Few Basics of Day Trading you can’t afford to ignore!

By | November 15, 2015
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Clearly there has been a rapid increase in participation of retail traders and investors in stock markets. This can be largely attributed to the rise of the numerous online trading platforms/ applications which has eased the process of day trading. That’s more and more people are participating in the daily activities of buying and selling of stocks to make some quick intraday profits. We are not saying it’s easy, but not too difficult either. One definitely need to have at least the basic knowledge of stock markets. Also one need to be savvy with some important market technical indicators. And above all one needs to have a “well defined trading plan” and a very strict discipline to act according to that plan.

With this article we have covered few basics of day trading that you can’t afford to ignore!

1. Understanding the behavior of stock market

For traders it is important to understand the behavior of Stock market which experiences volatility at different time zones in a day. Markets are most volatile at the start and towards the end or closing of the trades. And these trends are mostly chaotic and unpredictable. For example Indian markets start at 9.15 a.m for retail traders. Opening and first 45 minutes of trades are based on domestic and global sentiments on that particular day plus the covering of trades initiated by traders at the closing of previous day.
By 10 a.m the markets tend to settle down and mostly take a direction for that day.
By 12 noon there is again bout of volatility as European markets open for trades and Chinese and Hong Kong markets close for the day. Traders have to be cautions of these external factors during these hours of trading and take their positions accordingly.

As we approach 2.30 p.m for the last hour of trading, traders start to take positions for next day’s trade (BTST – Buy Today Sell Tomorrow, STBT- Sell Today Buy Tomorrow). That’s taking positions to carry it overnight anticipating moves in opening of next day’s trades. These trades are mostly closed within 2 mins to 30 mins of trades the next morning.

2. Be disciplined while doing Margin trading

Brokerage houses these days give lot of margin 5 times to 25 times of your trading capital for intraday traders. One need to be very disciplined while using intraday margins and must have a definite trading plan with strict “stop losses and targets” or margin trading may eat up your trading capital in no time.
Intraday trading on margins is advised for experienced traders, only who are well aware of the different behavior and character of markets during the day.

3. Do not chase stocks

What to do when a stock has made a significant movement on intraday basis based on certain news?
Lot of amateur or inexperienced traders and investors get trapped in such moves. Chasing a fast-moving stock on the way up or on the way down is dangerous. If you have entered the trade at the start of the move then it’s okay, but it’s important to remember one should not try to invest/trade in every movers and shakers, because after a very swift move, the stock may not give good risk-reward ratio.

4. Do not trade in multiple segments or asset classes

Do not dabble in multiple asset classes. Newbie traders tend to get attracted to different trading classes like stock, option, futures, commodities, currencies etc. Every segment or asset class require a good understanding of its behavior and technical factors, plus a different trading plan all together. So it’s not advisable to try your hands at multiple trading segments, you will mostly end up burning your fingers.
Stick to one type of segment or asset class. Learn and understand the characteristics of it. Have a specific plan designed to match your risk appetite, your personality and your goals. Master it.

5. Over-use of Charts and technical indicators

Day traders and investors take help of numerous technical indicators and charts to understand the trend of the stocks. Do not get into tens of technical indicators. Mastering only couple of chart patterns and technical indicators is sufficient to take a call. Over relying on multiple indicators will only add to the confusion. Focus must be on well defined STOP-LOSSES and TARGETS. Do not deviate from your trading plan, Whatever the case may be.

6. Select high volume index/stocks to trade

While selecting stocks or asset classes do remember to choose highly liquid ones, the ones which have high volumes at any point of the day during trading hours.

7. Have a Definite Trading Plan

Above all, the most important thing one must have is a Trading Plan with well-defined Stop-losses and Targets, well before going into any trade . The trading plan which will suit your personality with respect to your risk-appetite and your own emotions of fear and greed.

We at Tradvantage help you in getting into the habit of making consistent profits with Trading plans/systems that make money in every market condition.

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6 thoughts on “Few Basics of Day Trading you can’t afford to ignore!

  1. Chaitanya

    Day trading allows you to use up to 4 times your available cash to buy and sell securities.  This means as a small time trader with a 1 in capital you can now trade up to 4 during the day.  I personally do not use all of the money available because of how greatly it increases my risk profile.

  2. miquel mccracken

    Hey! Would you mind if I share your blog with my facebook group?
    There’s a lot of people that I think would really appreciate your content.

    Please let me know. Cheers

  3. Snehal Prajapati

    Hi, I have been thinking of starting trading in stocks. As I’m a housewife, it’s good to utilize my free time for earning some money. I already have a demat account. But afraid to jump into intra day trading.
    Need some advice.


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