What is day trading and its advantages?
Day trading-Buying and selling of shares on daily basis is called day trading this is also called as Intra day trading. Whatever you buy today you have to sell it today OR whatever you sell today you have to buy it today and very importantly during market hours that is 9.55 am to 3.30 pm (Indian time).
Advantages of Day Trading –
a) Margin trading – In Day trading you get margin on your balance amount means you get more leverages (amount) on your available balance amount to do day trading this concept is called margin trading. Margin trading is only possible in day trading and not in delivery trading. How much extra amount (margin) you are going to get that totally depends on your broker, or your online system brokers. Some broker provides 3, 4, 5, and 6 times extra margin. If you do margin then you have to square off your open trades on the same day (means if you bought shares then you have to sell and if you sold shares then you have to buy)before market time (that is 3:30 PM) finishes.b) Second important advantage is that you have to pay is less brokerage (commissions) on day trading (Intraday) as compared to delivery trading. This brokerage again depends from broker to broker (or on your online trading system). c) In day trading you can sell and then buy this is called short sell which you cant do in delivery trading. You can sell shares when prices are falling and then buy when price falls further.
Disadvantage of Day Trading
a) As you are benefited to get more extra amount to trade (that is margin trading) and get more extra profit it is also equally true that you are also taking more risk of loss.b) At any cost you have to square off the open transaction before 3:30 PM (especially if you are doing margin trading) at that time the price may not be in your favor.
Basic Requirements for Day trading
A successful day trader or share market trading requires couple of disciplines and following requirements –
1) PC with internet – If you need to do it yourself then you need to have a PC or else you can do it in internet café also. A PC with good internet connection speed. The internet connection should not be slow or should not face any other problem especially in Day Trading.
2) Online Account (Demat Account) – You need to open online share trading account with any of the available banks or online brokers.Points to remember while opening online accounta) Make multiple enquiries and try get low brokerage trading and demat account.b) Also discuss about the margin they provide for day trading. c) Discuss about fund transfer. The fund transfer should be reliable and easy. Fund levitra orosolubile transfer from your bank account to account and visa versa. Some online share accounts have integrated savings account which makes easy for you to transfer funds from your saving account to trading account.d) Very important is about service they provide, the research calls, intraday or daily tips. e) Also enquire about their services charges and any other hidden charges if any. f) And also see how reliable and easy is to contact them in case if any emergency. Emergency closing or squaring off trades in case of any technical or other problems
How to choose shares (stocks) for day trading
In day trading, traders mostly wish to do buying and selling on small profits or else they look for overbought or oversold shares. Taking into consideration these important points following basic things you should look in for shares while choosing them for day trading.- Price Volatility- Volume (quantity)What exactly these terms mean and how to use them while Day Trading.
Price Volatility – The Price volatility means the movement (up and down) of share price should be more (or high) through out the day. In other words the fluctuation in share prices should be on high rate so that it will be easy for you to buy and sell on different prices. Suppose if share is moving up and down in very narrow range then on what price you will buy and sell? So it is always better if you choose shares which have high volatility in price movement.Do you want to know how to find out the high volatility shares then please click here?
Volume (quantity) – Volume means trading quantities. The shares which you choose for day trading should have high volumes (or high traded quantity).Why this is required?The high volume indicates that there is more liquidity. Liquidity means lots of transactions had took place on this share and more people are interested to trade in this share. This will ease your trading job because you will get more exposure to the price to buy and sell at anytime. Due to high volumes there will be also high price fluctuations.
Points to remember for day tradingFollowing are very important points to be always remember by day traders.Entry & exit points, stop loss limits, profit targets, your desired risk/reward profile,amount of capital to be committed to trades, how long you need to hold the share if incase it is against your favor.
Why it is required to practice day trading before starting actual day trading?
It’s important to do practice or paper trading before you starts actual trading. Following are the few reasons, 1) Very importantly you will come to know how to place buy/sell orders, and will become familiar and perfect about using your trading system. 2) You will gain confidence in yourself. 3) The fear of trading will vanish. It is very important to keep fear away while doing day trading. 4) You will become active to enter and exit the trade. It’s vital important that you must be pretty fast to enter and exit the trade (i.e. open positions).