Guide to Day Trading

Guide to Day Trading

The meaning of intraday trading is fairly self explanatory to begin with, it simply means you are buying and selling a stock on the same day. The strategy is similar to betting on what's going to happen to the price of the stock in the next hours, minutes or even seconds. If an intraday trader believes that he has certain stock tips where the price of a stock is going to go up, he will purchase the stock. If he believes that it will fall, he will sell the stock and try to buy it back later at a lower price.

Day trading has evolved to become quite a popular trading strategy in India since a lot of brokers offer the option of trading on margin, which means trading on borrowed money. In addition, the broker's fee is also lower for day trading. It is however quite a risky game to play. Using margins to trade for day trading where the speed of trades happening can be extremely fast ends up meaning that massive losses are possible. On the other hand, this also means that large profits are also possible which usually acts as temptation making day trading so popular.

Trading Strategies

One intraday trading strategy has an extremely short term kind of focus. This occurs when there is multiple buying and selling of the same stock for smaller profits. However, a more popular strategy is when a trader '˜takes a position' on a stock which means holding it for a longer period without multiple buying selling.

Another strategy is termed as "event trading" or often called "trading the news". This is when there is a movement in price based on certain news that may have recently broken about a company that is publicly listed. For example, if Reliance petroleum has recently discovered a whole new oil field, this could affect the price of the stock to rise. In this kind of a scenario, Event traders will try to predict how much the news will affect the markets, for how long and then trade accordingly.

An interesting strategy called "riding the curve" is also employed by day traders quite often. In this kind of trading, the trader will assume that the current trend that the stock has been on, will continue and he will trade accordingly. This simply means you buy a stock when its rising and sell one which is on its way down. These traders are also called "Swing traders" and they will often say it themselves that this can be a more risky trading strategy than others.

When a trader assumes that the price of a stock will keep fluctuating within a certain price range, this is called trading a range. This upper and lower limit also known as support and resistance lines are often based on recent prices that have been seen. A trader trading a range will buy a stock when its at the lower limit and sell it at the upper limit.

Yet another day trading strategy is "short selling". This is a strategy which can be used in combination with any of the above mentioned ways of trading. This strategy involves the trader trying o profit from a stock on the way down. Here the trader will borrow the shares from his broker and sell them immediately and hopes that the price will continue to fall so that he may buy them back at a lower price and return them to his broker. Short selling or "shorting a stock" is fairly controversial and it is a practice highly regulated and restricted by SEBI in India.