A stock trader is a person who attempts to profit from the purchase and sale of securities such as stock shares. Stock traders can be professionals trading on behalf of a financial company or individuals trading on behalf of themselves. Stock traders participate in the financial markets in various ways.
Not all brokers are suited for the high volume of trades made by day traders, however. But some brokers are designed with the day trader in mind.
The online brokers on the top list, Zerodha and Upstox, have professional or advanced versions of their platforms that feature real-time streaming quotes, advanced charting tools, and the ability to enter and modify complex orders in quick succession.
Below, we’ll take a look at some general day trading principles and then move on to deciding when to buy and sell, common day trading strategies, basic charts and patterns, and how to limit losses.
1. Knowledge Is Power
Day traders must keep up with the latest stock market news and events that affect equities, such as the Federal Reserve’s interest rate plans, the economic outlook, and so on, in addition to knowing basic trading methods.
So, go ahead and finish your assignment. Make a wish list of equities you’d like to trade and stay informed about the firms you’ve chosen as well as the wider markets. Examine the latest business news and go to reputable financial websites.
2. Set Aside Funds
Determine how much money you’re willing to put at risk with each trade. Many effective day traders trade with less than 1% to 2% of their accounts at any given time. Your maximum loss per trade is 250 if you have a 50,000 trading account and are ready to risk 0.5 percent of your capital on each deal (0.5 percent x 50,000).
Set aside a sum of money that you may trade with and that you are willing to lose. Remember, it may happen or it could not.
3. Set Aside Time, Too
Day trading necessitates your availability. That is why it is referred to as day trading. In fact, you’ll have to forgo most of your day. If you only have a short amount of time, don’t bother.
A trader must follow the markets and look for opportunities, which can occur at any time during trading hours. The ability to move rapidly is essential.
4. Start Small
As a newbie, limit yourself to one or two stocks per session. With just a few stocks, it’s easy to keep track of and spot possibilities. It’s been more usual in recent years to be able to trade fractional shares, which allows you to invest in smaller cash quantities.
5. Avoid Penny Stocks
You’re undoubtedly on the lookout for bargains and inexpensive pricing, but avoid penny stocks. These stocks are frequently illiquid, and the prospects of striking it rich are slim.
Many equities with a market capitalization of less than 500 per share are delisted from major stock exchanges and can only be traded over-the-counter (OTC). Stay away from these unless you perceive a genuine chance and have done your homework.
6. Time Those Trades
Many investor and trade orders start to execute as soon as the markets open in the morning, contributing to price volatility. A skilled player may be able to spot trends and make informed decisions in order to profit. However, for newcomers, it may be preferable to simply read the market for the first 15 to 20 minutes before making any moves.
The middle hours are normally less volatile, and then the pace picks up again as the clock approaches the closing bell. Even while rush hours provide chances, beginners should avoid them at first.
7. Cut Losses With Limit Orders
Make a decision about the kind of orders you’ll employ to enter and exit trades. Are you going to use the market or limit orders? There is no price guarantee when you make a market order because it is executed at the best price available at the time.
Meanwhile, a limit order guarantees the price but not the execution.
1 Limit orders allow you to trade more precisely by allowing you to establish your price (not ridiculous, but attainable) for both buying and selling. Options methods may be used by more skilled and experienced day traders to hedge their positions.
8. Be Realistic About Profits
To be profitable, a strategy does not have to win all of the time. Many traders only win about half of their transactions (50-60%). They make more money on their victories than they do on their failures, though.
Make sure that each trade’s risk is limited to a certain proportion of the account’s value, and that entry and exit methods are well-defined and documented.
9. Stay Cool
The stock market may be a nerve-wracking experience at times. As a day trader, you must learn to control your emotions such as greed, hope, and fear. Decisions should be based on reasoning rather than emotion.
Also Read: What is Demat and Trading Account and its need?
10. Stick to the Plan
Successful traders must move quickly, but they do not need to think quickly. Why? Because they’ve planned ahead and devised a trading strategy, as well as the discipline to stick to it. Rather than trying to chase revenues, it’s critical to stick to your recipe.
Allowing your emotions to get the best of you and cause you to abandon your approach is not a good idea. Day traders have a saying: “Plan your trade and trade your plan.”
Let’s take a look at some of the reasons why day trading can be so difficult before we get into the specifics.
11. Use Stop Loss Everyday
Check the order screen on the trading portal of your stockbroker, and you will see the stop-loss option. A stop-loss helps you reduce your losses as it lets you select a price at which your position will be automatically squared off. For instance, if you are purchasing 100 shares of SBI at Rs. 350 and expect its price to rise, you can put a stop loss at Rs. 345.
If at all the stock price falls, your 100 shares will be automatically squared off when it reaches Rs. 345. If you want to know how to invest in the stock market successfully, it is essential to use stop-loss on all of your trades at least in your initial days of trading. Most brokers now allow you to place a stop loss at the time you place the buy/sell order.
12. Avoid using the margin facility
Lack of capital is one of the most common problems for stock market traders. To help traders with this problem, stockbrokers now offer the margin facility. For instance, a broker can provide you with a margin of 5x on your capital. This means that if your trading capital is Rs. 1 lakh, you can still buy shares worth Rs. 5 lakhs.
However, trades placed with margin are generally required to be squared off before the market closes on the same day. While the margin facility may be beneficial for professional traders, beginners should avoid using it as it could result in severe losses. Only trade with the capital you have and use the margin facility after gaining some experience.
13. Understand different types of Orders
To help traders who cannot spend long hours in front of the screen when the market is live, most stockbrokers now offer many different types of trade orders. Some of the most common types of trades are Normal, Stoploss (SL), Margin Intraday Square up (MIS), Bracket Order (BO), Limit Order, and Cover Order (CO).
Understand how different types of orders work in order to be a knowledgeable trader. If you are looking for how to invest in stocks for beginners with little money, it is better to stick to normal and stop-loss orders. Normal orders can only be placed if you have the required capital for the purchase available in your trading account.
14. Do not Short sell in Initial Days
You can make money in the stock market, even when the price of a stock is falling. Known as short-selling, it is the opposite of placing a buy order. With a buy order, you first purchase the shares at a particular price and then sell the same probably at a higher price. The difference in price multiplied by the number of shares you have purchased will be your profit.
With short-selling, you first place a sell order at a particular price and then buy the same probably at a lower price. The difference in price multiplied by the number of shares sold will be your profit. While short-selling allows you to take advantage of a falling market, you should avoid using it when you are still new. Master the basic buy-and-sell order first before experimenting with sell-and-buy.
15. Stay away from derivatives market
Another valuable stock market investing tip for beginners is to avoid trading stock derivatives. The derivatives market is mostly made up of futures and options. These are contract-based purchases that have a fixed expiry date. Just like the margin facility, the derivatives market looks very attractive as it allows you to make bigger purchases with little capital.
For instance, you can purchase a futures contract of SBI with only a margin of about Rs. 2 lakhs at the current price of Rs. 360. One futures contract of SBI contains 3000 shares. Purchasing 3000 shares of SBI in the cash market at the price of Rs. 360 each would cost you more than Rs. 10 lakhs. While professional traders regularly trade derivatives, they are not for beginners.
16. Stock market is not for everyone
While the stock market can be highly rewarding, and a lot of people have made a fortune just from the market, it is not for everyone. Successful stock trading and investing require a lot of knowledge, skills, experience, and discipline and not everyone has or can develop these qualities.
One of the most important stock market trading for beginners advice is to stay away from the market if you have tried it a few times, but things failed to work in your favour. If you are still interested in the stock market, you can consider investing in equity mutual funds. These funds invest your money in the stock market, and the portfolio is managed by experienced professionals.