Intraday trading or day trading requires traders to initiate and square off their positions on the same day. Intraday traders earn profits by placing their orders depending on the performance of the derivatives or stocks . Stock prices are volatile with various factors impacting them. Intraday trading requires extensive market research , knowledge and learnings by taking real trades.
Want to become a successful trader? Here are our two cents-
Table of Contents
1. Focus on mitigating risks:
While the primary motive of intraday traders is to make profits through their positions, the focus should always be on risk management.. Day traders should aggressively analyse and track the market and its trend. Apart from that, it’s necessary to add stop-loss with every position one takes to keep the capital safe. The traders should also ensure that they impose firm limits on their invested capital during the day, week, or month. Before investing in the stock market, it is recommended that traders understand stock market basics and terminologies such as a Demat account, trading account, market volatility etc. Stock markets are usually very volatile and react to different types of events and news flows which are not in control of the traders. It is also important that the intraday traders do not carry over positions to stay safe from premium decay and sudden collapse or upward rally.
2. Data-driven execution:
Intraday trading cannot be carried out on a whim. It combines market knowledge, statistics, data, calculated forecasts, and expertise. Intraday trading can open a door of endless losses when carried out instinctively without any prior analysis or understanding. Intraday traders use technical charts to identify their trades’ entry and exit points and minimise their risks. Technical charts assist the intraday traders in buying at support levels and selling closer to resistance levels. Day traders must back their positions with a data-driven approach and not just rely on their instincts or tips provided by others. Intraday trading, based on instincts, can fetch fruitful results in specific scenarios but is not sustainable in the long term.
3. Learn from the past:
While trading concepts can be learnt reading and taking classes, effective intraday trading requires careful execution of trades regularly and learning from the perspectives and outcomes it generates. In other words, learning evolves with time and experience, and it is essential that intraday traders learn from their past – be it their mistakes or highly profitable positions. Successful intraday traders do forget past happenings but learn from them and implement them in future actions. For example, an intraday trader, over a period, observes that the stop loss limit set could have been a little lower and given the position sufficient time to bounce back. Traders can analyse past data to modify the stop loss limits in future trades.
4. Work with a positive risk-return trade-off:
There is a direct relationship between risk and returns; in other words, there exists a positive correlation between them. It indicates that both risk and return move in the same direction, i.e., the higher the risk, the higher the reward potential and the lower the risk, the lower the reward potential. The intraday traders use this principle and always maintain a positive risk-return trade-off. For example, you cannot have a target profit of Rs. 99 and a stop loss of Rs. 100 – this denotes a negative risk-return trade-off. Intraday traders should avoid a negative risk-return trade-off.
5. Set realistic expectations:
Intraday trading is about making the most of the daily price fluctuations. Day traders should set realistic expectations under such a scenario. The profit expectations should factor in the associated risks and market conditions. For example, a day trader cannot expect and chase huge profits during the day and have stringent stop losses that do not give any breathing space to the investments. Similarly, day traders should refrain from trying to beat the markets by taking contrary positions. They should rather understand where the markets are headed and play the underlying trends.
6. Discipline:
This habit is not restricted to intraday trading and applies to everyone, irrespective of their field of work. However, discipline needs a special mention when it comes to day trading because it ensures that the intraday traders stick to their best practices and meticulously monitor risk while taking a position. A disciplined intraday trader is more likely to experience better returns.
Conclusion
Day trading can seem attractive and look like a way to generate easy returns; however, there is more to it. Anyone with a trading account and capital to invest can become an intraday trader, but being successful with your intraday trades is another ball game altogether. Investors must adopt good habits to make their trades more effective. Intraday trading can fetch substantial returns using the right timing and technique. However, since this requires traders to make rapid decisions, it is not recommended for beginners. A thorough understanding of the stock market functions can help traders reap higher returns by analysing current trends swiftly and placing profitable trades.
