As compared to investing in stocks for a long-term, intraday trading is way riskier, especially if you are a new investor. As a result, it is very important for beginners to at least understand the basics of the market to avoid losses. In this post, we’ll have a look at some basic, yet essential tips for intraday trading.
Intraday trading means a financial transaction in the stock market carried out in a single day. Needless to say, intraday trading is riskier, especially if you are new to the market. While intraday trading offers excellent earning opportunity, money can also be easily lost in a matter of few hours or even minutes.
As a result, it is very important for new investors to know at least the basics of day trading. There are a few time-proven tips that can make you a better intraday trader. Some of them are discussed below-
- Only Trade in Liquid Shares
With intraday trading, you’ll be required to square your positions before the end of the trading day. This, it is very important that you only trade in shares which are highly liquid.
Large-cap liquid shares are the best bet. Small- or mid-cap stocks might not have low-trading volumes, and this might make it difficult to sell (or buy in case of short-sell) before the market closes.
- Know your Entry and Exit Price
While a stock rapidly moving up or down might encourage you to place a trade as quickly as possible, it is vital to know your entry and exit price before a trade is placed. Once a trade is executed, it often affects the psychology of the trader.
Due to this, they end up selling their position at a nominal profit while they could have made a lot more money if they’d waited a little more.
- Use Stop Loss
A stop-loss is an excellent way to minimise your losses. It is not only essential to have a target price before placing a trade, but you also need to have a stop loss price in case if things don’t go as planned. It is a trigger which will automatically sell the shares if the price of a stock reaches a specified limit.
For instance, if you are buying a stock at Rs. 100, you can keep the target as Rs. 105 and place the stop loss at Rs. 98. If at all the stock starts moving downward, your position would be cleared automatically at Rs. 98. This helps in eliminating emotions from trading. A lot of traders let their losses run deep with a hope that the price would recover.
- Sell your Position when the Target is Reached
You expected a stock to reach a particular price by the end of the day. But to your surprise, the stock reached that price within an hour. Rather than hoping that the price will continue to rise further, and you’ll earn more, it is better to sell your position as soon as the target is met.
It is very common for traders not just to lose their profits but also their investment in a bid to earn more profits than they were already making.
- Avoid Trading against the Market Movement
Professionals with years of trading experience and best of tools cannot predict the market movements accurately every time. Very often, the technical indicators suggest that the market will rise, but it declines and declines heavily.
An essential tip when doing intraday trading is to know that all these indicators and factors are highly indicative and not sure shot guarantees. If you see that the market is moving against your expectation, rather than waiting for the market to move as per your expectation, it is better to exit your position and accept your loss.
Above all, keep increasing your knowledge and read up as much as you can about intraday trading. There are many blogs where you can find some great intraday trading tips and also valuable advice on how the Stock market is doing every day. Rather than focusing on huge returns from a single trade, it is better to earn small but on a consistent basis.