Day trading is the act of buying and selling a financial instrument on the same day, sometimes multiple times throughout the day. For newbies or anyone who does not follow a well-thought-out plan, however, it can be a risky game.
However, not all brokers are suited to the high volume of trades that day traders engage in. Certain brokers, on the other hand, cater solely to day traders. Find out which brokers are best for day traders by looking at our list of the best intraday trading brokers.
Two of the online brokers on our list, Fidelity and Interactive Brokers, offer professional or advanced versions of their platforms with real-time streaming quotations, advanced charting capabilities, and the ability to quickly place and amend complex orders.
Before moving on to when to buy and sell, typical intraday trading tips, basic charts and patterns, and how to limit losses, we’ll go over some basic day trading principles.
- Day trading is only profitable in the long run if traders take it seriously and do their homework.
- Treat day trading like a career, not a hobby; be diligent, focused, and objective, and stay away from emotions.
- Knowledge is a powerful tool.
Day traders must keep up with the latest stock market news and events that affect equities, such as the Federal Reserve’s interest rate plans, the economic outlook, and so on.
So go ahead and complete your task. Make a wish list of stocks you’d want to trade and keep up with the companies you’ve chosen as well as the overall markets.
- Set Money Aside
Calculate how much money you’re willing to risk on each transaction. At any given moment, many effective day traders trade with less than 1% to 2% of their accounts. If you have a Rs. 40,000 trading account and are willing to risk 0.5 percent of your money on each trade, your maximum loss per trade is Rs. 200. (0.5 percent x Rs. 40,000).
Set aside a sum of money that you are willing to lose if you decide to trade it. Keep in mind that it could happen or it could not.
- Set aside time as well.
Intraday Trading in the day market needs your availability. You’ll have to skip out on the majority of your day. Don’t bother if you only have a small amount of time.
A trader must monitor the markets and look for opportunities that may come at any time during trading hours. The ability to move rapidly is essential.
- Begin small.
Limit yourself to one or two stocks per session if you’re a rookie. It’s simple to maintain track of and spot opportunities with only a few stocks. In recent years, being able to trade fractional shares has become more common, allowing you to participate in lower monetary amounts.
If Amazon shares are now trading at Rs. 2 Lac, you can now buy a fractional share for as little as Rs. 2000, or less than 1% of a full Amazon share, from numerous brokers.
- Penny Stocks Should Be Avoided.
You’re undoubtedly looking for bargains and inexpensive pricing, but avoid penny stocks. These stocks are frequently illiquid, and the odds of becoming wealthy are slim.
Many stocks with a market capitalization of less than Rs. 500 per share have been delisted from major stock exchanges and can now only be traded over-the-counter (OTC). Avoid these unless you have done your investigation and believe there is a genuine risk.
- Those Trades Must Be Timed.
As soon as the markets open in the morning, many investor and trade orders begin to execute, contributing to price volatility. A good player may be able to recognize patterns and make wise decisions in order to benefit. Reading the market during the first 15 to 20 minutes before making any actions, on the other hand, may be preferable for newcomers.
The pace decreases in the middle of the day before building up again as the clock approaches the closing bell. Even though rush hour provides chances, beginners should avoid it at first.
- Limit Orders Can Help You Avoid Losses
Make a selection on the kind of orders you will use to enter and exit transactions. When you place a market order, you have no price guarantee because it is executed at the best price available at the time.
A limit order, on the other hand, ensures the price but not the execution. Limit orders allow you to trade with better precision by allowing you to set your price for both buying and selling (not unrealistic, but doable). Options techniques can be used by day traders with more knowledge and expertise to hedge their bets.
- Profits Must Be Realistic
Many traders only win about half of their trades (50-60 percent ). They do, however, make more money when they win than when they lose. Ascertain that the risk of each trade is confined to a specific proportion of the account’s value, and that the entry and exit procedures are clearly defined and documented.
- Keep Your Cool
At times, the stock market may be a nerve-racking experience. You must learn to regulate your emotions as a day trader, such as greed, hope, and fear. Decisions should be made using logic rather than emotion.
- Follow the Plan
Successful traders must be able to move swiftly while also thinking quickly. Why? Because they planned ahead of time and developed a intraday trading tips/strategy, as well as the discipline to stick to it. Rather than chasing money, it is vital to stick to your recipe. Allowing your emotions to take over and drive you to forsake your strategy is not a smart idea. “Plan your trade and trade your plan,” as the phrase goes among day traders.
Before we get into the intricacies, let’s look at some of the reasons why intraday trading can be so challenging.
What Makes Day Trading a Challenge?
Day trading requires a significant amount of experience and knowledge, and there are a number of factors that can make the process challenging.
To begin, keep in mind that you’ll be battling against professionals whose livelihoods are based on trading. These individuals have access to cutting-edge technology and industry connections, assuring that they will succeed even if they initially fail. They will make more money if you join the bandwagon.
Remember that any short-term gains (or assets held for less than a year) will be taxed at the marginal rate. A word of caution: any losses will cancel out any gains.
As an individual investor, you may be prone to emotional and psychological prejudices. Professional traders can typically eliminate these from their intraday trading tips, but it’s a different story when it comes to your personal funds.
Choosing What to Buy and When to Buy
Day traders seek to profit by exploiting minute price changes in specific assets (stocks, currencies, futures, and options), and they typically do it by leveraging a large sum of money. A typical day trader considers three aspects when determining what to focus on, such as a stock:
- Tight spreads, or the difference between a stock’s bid and ask price, and little slippage, or the difference between a trade’s expected and actual price, are instances of liquidity that allow you to enter and exit a stock at a good price.
- Volatility measures the predicted daily price range, which is the range in which day traders trade. Greater profit or loss is associated with increased volatility.
- Trading volume, also known as average daily trading volume, is a metric that measures how many times a stock is bought and sold in a given time period. A high volume suggests that there is a lot of interest in a stock. Increased volume in a stock is typically indicative of a price increase, either upward or downward.
Choosing the Right Time to Sell
Exiting a profitable trade using trailing stops and profit goals are two choices. Profit goals, which entail taking a profit at a predetermined level, are the most common exit strategy. Here are a few examples of common price target strategies:
- Scalping: One of the most common tactics is scalping. It entails selling a transaction practically as soon as it becomes profitable. The price target is whatever amount equates to “you’ve profited from this transaction.”
- Fading: Fading is the practice of selling stocks after they have experienced a rapid increase in value. This is predicated on the premise that (1) they are overbought, (2) early investors are ready to start profiting, and (3) existing buyers may be scared away. While this strategy is risky, it has the potential to be extremely rewarding. When buyers return to the market, the price target is met.
- Daily Pivots: Profiting on a stock’s daily volatility is the goal of this technique. This is accomplished by attempting to buy at the day’s low and sell at the day’s high. In this situation, the price objective is simply the next indication of a reversal.
- Momentum: Trading on news releases or identifying big trending moves with large volume is typical of this method. One form of momentum traders will buy on news releases and ride a trend until it reverses. The other type will disguise the price increase. The price target is met when volume begins to fall.
What is MIS?
What is the full form of MIS? Margin Intraday Square! Intraday Equity, Intraday F&O, and Intraday Commodity are all traded using Margin Intraday Square Off (MIS). What is MIS in Zerodha? On our Margin Calculator, you may check the margins supplied in Intraday using the MIS product type. If no open positions under the MIS product category are closed before the auto-square off period, they will be automatically squared off.
What is CNC and MIS in Zerodha?
The Product types to utilize every time you place an order through Kite are CNC, MIS, and NRML.
For delivery-based stock trading tips, Cash and Carry (CNC) is used. You intend to retain the stocks overnight for as long as you like in a delivery-based deal. You will not gain any leverage or have your position automatically squared off if you use the CNC product type. CNC will not allow you to take any short positions. This product type, on the other hand, can be used to sell the shares from your Holding.
Day Trading Strategies for Beginners
You can employ a variety of methods to aid you in your hunt for earnings once you’ve mastered some of these techniques, created your own particular trading styles, and determined your end goals.
Here are a few popular methods to consider. Despite the fact that some of these have already been highlighted, they are worth mentioning again:
- Following the trend: Those who follow the trend buy when prices rise and sell when prices fall. This is based on the premise that prices that have been gradually growing or falling will do so in the future.
- Contrarian investing: This assumes that the price gain will be reversed and prices will fall. The contrarian buys in the decline and short sells in the rebound, with the explicit expectation of the trend changing.
- Scalping: Scalping is a trading strategy in which a speculator takes advantage of tiny price differences caused by the bid-ask spread. This strategy comprises quickly entering and exiting a position—in minutes or even seconds.
- Trading News: Investors that use this approach will buy when positive news is published and short sell when bad news is announced. This might result in increased volatility, resulting in higher gains or losses.
It is difficult to perfect intraday trading tips. It necessitates patience, skill, and self-discipline. Many people who try it fail, however the principles and criteria outlined above can assist you in developing a successful plan. With adequate practice and frequent performance evaluation, you may significantly enhance your chances of beating the odds.
What Is the Easiest Trading Strategy for a Beginner?
The assumption that “the trend is your friend” makes following the trend the easiest trading approach for a newbie. Going against the grain, such as selling short when the market is rising or buying when the market is falling, can be difficult for a novice to execute. Scalping and news trading require quick decision-making and trading, which might be difficult for a beginner.
Despite the fact that intraday trading tips has become a divisive topic, it may be a lucrative way to generate money. The efficiency and liquidity of the market are dependent on day traders, both institutional and individual. Day trading is still popular among new traders, but it should only be done by individuals with the required abilities and finances.
Que.1 What would I do if I didn’t know which stocks to trade intraday?
Ans. Because this is an intraday transaction, you should search for equities with a lot of liquidity. Remember, you don’t have time to put on a show. By the time the market closes, the positions must be traded off.
Que.2 What if the 80 percent rule isn’t effective?
Ans. The 80 percent rule is a theoretical approach that has been observed in numerous trading sessions, as previously stated. Get a stop loss to protect yourself from the 20% chance of the rule not working.