Friday, 20 September 2013
Day trading and investing are like chalk and cheese,both involve buying of shares but the factors considered are completely different, one takes into acount technical data,while the other looks at its fundamentals. dont try mixing the two.often.if an intraday bets goes wrong,the buyer does not book his loss but takes the delivery of shares and then waits for the price to recover. this can be a costly mistake because the shares were bought with an ultra short term horizon.they may not be worth investing in.
Book profits when targets are met
Greed and fear are the two biggest hurdles for the day trader. just as he should not flinch from booking losses when the trade goes wrong he should book his profits when the shares reach his target. if he feels that there is more upside in the stock he should reset the stop loss. suppose you invest at rs 100 for a target of 110 and a stop loss of 95.if the price goes up by to 110 but you are still bullish raise the stop loss to 108 this will reserve some of the profit.
Dont fight the market trend
Even the most sophisticated analysis cannot predict which way the market will move. all technical factors may be bullish but the market may decline. technical factors only point to the likely movement of the market,they dont guarantee it. if the market is not as per your expectations ,dont try and be a contrarian. you may end up loosing more.
Small is beautiful
While the stock investments can yeild stupendous returns,be content with small gains from intraday trading. day traders get a leverage of almost 13-14 times their investment,so even if your stock goes up 3% you would have earned much on your investment. its rare for large cap stocks to move by more than 5-6% in a day,even if you get return of 10-12% on your capital,its not bad for days work.
Invest what you can afford to loose
Intraday trading carries more risk than investing in stocks. invest only the amount that you can afford to loose. an unexpected movement can wipe out your entire investments in few minutes. In jan 2009 satyam computer scrip fell more than 80% from 188 to 31 in one day,if its leveraged position you could loose more than invested
choose highly liquid shares
Day traders must square their positions at the end of the trading session. This is easy if you are trading in large cap, index based stocks,which are very liquid and get traded in huge columes. dont dabble in mid cap and small cap shares when the traded volumes are not large you could end up holding shares that have no buyers at the end of the day.
Trade only in 2-3 scrips at a time
Its prudent to diversify your portfolio when you are investing in stocks,but when it comes to day trading confine yourself to just 1-3 stocks. you can have 8-10 in watch list but dont trade more than 3 at a time,some movements need to be tracked closely by the day trader and you wont be able to monitor more than 2-3 stocks at a time.
Research watch list thoroughly
Read up on the 8-10 stocks on your day trading watch list,you should know all forthcoming corporate actions (stock splits,dividends,mergers) as well as technical levels of the stock.
Fix entry price and target levels
Before you buy fix your entry price and target level. The psychology of the buyer changes after he has bought a stock which would interfere with his judgement and nudge him into selling quickly even if the price moves up marginally. this mite cost him the oppurtunity to fully gain from upside. if you set yourself a price target and adhere to it your psychological frame will not change.
use stoploss to contain impact
A stop loss is atrigger for selling shares if the price moves beyond a specified limit, it helps the buyer limit his losses in case the share belies his expectations and moves in either direction.suppose you buy 20 shares of reliance at 940 each and set a stop loss of 920 if the share falls to 920 your shares will be sold.in this manner your losses will be curtailed even if the share drops to 900. A STOP LOSS TAKES THE EMOTIONS OUT OF DECISION TO SELL.