Financial investments can be broadly categorized into three categories based on the time period of investment: Long term investments, short term investments and intraday trading. The third one catches the eye quickly because of its simplicity and liquidity. It is the system where one takes a position on a stock and releases the stock on the same day, going home with a profit or a loss for the day, like a vegetable vendor. It is simple in the sense one need not worry whether the market is up or down or worry about the market sentiments. For example, say a stock’s price starts at Rs.50 on a day and goes down to Rs.45 and then climbs to Rs.48 at the end of the day. If the intraday trader had bought stocks when the price was at Rs.45 and sells it at the end of the day, he is happy despite the market being down.
This example might paint a false picture that intraday trading is a treasure chest open to all, but it is not. There is only one stymie. The trader has to know that the price will climb to Rs.48 at the end of the day’s trade. Unfortunately, alike astrology, in finance market, it is difficult to predict minute by minute changes than change over a long period. The first and foremost strategy is not to invest in bulk but to indulge in short buying and selling with small amounts, unless the intraday trader is acting on highly reliable insider information. For amateurs, only luck can help! Day trading cannot help them become rich overnight. It requires study, dedication and experience. A good study will help in knowing about new entrants and interpret them while dedication is requisite to keep oneself updated on a daily basis. And of course experience makes one strong and prudent.
Sure shot intraday is a sort of promise given by various service providers as a part of service selling strategies which are nothing but tips and cues to being successful in intraday trading. In the absence of the three mantras study, dedication and experience, traders seek the help of these service providers. The tips given by various service providers have many things in common. Most of them advise to go along with the market sentiments and not against them. 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 encouraged. Patience is a virtue, at least in intraday trading. Waiting for the right opportunity rather than trading on every rise and fall in price renders more profit, or at least cuts losses.
Many service providers suggest fixing the amount beforehand for every trade and adhering to it. The fixed amount should decide the quantity and not the reverse. Saving enough capital for future trades is very important; hence only 3-4% of the total capital should be invested in each trade. Another important concept proclaimed by almost every service provider is stoploss. It is of two types. A physical stoploss is the fixation of a certain amount below which if the stock plunges, the trader will sell his position. It defines the maximum risk tolerance or simply the maximum loss which the trader can afford. A mental stoploss is the case where a trader exits the trade when it takes an unexpected turn.
One cannot let his expectation or desire cloud rational thinking in intraday trading. For example, if a person has bought a stock for Rs.120 and it plunges to Rs.115 and if his objective thinking says the trade is likely to plunge more, he should sell his position immediately without expecting the price to climb in vain. Similarly, if the price initially climbs to say Rs.124 and he knows that in the due course it is likely to fall, then he should not be avaricious and call it quits.
Finally, perseverance is required in intraday trading since the trade cannot always be lucrative. One shouldn’t stop intraday trading when he incurs losses but take that as a learning experience and be more careful in future trades. Though may sound paradoxical, both emotional balance and quick action go a long way in intraday trading.