
Book Profits as soon as you make 3% or more.
Don't trade more than 10X times your initial margin.
Make a note of all your trades.
Analyse your losing trade and try not to repeat the same mistake again.
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