`Day trading or intraday trading, is an opportunity to gain huge but can also be a drastic step to choose too.
If you are searching on the internet to make cash real quick, then most likely you have come across the way of day trading or intraday trading.
But the fact is, most of the people who are new to trading lose their hard-earned money within one day through day trading.
So, if you are looking to go for intraday trading, you may find this article quite helpful.
What is day trading?
Day trading is simply trading that starts and ends within one day. In terms of buying and selling stocks, when someone buys a share on a day and sells it on the same day it is called intraday or day trading.
However, someone can buy or sell the share on the same day multiple times.
This type of trading is risky. If your calculation and fortune join hands you can gain a huge amount of money. But, if something wrong happens which is common, you may end up losing everything you got.
As it is full of risks, experts do not suggest new investors directly jump into intraday trading.
Now, let’s see some advantages and disadvantages of intraday trading.
Benefits of day trading:
There are many preferable points to consider that lead so many people to join intraday trading. Such as,
Do not have overnight risks:
One of the biggest benefits of intraday trading is you don’t have any risk overnight. Even though the share market closes at 3:15 PM, if anything wrong happens with the company, you are likely to see the downfalls from tomorrow morning. But, as you bag your profits on a daily basis you become gainer. Your profit or loss does not get bothered by any global tragedy either.
You get results quickly:
Most Of the people come into day trading because it’s quick. Yes, if you put your money into the right company, and make smart decisions, by the end of the day, you can make huge income from intraday trading.
Higher returns:
Day traders can potentially earn higher returns than long-term investors by taking advantage of small price movements and leveraging their capital.
Intraday trading offers higher returns compared to long-term trades. In day trading the share prices fluctuate a lot. For instance, if the share price in the morning is Rs.200, which might reach Rs,250 or even more. Now, if you buy a good amount of shares of that company, You earn Rs Rs. 50 per share. For 100 shares, you bag Rs. 5000 as commissions. Day traders can also use various strategies, such as scalping, swing trading, and arbitrage, to maximize their profits.
Less capital required:
In day trading, you need less capital than in long-term trading. When you join a brokerage firm, you get your commissions as multiples that means, If you invest 1000 times, you get two or three times of share purchases.
More opportunities in the long run:
Day trading can offer more opportunities for learning and growth than long-term investing. Day traders can constantly improve their knowledge, skills, and strategies by analyzing market trends, patterns, and indicators. Day traders can also test their ideas and hypotheses using simulation tools and historical data. Day trading can also challenge and stimulate the mental abilities of the traders, such as decision-making, problem-solving, and emotional management.
Offers more flexibility:
Day traders have more flexibility and control over their trading activities than long-term investors. Day traders can choose when, what, and how much to trade, depending on their goals, preferences, and market conditions. Day traders can also trade in different markets, such as stocks, forex, futures, and options, to diversify their portfolios and reduce their risk exposure.
Now, let’s talk about the disadvantages,
Disadvantages of day trading:
Not everything is even with intraday trading, there are many downfalls too of intraday trading.
Quick loss:
Intraday trading is mainly chosen for quick returns but, instead of quick profits, you can book a quick loss too. Day trading is inherently risky, as the market can move unpredictably and rapidly against the trader’s position. Day traders have to use leverage, margin and borrowed money to amplify their returns, but this also magnifies their losses. Day traders may face margin calls, liquidity issues, slippage, technical glitches, and human errors that can wipe out their capital in a matter of minutes. Day trading also exposes the trader to the risk of fraud, scams, and hacking by unscrupulous brokers or platforms.
No fixed returns:
Intraday trading does not offer any fixed returns either. Your margin may be anything. You may gain huge or little according to the market situation. If you go with the long-term investment plans, over the period there is hardly any stock that does not give you excellent returns. But, intraday trading offers no guarantee at all.
High costs and fees:
Another big issue that Day traders face is higher transaction costs and fees than long-term investors, as they execute more trades per day. They also have to pay taxes on their short-term capital gains, which are usually higher than long-term capital gains. Day traders may also need to invest in expensive equipment, software, and data services to access real-time market information and analysis tools. Here live reports matters and your profit and losses are booked by a fraction of timing.
It’s stressful:
Day traders have to constantly monitor market movements and react quickly to changing conditions. They have to deal with high volatility, uncertainty, and competition. Day trading can be emotionally draining and mentally exhausting, especially for beginners who lack experience and discipline.
However, still, if you are interested and want to make investments, here are some tips for you that can help you gain money in day trading.
Stay up to date:
The intraday trading starts and ends within a day and the shares fluctuate a lot during the trade. So, you need to be up to date with the market. If possible you will need to collect the core information of the company for that specific day. All the stock market-related news channels and updates are very important to follow. The stock prices of a company depend on various things. Even decisions of other companies, various government policies, relationships with other companies, and many more.
If you are looking to perform day trading as a part-time job, then chances are very high, at the end of the day, you are going to lose your money. Even though the intraday trade starts at 9:15 AM and ends at 3; 15 PM, you don’t get an equal profit for each hour. In different time periods, the market trends are different. For example, between 9:15 to 10:30, the market usually stays more volatile and between 12 PM to 2:30 PM, the market becomes stable. However, no one can guarantee the trend for every day. On a regular day, these trends work more precisely.
The next thing about intra-day stock marketing is,
Know your market:
Before you start trading, you should familiarize yourself with the market you want to trade in, such as its trends, volatility, liquidity, and trading hours. You should also research the companies or assets you want to trade and understand their fundamentals, earnings, news, and technical indicators.
Choosing the right stock:
No matter what your strategies are if you choose the wrong stock, all your strategies will go in vain. Choosing the right stock is the basic thing for an investor but the task is not as easy as it sounds. It does not mean that you look for some free advice or hire any broker and make your decision. Investing in the right stock is always a tricky job, especially for new investors. Before you search for the right stock, you have to understand your goals.
For example, if you are looking for quick growth, you have to find new companies because they have much higher growth potential. On the other hand, if you want to safeguard your savings in the form of stocks, you have to choose companies that are veterans in the field. Compared to the new companies the risks are minimal but you may experience a slow growth rate of your funds.
Once you decide on your goal, you have to find multiple companies that meet your expectations. Then you need to shortlist them. After that, another difficult job starts. You have to dig deep to surface the details of the company.
You need to find the actual share price of the company because many companies manipulate people by faking their share price. Then comes the reputation of the company, the advantages of that company, the growth potential, and more. After calculating all these facts, you can choose your stock.
Don’t leave your plan:
Every experienced investor invests their money or comes on trading with a specific plan. In the share market, having such a great plan often makes a huge difference. While trading, if you come up with a solid plan, no matter what happens, stick to your plan. Many new investors, after seeing certain growth or share price dropping, suddenly abandon their plans and embrace new ones. That’s not the right decision indeed.
Keep an eye on risk management:
You need money to buy stocks. Everyone comes with a specific capital and has their own risk level. That means, when you come to trading, putting all your capital is not a good idea anyway. You should only invest the amount which you can afford to lose. For example, you have $1000 as capital and you can afford to lose up to $300. So, you should always remember that figure and make all your decisions around that. You should not take any risk of losing money exceeding that amount. You should only trade with money that you can afford to lose and never risk more than 1% or 2% of your trading capital on any single trade. You should also diversify your portfolio and avoid overtrading or undertrading. You should also keep track of your performance and review your trades regularly to learn from your mistakes and successes.
Avoid penny stocks:
When you are about intraday trading, you should avoid penny stocks. Penny stocks are very cheap in pricing but extremely volatile. Many of the penny stocks are actually scams, and you can lose everything you invest. Penny stocks are quite difficult to predict and there is hardly any detailed information about the company.
Buyers and sellers of penny stocks are limited. So, Once you buy the stocks, you might have problems selling them.
If you are looking for a high return quickly, penny stocks might be a good idea but, in day trading, it might not be a great idea.
Keep tracking the option chain data:
Looking toward the option chain data is very important to analyze when you are going for intraday trading. It is basically a listing of a specific time frame, which shows the call and put options. The list of buyers vs. sellers helps you decide how the market is going to be.
For example,
If you see on the option chain data that the number of buyers is higher than the seller, chances are high that the share market is going to be high. On the other hand, more sellers than buyers indicate a weak market.
It is very helpful to make your decision whether you should buy any shares or not.
Control your emotions:
You should not let fear, greed, or ego influence your trading decisions. You should also avoid trading when you are stressed, tired, or distracted. You should treat trading as a business, not a hobby or a game. You should also have a trading journal or diary to record your thoughts, feelings, and actions during each trade.
These are some tips on day trading that you should follow attentively. Many people ask that intraday trading is very risky and it’s not wrong. But, by leveraging the right strategies, and decisions, you can become a gainer too.
Wrap up:
Day trading involves buying and selling shares within the same trading day, and it carries a risk of not being able to sell your shares before the market closes. This exposes you to overnight risk, which is the possibility that the price of your shares will change significantly after the market closes. To reduce this risk, some day traders use scalping or stop-loss orders, but these strategies also have their own advantages and disadvantages. Day trading is not a simple or easy way to make money, and it requires a lot of knowledge, experience, and discipline.
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