Every long term investor was once a Intraday trader.
If you avoid the below three mistakes, intraday trading is definitely profitable.
- Beginners usually start with Intraday trading because of one main reason, Leverage. They think with just Rs.10,000, you can actually buy stocks worth Rs. 1 lac to Rs.5 lac. (10 times to 50 times margin). So even a rupee gain in stock price, could result in huge gains for you. But they forget that, a one rupee decline in stock price could wipe out your capital. The thumb rule should be, do not take higher leverage.
- Converting your intraday trades to positional trades. You scan some stocks and finalize to intraday trading in a stock, you buy 100 shares of ABC company stock, expecting it to go up and lock your profits. But by the end of the day, it neither went up nor gone down. But you want to wait another day, since you haven’t made profits. So you convert your intraday position to NRML.
But next day, the stock that you bought which you were expecting to go up, gaps down. Now you are in loss, all your emotional ride kicks in. You start to think, if I hold onto it for few more days, the stock could recover back to entry price, so that you could exit without any loss, so you start praying(instead of trading) that the stock could just recover.
Now your holdings turns into a long term investment, as you would wait for the stock to bounce back. Eventually you lose significant portion of your capital and realize that it doesn’t make any sense to exit now and book loss, instead you just hope that one day, the stock would bounce back. But that one day, will never come.
This is how many traders who start with intraday trading ends up as a long term investor and finally blame that stock market is gambling! So again the thumb rule is, if its intraday, just squareoff that damn position before 3:20 pm, no matter what.
- You never start a business without a business plan, then why do you trade without a trading strategy?
Trading with a statistically proven strategy is very essential to be profitable in trading business. Most of the intraday traders are working professionals, and its hard to monitor the price charts all the time due to day job. So you need to design a trading system that
- requires less screen time
- should be easy to execute
- should be quantitatively tested with historical data sets to check if its really profitable
Once you do this, start deploying the actual capital and trade. Do not paper trade, its useless. Only when your money is at stake, you will learn the business. So start with the capital that you can afford to lose, execute the trades at least for 3 months, make sure you follow the trading rules that you have designed. Do not override your trading system, when its tested across multiple years and have proven data sets that its working, why do you fear when you see continues losing streaks? That is why it is important to test your trading strategy, or else you will quit trading or look for another strategy when you face just three continues losses.
Remember, flawless execution is the holy grail. Remove your emotion, be a robot. Just follow your trading rules, that’s the only way to be a profitable trader.