What is day trading, and what are its benefits?
Day trading, which is also known as intraday trading, is the daily buying and selling of shares. Whatever you acquire today, you must sell today, and vice versa. It's also imperative that you buy today during market hours, which are from 9.55 am to 3.30 pm (Indian time).
The following are some benefits of day trading
1] Margin trading - This idea of getting extra leverage (amount) on your available balance amount to undertake day trading is known as margin trading. In day trading, you receive margin on your balance amount. Only day trading and not delivery trading allows for the use of margin. Your broker, or the brokers in your online system, will determine how much extra money (margin) you will receive. Some brokers offer extra margins of 3, 4, 5, and 6 times. If you use margin, you must close off any open trades on the same day before market time (3:30 PM) ends. This implies that if you bought shares, you must sell them, and vice versa.
2]The second significant benefit is that day trading (Intraday) requires less brokerage (commissions) than delivery trading. Once more, this brokerage varies from broker to broker (or depending on your online trading platform).
In day trading, you can engage in the practise of short selling, which is not permitted in delivery trading. You can buy shares when they drop further after selling shares when they are falling.
A disadvantage of day trading is that you are benefiting from having more extra money to trade with (margin trading), which means that you are also increasing your chance of losing money.
You must, at all costs, close off the open deal before 3:30 PM (particularly if you are margin trading), as the price might not be in your favour at that time.
The Essentials of Day Trading
A successful day trader or share market trader needs to practise a few disciplines and meet the conditions listed below-
A PC with internet access is required if you want to complete the task on your own; alternatively, an internet café is an option. a computer with a fast internet connection. In particular when day trading, the internet connection shouldn't be slow or encounter any other issues.
Online Account (Demat Account) - You need to open online share trading account with any of the available banks or online brokers.Points to remember while opening online accounta) Make multiple enquiries and try get low brokerage trading and demat account.b) Also discuss about the margin they provide for day trading. c) Discuss about fund transfer. The fund transfer should be reliable and easy. Fund transfer from your bank account to account and visa versa.
A savings account that is incorporated with some online share accounts makes it simple for you to move money from your savings account to your trading account.d) The service they offer, research calls, intraday or daily advice, are all very crucial. e) Ask them about their service fees and, if there are any, additional unstated costs. f) See also how
You can get in touch with them in an emergency with confidence and ease. In the event of any technical issues or other issues, trades must be immediately closed or squared off.
How to pick stocks and shares for day trading
In day trading, traders typically seek out overbought or oversold shares or buy and sell on tiny profits. When choosing shares for day trading, you should analyse the following fundamentals while taking into account these key aspects.Volatility of prices and volumeWhat these terms actually represent and how to apply them during day trading.
Price Volatility - The term price volatility refers to how much (or how high) the share price should fluctuate during the day. In other words, share prices should fluctuate often so that you can easily buy and sell at various prices. What price will you buy and sell at if a share is fluctuating in a very small range? Therefore, it is always preferable to select shares with a high degree of price volatility.If you're interested in learning how to identify high volatility equities, kindly click here.
Quantity trading is referred to as volume - It is important that the shares you choose for day trading have significant volumes.Why is this necessary?There is more liquidity, as evidenced by the high volume. Liquidity indicates that many transactions have already been made on this share and that more individuals are interested in trading it. Your trading task will be easier as a result of the increased exposure to buy and sell prices at all times. substantial volumes will also result in substantial price volatility.
Things to keep in mind when day tradingThe following are crucial things that day traders should never forget.Your intended risk/reward profile, the amount of capital to be committed to trades, the entry and exit points, stop loss limits, profit targets, and how long you must hold the share if the price goes against you are all important factors.
Why is day trading practise necessary before beginning genuine day trading?
Before you begin actual trading, it's crucial to practise on paper. The following are a handful of them:
- You will very crucially learn how to place buy/sell orders and become proficient at using your trading method.
- You'll become more self-assured.
- The worry about trading will go away. When day trading, it's crucial to avoid being afraid.
- To enter and quit the transaction, you will become active. You absolutely must be able to enter and exit trades (i.e. open positions) quickly.
What are the typical mistakes made during day trading, and how may they be avoided to generate large profits?
- Wait to execute your trades (buy/sell) until you have paper confirmation of a trend change before doing so. Avoid making quick decisions or early deals prior to any confirmation of a trade change as this could harm your capital (bank balance).
- Don't wait too long to make a trade - If you've already made one deal (buy or sell), but the stock isn't moving up or down and is instead stable or moving with very little price difference, you should probably make another trade.
should abandon the trade and search for alternative stocks. These kinds of circumstances may arise when indexes (NSE or BSE) are not moving or are moving only slightly. Don't lose patience and lose money at this point; either wait or exit the trade.
- Don't alter your volume volatility trend. Occasionally, you enter trades by observing the buy and sell quantities. For instance, if you bought shares based on seeing more buy than sell volume, you might have anticipated that more buy volume would boost the share's price. However, after a short period of time, you might notice the exact opposite, such as more sell than buy volume, high buy and sell volume, or a smaller gap between the two than what you had initially observed. This is why it's crucial that you wait to act until you have a clear understanding of the situation rather than panicking and selling all of your stock. This scenario occurs frequently, but if you are confident that your share will increase, persist with it.
- Be wary of government announcements or company acquisitions - Let's say you read or watch the news in the morning, before the market opens, that an Indian company has acquired a foreign company (or a portion of a foreign company), if you think this is the best development for the Indian company. However, if the acquisition sum is significantly higher than anticipated, the good news will turn into bad news. The company's stock will begin to decline. Therefore, you should hold off on trading and purchasing shares until you have a better understanding of how the market and other stakeholders are reacting to these shares.
So always keep an eye on where the market is headed before acting. Government Announcement - You should also exercise extreme caution when choosing your tarde in response to any government announcement.For instance, if the government announces an increase in interest rates, this is good news for bank stocks, and the shares will rise as a result. However, if the government announces a second rate hike within a short period of time after the first one (within one, two, or three months), this is bad news for bank stocks, and the share price may continue to decline throughout the trading period. Realising this, analysing the news, and lastly observing market behaviour will ensure your success whether you trade or invest this fall.
Before beginning your day trading, share market trading, or intraday trading, what should you research in the morning?
- Read publications on finance, such as Business Standard, Economics Times, etc. If at all feasible, write down the highlights and breaking news along with the names of the relevant companies and keep a careful eye on them throughout the day.
- If at all possible, watch television programmes about the stock market, such as Zed Business, CNBC, etc. You can learn about the fluctuations of all share prices and markets (BSE, NSE) through these TV channels. If any breaking news is released that day, it also becomes simple to identify and maintain a careful eye on associated companies.
- In particular, websites that are concerned with the stock market, such as capitalmarket.com and businessstandard.com, constantly present breaking news, current events, share market trends, and announcements made by corporations or the government that could have an impact on the stock market and companies that are tied to it. So, if at all possible, attempt to access and check everything on these types of websites before you start trading as well as throughout the day.
- To summarise, before beginning your stock market trading, you should be well-versed in all current financial market news. If at all feasible, make a note of any breaking news or effective news and the firm it concerns. Then, keep an eye on that share and trade in accordance with it that day.
Important rules for day traders to followNever put all of your money into one industry; this strategy is known as stock diversification. As you can gain money from different sectors, this will shield your money from any certain sector's downtrends.There are many different industries, including IT, pharmacy, banking, steel, oil and gas, building and infrastructure, and automobiles.
Avoid typical day trading errors. Lack of a trading strategy, emotional instability, failure to accept and contain losses, lack of commitment, and excessive trading
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