Day trading is a popular trading strategy in the stock market and for many traders it acts a source of income. Day trading is also known as intraday trading strategies or short-term trading strategies. This kind of trading involves squaring off trade positions within a single trading session.
Before we get into the details of day trading strategies, it is best to understand the concept in the layman’s terms. Under this type of trading strategy, a trader buys and sells the financial instrument on the very same day. This is an attempt to capitalize on short term price fluctuations. However, to make money out of day trading, one has to follow the right day trading strategies.
To get this approach right, here are a few basic day trading tips for trading strategies that work.
Basic Day Trading Tips
The basic trading tips help beginners to understand where to start and how to conduct day trading activities.
- Risk Bearing
Risk bearing is all about the risk that you are willing to take financially. It is very important to decide in advance about the money that you want to invest in the stock market. If you are looking at an affluent win, you must also be prepared for any kind of loss.
- Time Commitment and Patience
For your stock trading strategies to do wonders, it is important to devote time. Merely, one-two hours a day is not going to achieve you much. Intraday trading strategies require constant monitoring and a sharp eye for identifying market fluctuations. Also, an important factor to bear in mind is that the market opens each day and the experienced traders will be able to quickly foresee the trades and profits on certain stocks and investments. However, this should not hamper your trading strategies. You must have the patience and the will to hold back for the first few minutes before making a thoughtful call on your trade for the day.
- Small Investments
As a beginner, starting small is the basic key for intraday trading strategies. Let your stock trading strategies play around 3-4 stocks a day and you should be good to go. This will help you learn and understand the market better and even if you incur a loss, you will be able to withstand it.
Deciding What And When To Buy
This is where the tricky part comes in. Making sure when to buy and what to buy is the most crucial step for a beginner to learn and understand. Intraday trading strategies are all about making money out of minute price movements. This leverages a large amount from the investor’s pocket, which is at a risk. But with a calculated decision of what and when to buy, one can achieve the targeted goal. Trading strategies that work are related to three important pillars; Liquidity, Volatility and Trading Volume.
Liquidity refers to how quickly an asset can be bought or sold in the market. Liquid stocks allow you to enter and exit a position at a good price. These stocks are more easily day-traded and they also have the tendency to be more discounted as compared to other stocks.
Volatility is the average difference between the daily high and low of stocks, divided by the stock price. This, in turn, gives you your potential profit range and you know that greater the volatility, higher will be the profits.
- Trading Volume
The trading volume indicates how many times the stock has been traded in the given period of time. In the case of day trading strategies, it is known as ‘average-daily-trading volume’. The higher the volume of the stock, the larger is the interest in the asset. When there is an increase in volumes it indicates a price jump, either higher or lower.
Trading Strategies For Beginners
There are numerous types of day trading strategies but we will speak of the traditional and most suitable stock trading strategies for beginners out of Scalping, Fading, Daily Pivots and Momentum.
- Breakout Trading
A breakout occurs when the price of an asset moves above or below the resistance area. To know when the price will start trending higher, look for a breakout to the upside from a chart pattern and visa-versa. Breakouts that occur on high volume show greater conviction. This means that the price is more likely to trend in that direction, resulting in higher profits.
- Pullback Trading
Pullback can be referred to as pulling back or taking a pause. It is basically a moderate drop in the pricing chart in comparison to the recent peaks or uptrend. The term is usually applied to pricing drops but these drops are of short duration and hence investing during a pullback can help you make a profit later on.
Benefits Of Day Trading
Intraday trading strategies provide opportunities to make huge profits if you follow the right practice. Some of the benefits of day trading are as follows:
- When we talk of intraday trading, you can make a profit even if there is a falling market. This is a very important benefit for day traders because one can make profits in any direction with such trading’s.
- Intraday trading provides traders a leverage amount. This, in turn, benefits them in purchasing more than what they have in their account and earning a profit on the entire sum.
- If you know when to stop and how much to trade for, then intraday trading is very beneficial for you. It will help you earn a profitable sum in a day’s time.
- Also, a huge factor that makes intraday trading beneficial is the brokerage cost. The brokerage commission for intraday trading is less than that of stock trading in other forms.
- With intraday trading, you do not have to sleep with any kind of risk involved. There are no overnight positions and hence before the market shuts down you have your profit with you. This factor is very beneficial in the stock market because anything can change overnight. There can be a stock market crash or a stock market boom. But with such trading, you can enjoy a good night’s sleep.
With the right strategies and knowledge, day trading can help you earn good profits. As a beginner you need to take baby steps till you get a good grasp of how market functions.
Lastly, if you wish to trade, open a demat account with IndiaNivesh Ltd. And enjoy their seamless services.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.