Day trading can either lead to a smart decision or an unwise one. Such questions evoke different emotions in different people. You need to know that day trading is not from all over the world cup of tea. Odds are in favor of those who prepare themselves. As a beginner in day trading, this might seem like a task.
A day trader buys and sells stock positions regularly during a trading day in the hope of making a modest profit on each trade. Day trading is full of risk. You got to learn how to reduce the unconscious chance. You can survive by trying multiple algorithmic trading techniques, trading multiple markets in different time-frames and instruments.
Making profits in intraday trading is very hard and a little painful. So, here are some cautionary steps to be taken by day traders.
Day Trading: Smart or Stupid?
Day trading is more about learning risk management. Following precautionary steps helps day traders to a great extent:
1. Limited Margin
Most of the time, day traders use margin facilities offered by brokers as they can buy more stocks than they could with the available funds. But the boundary facility is an ambiguous sword. It can increase the losses in day trading. In case you have to bear the loss in a trade, you will have the burden of trade losses and interest on borrowed funds as well.
2. Stick to Liquid Stocks
Day trading strategies are based on the speed that requires a high-volume number to get into and out of trade easily. Liquid stocks allow you to acquire and sell larger amounts without significantly affecting the price.
3. Avoid the First and Last Hour of Trading
You will notice the most price movements in the first and the last hour of a trading day. The stock prices can be slanted in either direction. Keep your research strong else better to avoid taking early positions.
4. Strict stop losses
Stop-loss is one of the most efficient techniques to manage the risk involved in intraday trading. You must define a stop loss to avoid large losses. For instance, you purchased stocks at a price of Rs.950 and you set a stop loss at Rs.850. Your shares will be sold automatically as soon as the stock price reaches Rs.850. In such a way, you will be able to avoid larger losses, if the stock price goes below Rs.850.
The money invested in intraday trading is called risk-capital. Many people are against day trading because it is a risky affair. However, if you have favourable conditions such as sufficient investment capital, risk-taking capacity, and the support of an experienced advisor, then it will be a smart decision to choose intraday trading. But yes, it’s a high-stake betting game that demands a lot of enduring in the stock marketplace. Only experienced traders and professionals know how to handle intraday trading orders.
How to start stock trading?
You will need a Demat account and trading account to start trading. Even without buying any financial security, you can open both accounts. To understand the Demat account meaning, consider it as a savings account. It is an account to keep your financial securities safe in the digital form that will be debited whenever you sell any security and credited whenever you buy any security.
Before opening a demat and trading account with a brokerage firm, there are various factors such as brokerage fee, advance trading platform, customer support etc. that need to be taken into consideration. With Bajaj Financial Securities Limited (BFSL) trading account you can save big on brokerage costs as it allows you to pay a flat brokerage rate per transaction. BFSL also offers a state-of-the-art digital trading platform.