Why was ‘Slumdog Millionaire’ such a big hit? Because it had a story portraying a nondescript person becoming millionaire overnight. People are intrigued simply by watching such success stories because they feel that something is in store for them, that they too can shoot to fame instantaneously. The introduction of Intraday Trading, a system where one takes a position on a stock and releases that position before the end of that day’s trading session, simply triggered investor’s ardor. In intraday trading, the investor makes a profit in the buy-sell or sell-buy exercise, all in one day. The main advantage of intraday trading is its simplicity. There is no reason for a trader to be concerned about whether the market will go up or down or need he be concerned about the market sentiments. Simply speaking, one need not necessarily be an expert in fund management to involve (profitably) in intraday trading. All one needs to do is to predict whether the stock price will rise or fall sharply in the course of the day.
By trading in intraday, a person treads a hasty road. One doesn’t have the leisure of using a thorough financial analysis or following a pattern derived from historical data. Everything has to be done in a day and one cannot wait for tomorrow to know the repercussions of a company’s stand. This is the main disadvantage of intraday trading. A person can either become a millionaire or a beggar. In most cases an intraday trader gambles a huge sum of money based on some inside information. He is lucky if it turns out to be genuine.
There are various techniques by which traders make profits. Some of these approaches involve selling stocks instead of actually buying them: the trader borrows stock from his broker and sells the borrowed stock, hoping that the price will decline in future and he will be able to purchase the shares at a lower price. Trend following is a widely used strategy and that too works in various time frames> The strategy is based on the assumption that financial instruments which have been increasing steadily will continue to increase in future as well, and vice versa with falling. Using this, the investor buys an instrument which has been rising, or short sells a falling one, in the expectation that the trend will continue. This is a layman’s technique, simplistically just an extrapolation of a curve on a graph, in that it doesn’t require any special fund management skills.
Range trading assumes a pendulum like motion for the stocks, i.e. rising stocks are predicted to fall and falling ones are expected to rise on the basis of their historical data thereby replicating it. If a stock rises beyond its support price or falls below the resistance price, it is said to be “trading in a range”, which is the opposite of trending. Therefor the trader will invariably buy at a very low price and sell them at high price. It is similar to buying a stock at the minima and selling it when it touches the maxima of its price curve.
When there is a spread of task bids there will be very many gaps created. Scalping is a trading style that exploits these gaps. This strategy involves quick buying and selling of stocks without holding it for long. Scalping becomes more profitable when the market is more liquid.
An ECN (Electronic Communications Network) is a securities trading system that collects, displays and executes orders electronically without a middleman. ECN is used in the Rebate trading mechanism. The ECNs pay commissions to buyers or sellers who increase the liquidity of stocks artificially by placing limited orders that create “market-making” in a security. Rebate traders make money using this and try to increase their returns by trading in high volume of stocks that are low in prices.
Other intraday trading techniques are News playing, Price action and artificial intelligence. In news playing, the buyer relies on news about a stock to buy/sell it. In price action strategy a group of traders called the technical traders will rely on a combination of price movement, chart patterns, volume, and other raw market data. Based on the information they will decide whether to buy or sell in a stock. Finally AI is the automated trading of stocks using automatic smart algorithms which becomes lucrative when technically sound.