90% of Intraday Trades are losers, Intraday trading without a proper plan and trading system is equivalent to gambling which most of traders get indulged into. Before betting your hard earned money to earn quick returns its always better to know and understand the the fundamentals of intraday trading, if you hope to make money consistently in the market. As i have discussed in my past post the importance of trading psychology, today we will focus on essentials traits required to do Intraday trading successfully.
1. Have Intraday Trading Strategy
Whether you do Business,Job you will always have a plan for accomplishing certain task, You will not blindly trade based on your intuition. Same applies to Intraday trading, You need to have a trading system which can help you to generate a trading plan which will help you in finding the best possible buy or sell price of your shares in today’s market and what will be the target price. You do not have to swayed away by wild swing in the Stocks and let your emotions overpower you.Always have an EXIT strategy.
2. Select and Trade the Right Stocks
Always trade in liquid stocks like SBI, ONGC, Infosys which will make sure you are never stuck up with your positions, try avoid trading in illiquid mid cap stocks in which just a volume of 10000 shares can swing prices wildly.A liquid stock is one, which has a high average trading volumes, so that it can be bought or sold in sufficient quantities without causing much impact on the prices.
Avoid trading in Highly Volatile stocks like United Spirits, ADAG stocks as these are High Beta stocks can rise/fall within minutes leaving less time for you to act. So if your trading capital is less than 2 lakhs Strict NO to High Beta Stocks.
3. Avoid unpredictable stocks
Generally it is seen that stocks that are trading with low average daily volumes or stocks where some big news is soon expected, tend to trade in a highly unpredictable manner. Sometimes even after an important announcement — which may be either good or bad (like big order, good results, bad results, plant shutdown etc) — the stock may trade in a chaotic manner. So it is advisable to avoid such chaotic stocks.
Some of the mid caps, and most of the small caps especially those in S, T and Z group are chaotic stocks; better not to trade them from intraday point of view. They also have very low volume thereby increasing their unpredictability. It is advisable to not trade in news driven stocks, because in such stocks the risk associated is much higher and it is often difficult to predict the entry and exit points.
4. Stick with your stop-loss.
The importance of sticking to the stop loss cannot be over-emphasised for day trading. Many traders find it extremely difficult to book a loss and thus take delivery of a stock if its price goes down. What happens in such a scenario is that you have gone against the basic fundamental of day trading by not keeping it an intraday trade. So now you do not know when the stock will recover and if you will be able to exit. By doing so, many traders are forced to keep the stock for the long term and often get stuck with it. Therefore you should always have a stop loss and stick to it.
5. Find stocks that move with the market.
There are a number of stocks in the market which have a great correlation to the movement of the major indices. What this essentially means is that they mirror the movement of the indices. For example if the Nifty is increasing these stocks will also tend to rise and vice versa. This makes it easier to predict the movement of the stock and thus increase your chances of making a profit. So if you aviod trading in Nifty trade in Stocks like RIL,Infy,SBI and ITC which are having high weight age in Index and they will not rise and fall 8-10% on any given day and hence hedging you from excessive volatility in your trading capital.
There is no substitute of Hard Work and if you want to be successful intraday trader you need to do lot of Research before taking the trade.
You need to Daily analyses stocks technically prepare a trading plan, to find out a particular stock’s key levels of support and resistance. Is the stock overbought or oversold? Has volume been showing any significant changes?
Also study the fundamentals of the companies and try to know when they declare their quarterly results as we see lot of volatility when results are declared. Studying how a particular stock moves on the day before the result, when the result is announced and after the result helps a day trader understand how the market reacts to results.
7. Follow the Trend, Trend is your Friend
If the market is in an uptrend or in a bull run, it is usually a good idea to stay long. And if the market is looking bearish then either you can short or wait for stocks to hit their bottom before taking a long position.
Intraday trading is a mind game and only the strong survive. But with the guidelines outlined above, it is possible to make money as an intraday trader. Discipline and consistency are the two key words in winning this game.