Strategies for day trading
Main strategy for day TradingThe primary strategy of day trading is to earn consistent money on daily basis. Second strategy for day Trading
Observe carefully the stock price movements - Stock price movements like Open, (the first price at which the stock opens when market opens in the morning) High, (The stock price reached at the highest level in a day) Low (The stock price reached the lowest level in a day) and finally close. (The stock price at which it remains or the final price of the stock when the market closes for a day).
One more important factor to watch is stock price fluctuations. Stock price fluctuations means by how many Rupees the stock is moving (either up or down). This gives you an idea on what price to buy and at what price to sell (or first sell and then buy).
This strategy is very useful for day trading but in fact you get more superior idea (or plan) for TOMORROW’S DAY TRADING for this particular stock.
Keep a close watch on Supply and Demand - Supply and demand means how many buyers are willing to buy (this indicates the demand) and how many sellers are aggressive to sell (this indicates the supply). Always remember the stock price movement depends on supply and demand. Simple thing to remember (not only in stock market or day trading but also in general life) that more demand and less supply means price is going to move up and if more supply and less demand then price is going to come down.
Overcall if you study this strategy carefully then you will come to know whether the people are interested to buy or sell the stock and hence the price moves accordingly that is if see more buyers then the price is going to move up and if you see more sellers then price is going to fall down.
Day trading made easy
Day tradingBuying and selling of shares on daily basis is called day trading. This is also called as Intra day trading. Whatever you buy today you have to sell it today OR whatever you sell today you have to buy it today and very importantly during market hours that is 9.55 am to 3.30 pm (Indian time).
Advantages of Day Trading
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Margin trading -In Day trading you get margin on your balance amount means you get more leverages (amount) on your available balance amount to do day trading. This concept is called margin trading. Margin trading is only possible in day trading and not in delivery trading. How much extra amount (margin) you are going to get, totally depends on your broker, or your online trading system brokers.
Some broker provides 3, 4, 5, and 6 times extra margin.
If you do margin trading then you have to square off your open trades on the same day (means if you bought shares then you have to sell and if you sold shares then you have to buy) before market time (that is 3:30 PM) finishes.
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Second important advantage is that you have to pay less brokerage (commissions) on day trading (Intraday) as compared to delivery trading. This brokerage again depends from broker to broker (or on your online trading system).•
In day trading you can sell and then buy this is called Short Sell which you can’t do in delivery trading. You can sell shares when prices are falling and then buy when price falls further.Disadvantage of Day Trading
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As you are benefited to get more extra amount to trade (that is margin trading) and get more extra profit, it is also equally true that you are also taking more risk of loss.•
At any cost you have to square off the open transaction before 3:30 PM (especially if you are doing margin trading). At that time the price may not be in your favour.Information on Day trading tools
A successful day trader or share market trading requires couple of disciplines and following trading requirements -
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PC with internet - If you need to do trading yourself then you need to have a PC or else you can do trading in internet café also. A PC with good internet connection speed. The internet connection should not be slow or should not face any other problem especially in Day Trading.•
Online Trading Account (Demat Account) - You need to open online share trading account with any of the available banks or online brokers.Day trading stocks
In day trading, traders mostly wish to do buying and selling on small profits or else they look for overbought or oversold shares.
Taking into consideration these important points, the following basic things should be looked in for shares while choosing them for day trading.
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Price Volatility•
Volume (quantity)What exactly these terms mean and how to use them while Day Trading. Price Volatility
The Price volatility means the movement (up and down) of share price should be more (or high) through out the day. In other words the fluctuation in share prices should be on high rate so that it will be easy for you to buy and sell on different prices. Suppose if share is moving up and down in very narrow range then on what price you will buy and sell? So it is always better if you choose shares, which have high volatility in price movement.
Volume (quantity)
Volume means trading quantities. The shares, which you choose for day trading, should have high volumes (or high traded quantity).
Why this is required?
The high volume indicates that there is more liquidity. Liquidity means lots of transactions have taken place on this share and more people are interested to trade in this share. This will ease your trading job because you will get more exposure to the price to buy and sell at anytime. Due to high volumes there will be also high price fluctuations.
Points to remember for day trading
Following are very important points to be always remember by day traders. Entry & exit points, stop loss limits, profit targets, your desired risk/reward profile,
amount of capital to be committed to trades, how long you need to hold the share if in case it is against your favour.
Day trading rules for Indian share market
It’s important to do practice or paper trading before you starts actual trading. Following are the few reasons:
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Very importantly you will come to know how to place buy/sell orders, and will become familiar and perfect about using your trading system.•
You will gain confidence in yourself.•
The fear of trading will vanish. It is very important to keep fear away while doing day trading.•
You will become active to enter and exit the trade. It’s very important that you must be pretty fast to enter and exit the trade (i.e. open positions).Guide for daily profit in day trading
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Don’t jump in trend early - Wait and get paper confirmation of trend change, and then plan and do your trades (buy/sell). Don’t jump in or do early trades before any trade change confirmation. This may damage your capital (bank balance).•
Don’t wait in trade for long time - Suppose that you had done one trade (either buy or sell) but the script is not moving either up or down, it is just stable or moving with very low price difference, then you should get out of that trade and look for other scripts. You may encounter these type of situations whenindices (NSE or BSE) and not moving (or moving within narrow range). At such time either you wait or come out of trade, don’t loose patience and fall under loss.
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Don’t change your trend on volume volatility - Some time you enter in trade by seeing the buy and sell quantities. For example, suppose you bought shares by seeing more buy quantity than sell quantity, expecting more buy quantity may push the share/stock up but after few minutes you see exactly reverse that you see more sell quantity and less buy quantity or both buy and sell high quantity or the difference of buying and selling quantity is decreased as compared to what you had seen before. So this point is very important, don’t panic here and sell off your stock, wait and realize the situation properly and then take action. This situation comes many times but if you are sure that your share is going to move up then only stick to it.•
Beware of companies’ acquisition or any announcement by Government - Suppose in the morning, before market begins, you should read or view the news of any Indian Company has acquired any foreign company (or part of foreign company). If you see this is actually the best new thing for an Indian company. But if acquisition amount is far more than expectation then this good news will turn into worst news. The shares of that company will start falling. So you should not get in trade and buy shares you have to wait and watch how market or other people are responding to these shares and once you understand then you can trade. So always watch where the market heading towards and then react. Announcement of Government - You should also be very careful to decide your trade based on any government announcement.For example, if government has declared any hike in interest rate then its good news for bank stocks and hence the shares will rise but if government has declared 2nd rate hike in very less span of time as compared to first one (say within duration of one, two month or three month) then this news will be worse for bank stocks, the share may keeping fall during the trading period. So realize and analyse the news and finally watch market behaviour and you will get success.
Resources to start your day trading in Indian share market
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Read financial newspaper like Business Standard, Economics Times, etc. If possible note down the highlights / breaking news with respective company names and keep close watch on them for that day.•
If possible watch share (stock) market related TV channels like Zee Business, CNBC, etc. In these TV channels you get over all idea/movements of all share prices and markets (BSE, NSE). And also it becomes easy to catch and keep close watch on related companies if any breaking news comes out during that day.•
Especially some share market related websites always displays current news, market affairs, share market trends, breaking news and various announcement done by company or government which may effect the share market and related companies. So try to access and have all ok on such types of websites before starting trading and also through out the day, if possible.•
So in short before starting you stock market trading you should be well aware of all the current news of financial market and if possible note down the breaking news or effective news and its related company and keep watch on that share and trade accordingly on that day.Day traders secrets
Never invest all your money in same sector. This method is called diversification of shares.
This will protect your money from downtrends of any particular sector as you can make money from
other sector.
There are various sectors like IT, Pharmacy, Banking, Steel, Petrol and Oil, construction and
infrastructure, auto etc.
Entry Strategies
Certain stocks are ideal candidates for day trading. A typical day trader looks for two things in a stock:
liquidity and volatility. Liquidity allows you to enter and exit a stock at a good price (i.e. tight spreads
and low slippage). Volatility is simply a measure of the expected daily price range - the range in which a
day trader operates. More volatility means greater profit or loss.
Definition of 'Candlestick'
A price chart that displays the high, low, open, and close for a security each day over a specified period of time.
We will look at the intraday candlestick charts and focus on the following three factors: • Candlestick Patterns - Engulfing and dojis
• Technical Analysis - Trend lines and triangles • Volume - Increasing or decreasing volume
There are many candlestick set-ups that we can look for to find an entry point. If properly used, the doji reversal pattern (highlighted in yellow in Figure 1) is one of the most reliable ones.
Typically, we will look for a pattern like this with several confirmations:
First, we look for a volume spike, which will show us whether traders are supporting the price at this level. Note that this can be either on the doji candle, or on the candles immediately following it. Second, we look for prior support at this price level. For example, the prior low of day (LOD) or high
of day (HOD).
Finally, we look at the Level II situation, which will show us all the open orders and order sizes. If we follow these three steps, we can determine whether the doji is likely to produce an actual
turnaround, and we can take a position if the conditions are favourable. Typically, entry points are found using a combination of these three tools.
Finding a Target
Identifying a price target will depend largely on your trading style. Here is a brief overview of some common day trading strategies:
Strategy Description
which involves selling almost immediately after a trade becomes profitable. Here the price
target is obviously just after profitability is attained.
Fading Fading involves shorting stocks after rapidly moves upward. This is based on the
assumption that (1) they are overbought, (2) early buyers are ready to begin taking profits and (3) existing buyers may be scared out. Although risky, this strategy can be extremely rewarding. Here the price target is when buyers
begin stepping in again.
Daily Pivots This strategy involves profiting from a stock's
daily volatility. This is done by attempting to buy at the low of the day (LOD) and sell at the high of the day (HOD). Here the price target is
simply at the next sign of a reversal, using the same patterns as above.
Momentum This strategy usually involves trading on news
releases or finding strong trending moves supported by high volume. One type of momentum trader will buy on news releases and ride a trend until it exhibits signs of reversal. The other type will fade the price surge. Here the price target is when volume
begins to decrease and bearish candles start appearing.
Definition of 'Doji'
A name for candlesticks that provide information on their own and also feature in a number of important patterns. Dojis form when a security's open and close are virtually equal.
Determining a Stop-Loss
When you trade on margin, you are far more vulnerable to sharp price movements than regular traders. Therefore, using stop-losses is crucial when day trading. One strategy is to set two stop losses:
1. A physical stop-loss order placed at a certain price level that suits your risk tolerance. Essentially, this is the most you want to lose.
2. A mental stop-loss set at the point where your entry criteria are violated. This means that if the trade makes an unexpected turn, you'll immediately exit your position.
Retail day traders usually also have another rule: set a maximum loss per day that you can afford (both financially and mentally) to withstand. Whenever you hit this point, take the rest of the day off.
Inexperienced traders often feel the need to make up losses before the day is over and end up taking unnecessary risks as a result.
Evaluating and Tweaking Performance
reality, many day traders lose money. However, by using a well-defined strategy that you are comfortable of trading, you can improve your chances of beating the odds.
How do you evaluate performance? Most day traders evaluate performance not so much by a
percentage of gain or loss, but rather by how closely they adhere to their individual strategies. In fact, it is far more important to follow your strategy closely than to try to chase profits. By keeping this mindset, you make it easier to identify where problems exist and how to solve them.
Price Volatility Vs. Account Volatility
The concept of price volatility versus account volatility centres on the two core emotions traders must face: fear and greed. These emotions act as checks and balances for the trader. These two emotions must be in balance in order to keep a trader (and his or her portfolio) on track. Typically, we see that traders are attracted to volatile price swings by the possibility of large gains; in other words, they let greed get out of balance with fear.
But huge price swings in any market tend to be anomalies where crowd mentality has taken the price out of line with fundamentals. When this happens, one of two things will occur: either the fundamentals will change to meet the new price, or the price will come back into line with the real fundamentals. Either way, prices typically become erratic when this happens. If you use any type of technical analysis in your trading, you probably already know that this can make reading the market very frustrating. This activity often renders technical analysis very difficult to master.
Price Volatility and Stops
Erratic price swings make the market difficult to analyse and trade. Worse yet, it makes it difficult to calculate and control risk. If a market makes erratic swings up, leaving gaps on the chart, it can just as easily do those on the downside. Therefore, not only is it difficult to get a handle on true market
momentum and directions, the risk that the market will gap down past your stop is very high.
This is an important point about stops. A stop becomes a market order when the market trades at or through your price. For example, on the sell side, a stop to sell gold at Rs.650 will be executed at the next possible order when the market trades at or below Rs.650. If the next possible trade from Rs.650 is Rs.649.90, you don't have much to worry about. But what happens when the market trades at Rs.650.10 and then gaps lower to Rs.645? That could be a problem for some accounts.
What Goes Up, Must Come Down
Volatile markets can be dangerous to trade from a risk management perspective, but they also can be difficult to trade from a directional standpoint. There are some clichés to keep in mind. One that is especially important for trading the long side is that markets tend to come down faster than they go up. As an example, consider silver futures during 2006.
What Markets Should I Trade?
Choosing the right market in which to trade involves weighing many factors. Quite often, beginner
traders wonder about learning to trade certain markets. Based on their questions, it is clear that their first decision is often to choose a market to trade, rather than other factors like how much capital to work with, or what the risk factors might be. However, decisions about what market to trade should actually come at the end of the planning process.
A primary reason for this is that the swings of the market you are trading must fit not only your profit objectives, but your risk tolerance as well. If you are looking to trade predetermined markets without a solid reason as to why, you need to throw that idea out the window and begin your plan from scratch. (It is possible that you may end up with the same market at the end, but you need to substantiate your reason to trade the markets you are trading).
Begin by determining the amount of risk capital you have available. You will need to determine what type of trading suits not only your personality, but also the time you have available to trade. Figure out what type of profits you are targeting and the amount of risk you are willing to take. Only then will you be ready to develop, build, and/or fine-tune your trading plan. Only from that point it is logical to begin analysing markets.
another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment.
Important Factors to follow
If you want to earn good money in intraday then you have to be very alert and keep watch on following points to become successful intraday trader.
The shares may rise or fall due to number of reasons, some of them are mentioned below.
If you at least keep a watch on following factors. You can save yourself from big loss and earn good amount if you trade according with the market direction and not the against market direction.
To become successful trader you have to follow the market and don’t keep guessing the market direction.
News
Like merger announcement, this news will impact more if the Merger is related to foreign company. Merger and Demerger announcement may have major impact on related company shares.
Acquisition (takeover) Announcement
Takeover of some part (or whole) of companies, especially those having larger capacity/turnover or foreign companies.
This news will have major impact on that particular share. Shares may rise, don’t miss this opportunity.
Entire takeover will have most positive impact on shares. Political News
News like elections in the country or in any particular state, news of any major change in political upfront or in any change in rules will also have major impact on Indian share market. Political news related to any particular State will have major impact on companies located in that state.
So the conclusion is any major political news will have major impact on shares. Sector News
The shares of Indian share market has different sectors and if any announcement by Government for any particular sector will have major impact on shares of that sector.
Following are few sectors.
Banking - ICICI, SBI, UTI, Indian Bank etc. Hike or decrease in interest rates, loan rates etc. Oil - PCL, BPCL etc.
Hike or decrease in diesel prices, hike or decrease in crude oil prices etc. Retail - Dabur, ITC, etc.
News related to any taxes etc.
Cement - Indian Cement, Gujarat Ambuja cement etc. Hike or decrease in cement prices.
In short sector related news will affect the shares from that sector. Impact of Other Asian Market
Most of the time it has been observed and studied that Indian Market (Nifty/Sensex) follows other Asian markets and USA markets.
Asian markets like China - Shanghai’s market, Japan - Nikkei market, Hong Kong - Hang Sung market. Above all Asian markets “open” early in the morning than Indian market.
Most of the time Indian market will follow this Asian markets. If these Asian markets open in positive and lead to positive direction than the Indian markets may react accordingly provided that there is no major news in India.
USA market - USA markets like NASDAQ and DOW will also have major impact on Indian market. So, in short in the morning around 9.30 am get all news about USA markets and Asian markets and then plan your trades accordingly.
Quarterly Results - (Very important)
on their shares in Indian share market.
Every company declares its quarterly results. If any company declares extra-ordinary results then this will definitely affect its shares.
Most of all share traders and analyst concentrate much on company's profit and sales. If company achieved good profit and declare dividend, bonus shares etc this will make positive impact on shares of that company.
Fundamental News
Fundamental news means companies future turnover announcements, any change in director body, future product releases etc.
If the company has good fundamentals like board of directors, companies expansion plans, future acquisition etc then its worth to invest in such companies for long term.
Individual share - If the share is over bought, then some profit making will takes place (price may come down) and if share is over sold then you may see some buying (price may go up) than you can plan your trades accordingly.
Inflation Rate - (Very important)
Inflation rate is wholesale prices of consumer goods. Government for every week on Friday declares this rate.
The inflation rate indicates what was the wholesale price index for previous week. If it is low as
compared to its earlier week then it is positive news and you may see share prices going up and if the rate is higher as compared to its earlier week then it is negative and this may affect share prices negatively and prices may come down.
So keep a watch. Inflation rate declare by Indian Government at every Friday and trade accordingly. “Indian share market reacts to inflation rate”.
Future/Derivative Expiry - (Very important)
Future/Derivatives have expiry period of one month. Derivatives get expired on last Thursday of every month.
Future/Derivative gets expire means you have to sell your future/derivatives, which you are carrying for whole last month. Due to this expiry period share traders sell their derivatives, due to which shares prices may come down.
If you watch the share market carefully this selling movement starts before one or two days of expiry. So be cautious and plan your trade accordingly.
During this expiry period you may see shares prices coming down then you can plan your buying and selling accordingly.
Where to Keep Watch
Keep a close watch on shares which comes under top gainers, top losers and which are touching all time high or touching all time low.
What you have to do is, after market hours (when market closes at 3.30 pm) you can make a list of all such shares and plan your trade according for next trading day.
Please note
-Touching all time high or 52 week high is bullish sign. Touching all time low or 52 week low is bearish sign. Check buying volumes
Before buying check out the buying and selling quantity (volumes).
If buying volume started increasing then the stock may go up and if selling volumes start increasing the stock price may come down.
Check derivative status
If possible try to check out the derivative of the stock which you want to trade.
If derivative of that particular stock is going up with increasing buying volumes then you can immediately grab (buy) that share/stock. Most of the time it is seen that if the derivative price goes up, then its share price also goes up.
Wait for the target price to buy
For example, if buy is given at 150.5 then don’t buy below this price, only buy at 150.5 prices or slightly higher than this price.
Because the given buy price may be the resistance price, if it breaks then share price goes up or else may not go up above 150.5. So plan to buy at given targeted price, don’t buy below target price. Strictly maintain Stop Loss
Strictly maintain the given stop losses. This will help you to minimize your further losses.
Suppose for moment the share you bought falls drastically down, then you may end up with huge loss. So always maintain given stop loss.
“Stop Loss will reduce your loss”.
Don't wait for huge profit in single share/trade
If you are getting some profit and if you notice that is not further moving up (it’s called consolidation) then you can sell your share/stock and come out of that trade.
In this manner, you can earn small profit instead of loss then you can do another trade and again earn small profit.
Likewise if you keep earning couple of small profits in a single day then all your small profits will add up to huge profit amount in a single day.
“Get satisfied in small profit and do multiple trades”. Don't Overtrade
First and very important is not to Overtrade - Never put all your money/savings in share market. Most of the borkers provide margin amount but it is up to you how to make use of this margin amount. Most of the traders make use of this margin amount for over trading which is risky.
Wait, Watch and Trade
Do not jump in market early. Wait, watch and trade. Confirm the market direction and make sure and confirm all your strategies like resistance and support levels and then plan to trade.
Always go with Market trend
Don’t short sell, if the market is going up and don’t buy if the market is falling down. Trade with market direction and dont go against market direction.
Try to minimize your Loss and increase profit
Get ready to accept loss if you do wrong trade - Come out of your trade if you have entered in wrong time by accepting loss instead of waiting for trade to reverse and finally running into huge loss. Don’t Panic
Don’t make early trades and even don’t square off your trade early - Even if you see the script has moved up drastically, don’t buy, confirm the volumes of buying and selling and then decide your trade. Don’t square off /exit from your trade early if you see script/share has come down bit from top. If it is coming down from top means it is cooling, if you see more buyer than seller then you can hold your position. You must know which share has what momentum, means if the share price is Rs.120 then you can expect upside from Rs.1 to 5 and not Rs.50 to 100. If the script is going up, it will go in ladder fashion, it will go up and it will come down bit and it will again continue its upward journey.
Wait for opportunity
If you are not sure about market movement then watch and wait for opportunity don’t trade forcefully. Some times market move in range bound means market move up-down in very small range at that time it becomes very difficult to judge the market direction and do intraday trading. Its always better to wait instead of losing money.
Don’t expect too much
Don’t expect too much - Be happy in whatever profit you get, don’t try to grab too much from market. Be realistic, and don’t expect too much. Please remeber you are doing day trading and you should square off your postions with appropriate profit instead of waiting for big profit.
Advice for high returns
proper knowledge. Read books, refer websites and get prepared before you plan for share market trading or investing.
How much profit you will make in a month? Will you believe, if we say 30%?
If you follow a simple strategy which is called as “Take small profits and do multiple trades” which is explained in following example
Let’s see following example including the calculation of Brokerage and taxes
The current maximum intraday brokerage offered in the market is 0.05% for buying and 0.05% for selling (We provide 0.03% for buying and 0.03% for selling)
Taxes you have to pay
1. The service tax is of 10.36% only on brokerage.
2. The STT (Security Transaction Tax) is of 0.025% only on selling amount. 3. The stamp duty on total turnover for a day, which is 0.002%.
4. and finally you have to pay Regulatory charges on total turnover for a day which is 0.004% Don’t worry all these taxes will add up to very small amount at the end of the day compared to your profits.
Example -
Suppose you bought the shares of Kotak Bank at Rs.315 and quantity 100, so the total amount you have to pay is Rs.315 x 100 = Rs.31500.
Now let’s see how to calculate the brokerage and taxes. Your buying amount
Rs.31500 (Rs.315x100 Qty shares) Brokerage charge
0.03% as brokerage (It’s our brokerage rates) on 31500, which comes to Rs.9.45. Service Tax
The service tax is 10.36% only on brokerage, so 10.36 % on Rs.9.45 comes to Rs 0.98. Total charges you have to pay on buying amount is
The total brokerage + service tax which come to Rs.9.45 + Rs.0.98 = Rs.10.43 Now let’s calculate the brokerage and taxes on selling amount
Your selling amount
Suppose you sold Kotak Bank shares at Rs.316 (you took profit of only Rs 1), Qty - 100 so the amount comes to Rs.31600 (Rs.316 x 100 Qty shares)
Brokerage charge
0.03% brokerage on 31,600, comes to Rs.9.48 Service Tax
The service tax is 10.36% only on brokerage, so 10.36 % on Rs.9.48 comes to Rs 0.99. STT (Service Transaction Tax) only on selling amount
The STT (Service Transaction Tax) is 0.025% on selling amount (the selling amount is 31600) which comes to Rs.6.32.
Total brokerage + service tax + STT on selling amount is = Rs.9.48 + Rs.0.99 + Rs.6.32
= Rs.16.79
Total amount you have to pay on buying and selling is = Rs.10.43 (buying) + Rs.16.79 (selling)
= Rs.27.22
Also you have to pay stamp duty and regulatory charges on total turnover.
Your total turn over is calculated by adding the buying amount and selling amount. Buying amount is 31500 and selling amount is 31600 which adds up to Rs. 61300
Stamp duty is 0.002% and Regulatory charges are 0.004% which adds up to 0.006%
So on total turnover amount (Rs. 61300) the stamp duty and regulatory charges comes to Rs 3.8. So the total amount you have to pay including brokerage and all taxes is only
Rs 27.22 + 3.8 = 31.02 Conclusion
So now the conclusion is you are paying Rs.31.02 (brokerage and taxes) while you earned the profit of Rs.100.
So your profit is Rs 69 (100-31)
So don’t you think 69% profit in single trade is quite enough to do thousands per day?
If you continue doing such small trades with small profits then you will end up with big amount at the end of the day.
Let’s see how it will add up to thousands
Suppose if you do only 10 trades in a day by taking only Rs 1 as profit then it will add up to Rs 690 (Rs 69 x 10 trades in a day).
How to make thousands in a day?
Now let’s see how to do thousands with same strategy as mentioned above. Its simple, you just have to increase your quantity of shares.
In above example you have brought only 100 quantities, if you just make it double then your profit will also get doubled.
How much will you make in a month?
= Rs.69 per trade as net profit (as per above example).
= 10 trades per day (how much trades are possible, you will come to know by doing paper trading practice, which we explained in day trading section, and according to our estimation 10 trades are very easy to accomplish)
= total Rs.69x10 trades = Rs.690 per day. = total approximate 20 trading days in a month. So Rs.690x20 = Rs.13800.
Let’s consider some losses while trading
the profits.
(Please visit our different sections how to reduce the losses in day trading)
If you follow above-mentioned simple strategy then have a look on below example how much money you can make in a month.
Now let’s imagine you made loss on some days or due to some reason you are not able to trade on some days, so let’s consider 5 days profit as loss. So 5 days loss comes to Rs 3450 (Rs 690 per day x 5 days).
So the compensation for losses is Rs.3450. Total Profit
Then also you are making profit of Rs 10350 (Rs13,800 - 3450) profit per month.
Your investment is Rs 35,000 and you are getting profit of Rs 10,350 per month so in just 3 to 4 months you are making your money double.
Make your money double in one Month
In the above example the margin amount is not used. So If you use only Rs 10,000 then you are making your money double in just one month.
Brokers generally provide 4 times Leverage for day trading so for Rs 10,000 you can trade till 40,000. Precaution - In margin amount the risk also increases. You have to square off your trades on same day if you use the margin amount.
Please note
1. You can even invest less amount like Rs 5000 or 10,000 and earn profits in a month.
2. In above example you are not using margin amount so if in case the trade goes against you then you can hold them and sell later. If you use margin amount then you have sell them on the same day. 3. So the bottom line is forgetting greed factor and taking small profits will make miracle to your investments.
So believe in small and end up the day with big profits.
If you don’t want to take high risk in day trading then you can avoid using margin amount and trade only using available amount in your trading account.
Generally it is risky (if you are new and not experienced) to do over trading by using margin amount or even requesting your broker to add more margins for a day.
What is margin trading?
Suppose if you have Rs 25000 in your trading account and if your broker provides 4 times margin then you can do day trading till Rs one lakh.
Note - Margin trading also depends on share category on which trading is done.
For example - “A” category shares gets full margin while “B” category shares gets less margin and this will go on decreasing as you move down.
Advantages of margin amount
Major advantage of margin amount is if you have less money then also you can buy more shares. Some experienced traders make use of margin amount to do multiple trades taking very small profits. Disadvantage of margin amount
Time restrictions - If you use margin amount then you have to square off your trades before 3:30 pm whether your trade is in profit or loss it doesn’t matter.
We have also the information that even some trading terminals square off your trades automatically at 3:00 pm if you use the margin amount.
So if you use the margin amount then you have the time restriction irrespective of whether your trade is in profit or loss you have to square off your trade because the margin amount is not your money its brokers money which is given to you only for a single day for trading.
If you forget to square off your trade then you have to pay heavy plenty or some brokers charge interest rates on the margin amount.
So the bottom line is if you use the margin amount for day trading then you have to square off your trades irrespective whether you are making profit or loss.
How to overcome this (time restriction) biggest disadvantage? Answer - Avoid margin amount.
Suppose if you have Rs 25,000 in your trading account then trade only of rupees 25,000.
In other words buy and sell shares of rupees that is available with you and which is your money and not broker money so now there is no compulsion that you have to square off your trades before 3:30 pm.
If your trade is in profit then you can book your profit and if your trade is in loss then if you want you can take delivery of those shares and sell when the price goes up.
So if you avoid margin amount then you can avoid the major losses. So there is no harm if you don’t use margin amount.
