Most people use the terms traders and investors interchangeably, under the incorrect assumption that they mean the same thing - anyone who puts their money in the stock market in the hopes of making money. This could not be further from the truth.
A trader is someone who buys stocks at a low price and tries to sell them at higher prices to make money. The long-term vision of the company, its financials and other details do not concern him. He is basically in it for the quick money. An investor, on the other hand, is in the game for the long haul. These individuals study the company, its financials and then decide if it is worth investing it.
If you fall into the trader''''s category, read on to ensure you make the most of your day trading.
1. Using the right strategy
Equipped with a good set of strategies, any newbie can become a professional in no time. If you constantly keep looking for the best stocks for intraday trading tomorrow, you can get recommendations from expert traders online.
The right stocks
Intraday trading involves buying and selling stocks in the market operation hours of the same day. For this form of trading, if you choose stocks that are quite liquid, you would have no troubles executing your day trading strategies. On the contrary, if your chosen stocks are not liquid enough, for instance, small-cap or mid-cap stocks, you might run into problems, turning them into delivery instead of intra-day.
Process of choosing
The process of choosing is as important as the stock itself. Experts agree that it is best to choose stocks when the trading volume is high. This is because a high trading volume represents a high chance that the prices will go upwards.
It is also advisable to look closely for a stock''''s resistance levels, i.e. the price points which it does not seem to easily overcome and hovers around it for a while. When it breaks those barriers, it is a good idea to buy because it represents high bullish trends.
Many experts differ on many aspects of trading; however, agree on the following investment strategy. It states that rather than investing all your trading funds into one form of stock, try and diversify your money into multiple stocks. This way, you are relatively secure from market fluctuations and can better safeguard your funds.
If one stock tanks, you still have the chance to reduce overall loss by compensating with profits booked on another stock.
2. Trading the right way
Although with time, you would have either formed your trading habits or will form them eventually, it is always good to traverse the beaten path first, especially with the stock market.
Fixing buyer''''s fallacy
Buyer''''s fallacy is the phenomenon where buyers regret their purchase in a short while after making it. It could be the selection of a particular stock or the price of purchase. One of the best methods to deal with it is to fix your entry and exit prices. When you do this before taking a position, you get an objective view of the market and do not get carried away.
Setting stop loss
The market does not always behave as you want it to and understanding that you might have a few losses is part of the game. However, with a little careful planning, you can minimize your losses.
How do you do it? Well, by setting stop-loss limits. Suppose a stock that you bought starts to fall instead of rising as you expected. You should set a limit until which you would allow it to fall before you sell it off. This way you can minimise your losses.
Booking target profit
To put this simple in terms, you should avoid getting greedy. It can be tempting to see a stock rise constantly and waiting longer and longer before you sell yours. However, if you keep doing that, it might go the other way around, only to your dismay.
Set a specific profit target for yourself and once it is reached, square off your position. You may also want to pay attention to your broker''''s intraday calls to help set target profit.
3. Research and timing
Knowledge and its application are two separate things. If you do not know anything about the market and merely follow trends, you might not be very successful.
It is a little risky to trade during the first hour or so of the day - the market tends to be volatile during this time. If you resist your urge to position yourself during this time, you can have a better idea of the trade.
Experts suggest the best time to take a position in the market to be between noon and 1 pm.
Taking your time to research the companies behind the stocks you are interested in, is a necessity if you want to make good profits. Keep an eye out for mergers, acquisitions, stock splits and similar affairs will serve you well, given that these events heavily influence stock prices. With more and more research, you would know well ahead of time which stocks are the best stocks for intraday trading tomorrow.
Choose your broker and the subsequent trading platform with detailed consideration. A good broker would give you access to a support team that solves your problems, especially in the beginning phase of your trading career. Their research team also advises clients from time to time on the optimum targets to close and open positions.
4. Follow some rules
Every new trader should follow some guidelines recommended by experts for success. For experienced traders, setting up their own rules basis experience is also a good idea.
Moving with market
Do not challenge the market if you are new in the world of intraday trading! Even if you have enough reasons to believe that there would be surge coming soon, make sure you close all open positions for the day.
Testing the water
As a beginner, you should refrain from investing all your trading money too quickly in one go. Always test the waters with a smaller amount to understand how the market works.
Curb your emotions
Do not get carried away by sentiments while trading. The internet is full of false information and rumour mills. Treat everything you see or hear about the market with a grain of salt before you verify its authenticity.