Guidelines for intraday trading
Intraday trading is tough in comparison with swing or positional trading. In a limited period of six hours you have to decide on stock selection, entry point and exit point
Intraday trading is tough in comparison with swing or positional trading. In a limited period of six hours you have to decide on stock selection, entry point and exit point. This induces a lot of stress and anxiety. Probability of failure in intraday trading is extremely high.
You need to trade like a robot without any emotions. If a trade doesn't work in your favour you shouldn't be filled with negativity and enter into revenge trading. Trying to recover your loss at any cost will not help. Kill your emotions and trade like a robot.
Your stop loss should be fixed. Novice traders set a profit target, but professional traders focus more on the stop loss. The setup for daily limit loss is based on individual perception. The risk amount is fixed.
Trading in stock market itself is a big risk, but we can control the risk. Novice trader will not have any stop loss strategy. Limiting stop loss is beneficial.
In the live market, you don't have a control on the profit as it depends on the performance of the market, but the risk is in your control.
If you are running any business, some overhead expenses like electricity bill, rent, salaries of employees, etc., will have to be incurred. Likewise treat stop loss as the cost of doing the business. So, whenever, a stop loss hits don't get emotional and treat it as an overhead cost and never over trade.
If you have made a loss in one particular trade, you try to recover the loss by taking up another trade and eventually it may not succeed. Over trading benefits only, the brokers. Professional trader will pick up one or two high probability trades. Less number of trades is better.
If you take up 20 trades in a month and 10 are in your favour and 10 are in loss, you will still benefit if your risk reward ratio is 1:2. You can make a profit of 10 per cent on your capital.
During the market hours, it is better to stay away from the social media. Do your own analysis and take up a trade. Suppose you have invested in a particular stock or an index and if you hear an analyst sharing a contrary view on this, you would be disturbed so refrain from social media during market hours.
Maintain a trading journal. It records the number of trades taken, helps in understanding which strategy has benefited you and why you failed in some trades. Trading should be treated like a business and not like a gamble.
Finally follow all the above rules diligently in order to earn consistent profits.
(The author is a homemaker who dabbles in stock market investments in free time)