‘Become rich overnight’ is a famous American idiom which traces back its origin to wanderers in arid lands striking gold and suddenly becoming wealthy. Even now, there are many occasions where the idiom is used, many ways to become a millionaire overnight. Sushil Kumar, a teacher from Bihar, shot to fame and opulence after winning KBC-5. There are possibilities for financial traders too to become rich ‘over-day’, through intraday trading. Intraday Trading, also known as Day Trading, is the system where a position in a stock is taken and released in the same day thereby making a profit in that buy-sell or sell-buy exercise; all in one day!
However, as only a swimmer can find gold in a sea, for engaging in intraday trading, experience and insight is requisite without which one can stand to lose a lot of money(unless one is acting on insider information). There are certain strategies which come handy in intraday trading. Some are ‘Dos and Don’ts’ while others are just guidelines. One is not concerned whether the market is going up or down, or if there is a recession or not. Those are not important. What is important is simple: to make daily profits. But to achieve this simple objective, certain strategies can help.
First is to understand the truth behind day trading. Day trading cannot help amateurs to become rich in a single day. It requires study, dedication and experience and then it will give profits. Study, to know about new entrants and interpret them. Dedication to keep self updated on daily basis about domestic and international news, company updates, government news, etc and experience about market reading and analysis. It is not a one day course but in fact the trader has to put effort for months to understand markets and then it is possible to get profits.
It is highly advisable to go along with the market sentiments and not against it since intraday trade movements are purely based on those. For example, if the stock price is going up, then buying and selling multiple times with small profits instead of waiting for big profits in single trade is better. On the other side if the stock price is going down then it is advisable to short sell and buy at lower levels. Initially one can do 2 to 3 trades with small profits and once enough experience is gained, one can increase the capital as well as trades.
Next, what can be done to reduce the losses, for bullfighters sure are liable to be injured? One way to reduce or avoid losses is to wait for right opportunity for trading rather doing trading for every rise and fall in the stock price. Instead of waiting for huge profits in a single trade, gaining small profits in multiple trades is more pragmatic. In Day trading no one has control over the market and on stock movements so if the stock direction reverses then the trade will enter into losses. So it is always advisable not to do overtrading.
If one loses the capital in today’s trade, he cannot trade tomorrow. So protecting one’s capital is of utmost importance. The thumb rule is to invest only 50% of one’s capital and keep the other half as reserve. To gain experience, one can do fake money trading and then trade with real money. Do not panic and act on tips. It is not advisable to invest heavily on expensive trading software without seeing the live demonstration. Trading in future derivatives and options requires extra expertise and is not the apt playground for beginners.
When trading on margin, one is far more vulnerable to sharp price movements than regular traders. The stock prices may plunge steeply during the course of a day due to various reasons. Inexperienced traders often feel the need to make up losses before the day is over and end up taking unnecessary risks as a result. However, astute investors use what is known as stop-loss when day trading. A physical stop-loss order is one which is placed at a certain price level that suits one’s risk tolerance, i.e. the maximum amount which one can afford to lose. A mental stop-loss is the one where the trader exits the trade when an entry criterion is violated (if the trade makes an unexpected turn).