Intraday trading is one of the most popular ways to make quick money on a regular basis. However, to be successful in intraday trading, you need to pick the right stocks to trade in. Wrong selection of stocks for trade can mean wrong trading decision as well as losses.
Intraday traders are always in search of the best intraday stocks for today. Gaining market knowledge and researching a bit can go a long way in picking good stocks. To further assist you with intraday trading, we list down some of the intraday trading tips that would be useful to you in making profitable trades.
Intraday Trading Tips
- Liquid Stock
The first intraday trading tip is to pick those stocks for trade that are liquid in nature. Liquidity here means higher volume. Stocks with higher liquidity or volume provide greater opportunities to trade. When there is a higher volume in stock then large quantities of it can be purchased and sold without affecting its price significantly. Moreover, intraday trading is all about closing the position at the end of the day. This is possible only when you have sufficient buyers and sellers at different price levels. Liquidity in the stock depends on its quality, news flow and many other factors. Therefore, best stocks for intraday trading on NSE are those that have higher trading volumes.
- Avoid Volatile Stocks
The stocks that have low trading volumes and expect some news flow are generally very volatile. It is very difficult to predict the share price movement in such shares. It is advisable to avoid such stocks because they continue to show signs of volatility even after the news flow is over.
- Never Trade Against the Trend
Another important intraday trading tip is to always follow the trend of the market. Taking a trade in the direction of the market will give you good results most of the time. When the markets are going high, the best intraday stock tip is to go long in the stocks and when the market is in the bear phase, it is advisable to go short in the stocks.
- Put Stop Loss
To become a successful intraday trader you must always put a stop loss in your trade. Market does not always function as per your expectation. You might have thought that the coming days will see a bull market but the actual scenario turns out to be exactly opposite of it. In such scenarios, stop loss comes handy as it squares off your position when a particular price level is triggered. Stop loss acts as safety against huge losses and saves your capital by closing your trade at minimum losses. Hence, you must always put a stop loss in place for all of your intraday trades. If you are a beginner in the stock market, you can set your stop loss at a 3:1 reward to risk ratio. This means that your stop loss should be three times lower the price at which you are ready to book the profit.
- Timely Book Profit
The intraday traders get the benefit of high leverage and margins. This helps them to take big trades and make larger profits. Here the key to success is to not get greedy when the targets are achieved in a stock. Once the target is hit, you must book profits instead of holding it with a hope that the stock would rise further. However, in some special circumstances, the stock price movement can be strong and it can go further up, in such cases you can adjust your stop loss.
- Determine the Entry and Exit Price
You can be successful in intraday trading if you know at what price you would purchase and sell a stock. This is because, during intraday trading, price movements are very fast and your mind can immediately change if you do not have predetermined levels in your mind. Therefore, before taking a trade make sure you know the entry and exit price.
- Do Not Take Trade to Next Day
Intraday trading is all about closing your open positions by the end of the trading session. However, sometimes when your price targets are not met, you might be tempted to take delivery of stocks and take the position to the next day. This is not a good strategy because you took the trade on the basis of intraday market trends and technical levels of that stock on a particular day. There is always a possibility of a trend change on the next day and your trade turning bad. Therefore, it is always advisable to close all the intraday positions on the same day.
Another intraday stock tip to become a successful trader is to keep researching for a set of stocks that you would like to trade. Study the support and resistance levels of the stocks along with the technical levels. Also, find out which stocks have events lined up ahead and can see good price movements. This would enable you to take the trades confidently and help you earn higher profits.
The above mentioned are a few intraday trading tips that would help you in becoming a better trader. If you are a beginner, you must understand that trading is an art and you would learn it with time. Never take trades in a hurry. However, if you want any assistance regarding intraday trading, you can open a demat account with IndiaNivesh Ltd. We regularly update our clients with picks in the form of best intraday stocks for today. Moreover, these stock market tips for intraday are free.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Capital Market – Meaning, Types & Functions of Capital Market
We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail. Let us first understand what is the capital market? Understanding Capital Market Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc. Let us now understand the types of capital market. Types of Capital Market The capital market is of two types i.e. Primary Market and Secondary Market. Primary Market The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises. Secondary Market The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised. Ways of Raising Funds Offer through Prospectus In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public. Private Placement Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically. Rights Issue The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public. e-IPO e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public. The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market. Functions of the Capital Market Helps in the movement of capital from the people who save money to the people who are in need of it. Assists in the financing of long term projects of the companies. Encourages investors to own the range of productive assets. Minimises the transaction cost. Helps in the faster valuation of financial securities like debentures and shares. Creates liquidity in the market by facilitating the trading of securities in the secondary market. Offers cover against price or market risks through the trading of derivative instruments. Helps in efficient capital allocation by way of competitive price mechanism. Helps in liquidity creation and regulation of funds. The above mentioned are the functions of the capital market. The capital market performs its functions with the help of buyers and sellers who interact and transact. The structure of the Indian capital market is well regulated and highly organised. The capital markets may be sometimes termed risky because they do not give fixed returns annually. But when looked from a long term perspective, their performance has always been good and rewarding for the investors. If you want to learn more about the capital market or put your savings in the capital market, you can contact IndiaNivesh Ltd.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
ROE vs ROCE – Know the difference between ROE & ROCE
The two financial ratios, Return of Equity (ROE) and Return on Capital Employed (ROCE) are the important measures to calculate the company's operational efficiency. They are used together to determine the future performance of a company. ROE shows what a company earns for the stakeholders and equity contributors. To put it in simple words, ROE considers the net return on equity. On the other hand, many analysts use ROCE over ROE. This is because ROCE considers return to all the stakeholders and not specifically to the equity contributors. Therefore, using both of them together can help in determining whether a company’s stock is worth investing or not. Let us first learn how ROE and ROCE are calculated. Return on Equity Formula Return on Equity is calculated using the following formula; ROE = Net Income ÷ Shareholders’ Equity In the above formula net income includes the income that the company has earned over the year minus all the expenses and costs. The income includes payouts made to the preferred stockholders but does not include the dividends to the common shareholders. Higher ROE is considered beneficial for the company as it suggests that the company is using the funds efficiently towards the growth of the business and generating higher profits. Return on Capital Employed Formula Return on capital employed formula is as follows; ROCE = Capital Employed ÷ EBIT ROCE measures how efficiently a company uses the capital to generate additional profits. ROCE is very helpful when used for comparing companies within the same sector. Let us now learn about the key difference between ROCE and ROE. Difference Between ROCE And ROE The ROE only calculates the net return on the equity of a company i.e. the return on the residual equity capital. On the other hand, ROCE calculates the return to all the stakeholders of a company that includes both debt and equity. ROCE majorly focuses on the long term debt program of a company that has a residual value of more than 1 year. ROE considers the impact of leverage to determine what would be left for the shareholders of the company after servicing the debt. Return on equity assumes interest as a cost to the company. While on the other hand, ROCE has a different approach. It considers interest as returns. It focuses on the operational performance of the company and evaluates the measures to service the company’s debt and equity. The main focus of ROE is the equity shareholders of the company and this often leads to over glorification of the return on assets of the company. Return on capital employed measures the efficiency at which the assets of the company are used. Therefore, it is a better indicator of capital utilization because here the capital is sum of equity and debt, which is equal to the total of the long term assets of the company on a balance sheet. Higher ROCE is always better than higher ROE. This is because the equity shareholders have direct benefits when the ROCE increases. A company with high ROCE will be able to raise debt at better terms as compared to the competitors which will lead to cost of capital and cost of equity of the company going down. The above mentioned are a few differences between ROCE and ROE. Let us now learn when to use ROE and when to use ROCE. When to use ROE and When to use ROCE? Return on equity measures how a company manages its funds internally. Like for example a company that has ROE of 85% will be considered to be performing really well. Here the most sensible thing a company can do is to retain its holding rather than paying dividends to the shareholders. This is because the company is making very efficient use of the capital available to it. Such companies are also on the radar of big investors because companies with higher ROE have the potential to generate a huge surplus and deliver good performance in the future. Return on capital employed has EBIT as the numerator which means that the operating profits arrive after the adjustment of depreciation. So this means that ROCE factors in all the fixed asset investment of the business but not the cost of finance. Unlike ROE, ROCE considers the debt holders and lenders to the company. Therefore, the ROCE calculates the extent up to which the operating profits are covering the long term capital of the company. Using ROE and ROCE Together While making an analysis of a company, it is always good to use ROCE and ROE together. By doing so you get better insights into the company. When a company has ROCE higher than its ROE, it suggests that the company is making good use of its debt to reduce its cost of capital. Another way to interpret it would be that the company’s debt holders are getting higher rewards than its equity holders. The great investor Warren Buffet adds to the debate on ROE vs. ROCE. He says that companies should have both ROCE and ROE above the levels of 20%. According to him, both of them should be closer to each other and the large gap between the two is not good for any company. Both ROE and ROCE are important to measure the performance of the company. The investors should always seek investment in companies that have stable ROCE and ROE numbers. If you are a beginner in the stock market and want to invest after learning ROE vs. ROCE, you can contact IndiaNivesh Ltd. Our team of experts deploys technological tools to find right companies for investment and create value for you.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
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