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Intraday trading account
There are two primary ways stocks create wealth. One is through long-term appreciation. This involves buying a stock and holding it for several years, profiting from the growth of the company. On the other hand, day trading (through an intraday account) is where shares are bought and sold the same day. The profit would be the difference between the buying and selling price.
How intraday trading works
To do this kind of trading, you need to have an intraday trading account. Only members (brokers) are allowed to trade on the stock exchange so you need to open a day trading account with a brokerage firm like Angel Broking before you can jump into the fray.
Having an intraday trading account is the first step. But you must understand the basics of intraday trading before putting any real money in it. You must be able to understand market trends if you are to make any money from it.
Once you’ve opened your intraday account, you can go ahead and trade. As we have mentioned above, day trading involves buying and selling shares on the same day. There is no exchange of shares since your buy order is squared off against your sell order on the same day. Day traders rely on price volatility to make gains. Generally, they make a large number of trades, making small gains from each.
One important concept you should understand while opening a day trading account is the concept of margin. This allows you to trade in large volumes. You have to pay a margin to the broker before you start trading. This is a percentage of the transactions you carry out. If the margin is 10 percent, and you want to buy or sell Rs 1 crore worth of shares, you will have to pay Rs 1 lakh to the broker. This increased exposure will raise your chances of making a profit. However, conversely, it may also increase your chances of losses. It’s better to proceed with caution while using this leverage.
Short selling and long buying
Will prices go up, or are they headed downwards? Your strategy will depend on which way prices are headed. If share prices are falling, you adopt the short-selling approach. In short selling, you are selling something you don’t own. Let’s say the share price of ABC Corp is at Rs 200 and you expect it to fall to Rs 150. So you short sell 100 shares of ABC Corp at Rs 200 by borrowing from a broker. When share prices fall to Rs 150, you buy shares at that price and return the shares to the broker. In the end, you would have made a profit of Rs 50 per share and a total of Rs 5,000.
When share prices are rising, you use the long buying strategy. Let’s say you expect the share price of ABC Corp to go up from Rs 200 to Rs 250. You then buy 100 shares of ABC Corp at Rs 200 each. When the share price does go up to Rs 250, you can sell the stock and make a profit of Rs 5,000. Of course, the upside can be unlimited. If the price increases to Rs 300, you would have made a profit of Rs 10,000.
How to identify trends
As we have mentioned above, the profits you can make from your day trading account depends on how well you can identify market trends. One of the essential tools in the day trader’s kit is technical analysis, which uses past price trends to give you an idea of how prices will move in the future.
Day traders can rely on various charts and trend lines to discover how prices are moving. You can make use of information from line charts, bar charts and candlestick charts to help you find out price trends.
A critical tool of technical analysis that day traders rely on is support and resistance levels. These can be identified by using trend lines to draw points at different price points. The upper price band is the resistance, while the lower band is the support. The strategy varies on how the current price is relative to these levels. If the price is moving towards the resistance level, it may not be an excellent time to buy long since prices could hit the resistance and fall back. When prices reach the support level, selling short won’t be a good idea, because prices could bounce back from that level.
What stocks to buy?
Which stocks are the best to trade? The general principle is that a day trader should buy or sell liquid shares. Any profits that are made will depend on how fast you can trade in stocks. Stocks with high liquidity are easier to sell than those that are illiquid. However skilled you might be at identifying price trends, you won’t make money unless you sell and buy at the right time. So look for stocks that have high-volume transactions.
Another aspect you should look at is the volatility, which is the lifeblood of the day trader. Stocks with high volatility enables you to make large profits, but the risks are higher as well. For those who want to play it safe, a moderate amount of volatility with high volumes could be a better option. They can take advantage of small movements in price to make profits.
How to succeed in day trading
There’s no surefire way of predicting success in day trading, but here are some pointers that should help you after you get going with your intraday trading account.
- Gain knowledge: You will need to keep abreast of the latest national and international events since these will affect stock prices. If the economic outlook looks gloomy, stock prices could take a tumble, as could election results.
- Don’t panic: Day trading needs a cool head on your shoulders. If you panic, and rush to close your transactions before reaching your target, you won’t make money. On the other hand, you should also know when to cut your losses and get out when things don’t go your way. There’s nothing worse than pouring good money after bad.
- Keep expectations modest: Don’t go for windfall profits. It’s always a better idea to take a decent amount of profit from a large number of transactions.
- Use stop loss: Stop loss is an invaluable tool that helps you keep your losses within limits.
Choose the right broker
You should choose the right broker who charges you low brokerage because you will be making a large number of transactions. Some amount of support, like technical analysis and research reports, could also be helpful.
Why Angel Broking is the right choice
Here are some of the reasons why Angel Broking is the right choice for your intraday account:
- Long track record: It’s been in the industry since 1987.
- Latest technology: Angel Broking uses the newest technology to enable smooth transactions.
- Guidance: You get the benefit of technical and fundamental research