Everyone wants to make money through online share trading. But what most do not realise is that intraday trading for beginners requires patience, discipline, and knowledge. Earning profits from intraday trading is simple if you know how to pick financial instruments and place trades well. Most new traders lose money due to their inability to manage risks. If you are determined to try your hand at online share trading, you must have a strategy, the ability to manage risk, and money management skills.
Intraday trading for beginners: Strategies for newbies
Here are five simple strategies to help you grow your wealth through intraday trading.
Measure your risk
This is the basic rule of online share trading—set limits to your losses before entering a trade. Make sure to ask yourself how much risk you are ready to take:
- How much are you willing to lose in a trade? Generally, for most new traders, it is around 2–3% of their trading capital.
- How much loss can you bear in a single trading day? Ideally, it should be around 4–5% of your total capital or 20% of the profits to date.
- How much of the overall capital can you afford to lose? For newcomers, it is best to not lose more than 20%.
Once you decide, assess your trading strategy again. Remember, in intraday trading, the profits you earn depend to a great extent on risk management.
Also Read: Why should millennials start investing in Mutual Funds?
Set price targets beforehand
Whether you are entering a long or short position, decide on the profit target and the stop loss level in advance, and stick to your plans. The advantages of doing this are twofold. First, it limits your potential loss, and second, it stops you from being greedy if the price rises to an untenable level. Of course, you could always set a new profit goal and stop loss level when the market is steady and your target has been reached.
Learn to use technical charts
As a day trader, you should know how to read basic technical charts. Try using support level and resistance level data to place buy and sell orders. Also, keep tabs on decisive break-outs above and below them. Learning and using these basics of technical analysis will go a long way in making your trading journey simple.
Go with the trend
Trading on the side of momentum is the key rule here. Keep in mind that you are a trend trader and not a value investor.
Say there are two traders, A and B, who traded the same stock ahead of its results. Trader A’s calculation said that since the stock had gained over 12% in the last month, maybe it was time for a correction. Fearing this, he started short selling and ultimately gave up after hitting the stop loss twice. Meanwhile, trader B bought stocks worth 10% of his capital and waited for a price dip to buy more.
Could you find the difference in their approach? While A was trying to outsmart the market, B remained on the side of momentum. Remember, the market is much smarter than you. So, following the trend is beneficial.
Do your homework
The well-known investor, Peter Lynch, said, ‘If you do not study any company, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.’ This is why all great ideas need to be backed with smart research. Trading in the stock market requires end-to-end research on the companies. There is no sure-shot formula for success.
Also Read: 4 Tips to save tax with mutual funds investment
Intraday trading is not for the weak-hearted. It is important to stick to your plans to reduce both risk and loss. Intraday trading can help you achieve your financial goals, provided you follow a good strategy. Need expert help? It may be a good idea to open an account with an established brokerage firm like Kotak Securities, as they offer a range of products and services to help new traders.