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Steps to start intraday trading on the right foot
Have you always wondered what intraday trading is but didn’t know enough to take the plunge into trading in the stock market? Before you do anything about intraday trading, you should know what it is.
Intraday trading refers to buying and selling of stocks on the same day, ie, intraday, or within the hours that the stock market has stipulated. Before you take up trading, here are some steps you would need to know:
Open a trading account: A trading account is a must-have for anyone to trade in the stock market. This is the account that you will use to buy or sell shares. If you have a demat account, or a trading and demat account, it allows you to hold the shares you have bought in an e-format. If you take up online trading, the shares you buy are held in the demat or dematerialisation account.
Start small: Now that you have a trading account, you should start off somewhere but it is better to make a small beginning. Allocate a small amount and get going. Once you gain some confidence, you could start increasing your allocation. Keep your stock list to about 10-15 because anything above that may make it difficult for you to track as a beginner. When you trade in a stock, you would have to track charts, volumes, news and announcements, and if you have too many of them on your plate, it will be difficult initially.
Pick stocks that are liquid: Liquidity refers to stocks that have high volumes. Keeping an eye on volumes is an important aspect of intraday trading. If the trading volume is low, a trader would have to buy stocks and bring down liquidity. This is why you should buy shares that have high trading volumes so that your liquidity is maintained.
Keep an eye on timing: Experts suggest that you should avoid any trading within the opening hour of the day’s trade, and recommend taking open positions around noon. Timing the market is important but so is determining entry and exit prices. Once the stock touches the target price, you should close your position. Understanding exit or entry prices is crucial if you are a beginner. You would want to buy when the price of a stock drops, touches a zone that’s horizontal and then begins to rise.
Use stop loss trigger: You should determine the level of loss you are willing or can afford to bear, and place a stop loss accordingly. Protecting your capital is a very important aspect of day trading and will allow you to continue trading on another day. It also instills a sense of discipline.
Research, research, research: Do your research on market trends and constantly read up on everything that’s happening in the stock market on a particular day. The more aware and well-versed you are, the greater your control over your capital.
Evaluate your day: Take stock of your day’s trade. Sometimes, in the rush of intraday trading, many traders tend to ignore this aspect of evaluating their wins and losses. As a beginner, it helps to keep notes of your wins, what you did right and what could have been improved as this will help you up your game in the future. Tracking and evaluating also helps you learn how to use the research and news in your intraday trading.
Keep calm and carry on: One of the important elements of day trading is volatility. Keep a level head, and maintain a balance between being over-cautious and greedy. Focus on the appropriate trading strategies that matter and don’t panic when you lose some. Keeping emotions out of your trading is very important, although it may seem obvious. As a beginner, you may tend to get carried away at certain points so steer clear of any decisions made on emotions — depend on data at all times.
Go with the flow: Don’t go against a market trend, although it is tempting to do so. Even a pro may not be able to predict movements of the market. So, if the market is moving in the opposite direction of your expectations, you would need to exit the position you have taken and minimise or avoid losses.
Allocate some spare capital: As a beginner, set aside some spare money you can afford for day trading. This will help you learn the ropes without having to worry too much about losses. The money you don’t mind losing will help you earn a little elbow space and flex your trading muscles a bit so you can learn more. Staying realistic and assessing your risk profile is very important before you begin.
Now that you have the tips to help you get going, it’s time you opened a trading account, did your research, picked a few stocks and learnt the trade. Always remember to start small and track every bit of information on stocks before you go all out. Staying grounded ensures that you are there for the long haul so maintain a balance between caution and taking too many risks.