Intraday trading is a form of short-term equity trading where traders buy and sell financial instruments within the same day. The element of risk is high in this form of online share trading, but so are the chances of handsome returns. Many people enter the world of intraday trading because they want to earn quick profits. But finding success as a day trader is not quite so easy.
What is a day trader?
A day trader, as the name suggests, buys shares after the market opens and sells them before the market closes. In this kind of online share trading, the trader does not carry any open positions to the next day. To be a successful day trader, you must continuously educate yourself and have self-discipline.
How to begin intraday trading
If you are exploring intraday trading for beginners, here are some pointers to launch your day trading career:
- Gauge your strengths
Day trading might look like an easy job with quick returns, but nothing can be farther from the truth. Among other things, day trading involves long working hours, patience, and the ability to keep learning. Also, figure out if you are able to take on the stress associated with full-time share trading.
- You should have deep pockets
Looking for steady profits through trading? That would be a mistake. Day traders are no strangers to the risk of loss. In fact, a trader may face many consequent losses before recovering his money with a big profit. So, ensure that you have a capital cushion before you enter the world of day trading.
- Pay attention to market forces
Knowledge is key to a day trader’s success. Only if you develop a comprehensive understanding of the market forces will you be able to make on-the-spot decisions. Be aware of the latest political and business developments to mould your strategy successfully.
- Understand financial instruments
Stocks, futures, options, and mutual funds all trade differently. To develop a successful trading strategy, you need to have a clear understanding of a security’s nature and its trading requirements.
- Firm up your trading strategy first
Day trading is a tricky business. So, it is wise to maintain two clear trading strategies before you start. Remember, if Plan A fails, you must have Plan B to fall back upon. With age and experience, your trading strategies will only get better, but you must be careful where you place your bets.
- No strategy is complete without a plan
Along with a strategy, you must draw up a trading plan with the following considerations. Your plan must include details of your total capital, the financial instruments you want to invest in, and so on.
- Plan your finances
How much should you spend on your first trade? What if your first three trades fail? If you prepare a budget and manage your money well, you can profit even with a low number of trades.
- Factor in brokerage costs
Brokerage firms offer different plans based on your needs. Intraday trading attracts higher brokerage rates as it sees frequent transactions. Choose the services according to your requirements. If you are a novice then opt for the basic brokerage package. You can upgrade or customise as you go along. Institutions like Kotak Securities offer excellent trading facilities if you want expert help.
- Back-test your strategy
Many brokerage firms offer test accounts. Always try out your plan on a test account with virtual money (if offered by your broker) keeping historical data in mind.
Don’t go for the big fish
Start with small trades, no matter how much money you have. There is no place for greed in trading. The stock markets are volatile. So, have patience and stick to your plan. Taste success and then go big.
Beware of information which promises unending profits with intraday trading. Anyone who has succeeded in online share trading has done so by investing both time and effort. They have formed trading strategies and followed them strictly. As they say, there are no shortcuts to success with our translators and interpreters.