You want to make profits in the stock market, but you're not willing to wait. This is when a friend tells you, Try intraday trading. You will be rich in no time. The most important rule in stock markets is, Be an investor and not a trader. You have to spend time in the stock markets to make profits.
If you attempt intraday trading, you need to realize that you are taking a big risk. You are a trader and just as you get good profits, you can suffer massive losses. So, if you cannot afford to lose money, don't dare to try intraday trading.
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What is intraday trading? Intraday trading is nothing but buying and selling stocks within the same trading day. In intraday trading, stocks are purchased with the purpose of earning profits. There is no intention to invest.
The idea behind intraday trading is to harness (make use of the) movement in stock indices, to earn some quick money. The orders are squared off before the end of the trading day and this type of trading is called intraday trading.
Remember: You must invest only the money you can afford to lose, while indulging in intraday trading.
What is intraday trading?
In intraday trading the shares are actually not transferred to your account and you have to square off your position (sell same number of stocks), before the market close on the same day. With intraday trading you can make money when the market is bullish (sentiment is positive) and even if the market is bearish (sentiment is negative).
If the market trend is bullish (stock prices are expected to go up), you buy say 100 shares of XYZ Ltd at a lower price and sell all the 100 shares of XYZ Ltd, when prices go up, within the same day (before market closes) to make a profit.
With intraday, you can also make money when stocks fall (bearish market). Let's understand this with an example. You sell shares of ABC Ltd without buying them, with the hope/thought that its price will go down. So how to do this?
You borrow 100 shares of ABC Ltd from your stock broker. You sell these 100 shares in the open market at Rs 500 per share and you get Rs 50,000. If the price of ABC Ltd goes down to Rs 450 a share, you buy 100 shares at Rs 45,000. You then replace the shares you have borrowed from the broker. The difference (Rs 50,000 - Rs 45,000 = Rs 5,000) is your profit. This process is also called short selling.
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Note: If the price goes up instead of down you suffer a loss. This is why you must set a stop loss. If the share is Rs 500, you set a stop loss of Rs 440. You stand protected as your maximum loss is capped at Rs 500 - Rs 440 or Rs 60 a share.
Mistake Number 1 : You trade against the market
Take a look at intraday traders. If a stock falls by 5% or 10%, intraday traders rush to make a purchase with the hope of short selling and making a profit. So, should you buy a stock which has fallen down by 5% or 10% with the intention of short selling?
You must never trade against the stock market in an intraday trade. Always go with the overall market trend (go with the Nifty or Sensex) and do not buy stocks which have fallen by 5% to 10% in a single day.
If you are an intraday trader, you are always in a hurry to book a profit and hold on to losses. Put this down to emotions.
Trade with a calm mind and maintain a sound balance between personal life and stocks. You need to set a target and also a stop loss before buying or selling stocks in an intraday trade.
If the stop loss you set gets triggered, don't change the stop loss price, but exit immediately.
It's tempting to trade on juicy rumors and hot newspaper tips. No one can predict which stocks go up and which stocks go down. So keep this in mind when investing your hard earned money in intraday trading.
Don't treat rumors and hot newspaper tips as the absolute truth. Be Wise, Get Rich.
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