Intraday trading in India got a boost after rolling settlements were introduced in 2001. Under the T+2 rolling settlement, when you buy or sell a stock you have the opportunity to cover the position the same day. If you fail to do so, then you have to compulsorily either take delivery of shares or give delivery. An intraday trader prefers not to bother the demat account since intraday trades are squared off and the net position is zero.
It works both ways; you can buy and sell a stock by end of the day or you can sell and buy back shares on the same trading day. Intraday trading is obviously a leveraged game. That means your broker will allow you to take a trading position that is a multiple of your margin money in the trading account. To that extent, it is more risky and requires a different set of skills and mental make-up compared to delivery trading. What can make you successful in intraday trading?
Here are the 7 habits of successful intraday traders:
1. They focus primarily on managing risk
When you are running leveraged positions in intraday trading, managing risk becomes a lot more important. Successful intraday traders believe, and rightly so, that risk is what you can control, not returns. Hence, that should be your focus. They set strict limits for capital depletion during the day, during the month and overall. Successful intraday traders also have the habit of ensuring that every trade is backed by a strict stop loss. They never get into a trading position without defining the maximum loss on the trade. They also make it a point to stay out when the markets become difficult to understand.
2. Good intraday traders learn from their mistakes
Successful intraday traders do make mistakes in trading; and in fact a lot of them. The difference is that they learn from their mistakes and do not repeat them. There are occasions when stop losses get triggered consecutively. Smart intraday traders make it a point to sit back and evaluate the core reason and take immediate corrective action. In fact, these traders strongly believe that even if money is lost in a trade the lesson should not be lost.
3. Smart intraday trader focus on flawless execution
How you actually execute the trade makes a lot of difference to your performance and this is more so in case of intraday trading. Smart intraday traders are quick to shift to a phased approach to buying when markets are volatile. They also use market orders and limit orders to optimize the trade price and get the best deal in the market. Such traders flawlessly use technical charts to minimize their risk by buying as close to support levels and selling as close to resistance levels. Their focus is also on reducing execution and statutory costs to the bare minimum.
4. They always trade with a positive risk-return trade-off
Profit targets should be a function of the risk entailed in your stop losses. For example, you cannot have a stop loss of Rs5 and a profit target of Rs4. That is a negative risk-return trade-off. Smart traders always ensure that the profit target in any trade is a multiple of the risk and calibrate their stop losses and return targets accordingly. In fact, successful intraday traders use a favourable risk-return trade-off as a key criterion for trades.
If you are trying to chase a 5:1 risk return trade-off then you are surely building castles in the air. Intraday trading is all about realistic expectations. Smart intraday traders are quick to appreciate that your returns are a function of risk. There is nothing like a free lunch in economics and there is nothing like a risk-free trade in the market. Successful intraday traders always set and mould their expectations as per market reality.
6. They never try to beat the market
If you believe that you can be a successful intraday trader by taking a contrarian position in the market, then think again. You may occasionally succeed, but a truly seasoned intraday trader will always ride on the side of momentum. Successful intraday traders never try to predict or outperform the market. Their focus is purely to understand the underlying trend in the market and play the stakes accordingly. Humility is the key.
7. Operate with discipline and as per a trading plan
There are no successful intraday traders without discipline. Set your trading plan, keep a backup plan of action and execute your trades. Discipline is not a skill or a quality. For successful intraday traders it is a habit and a way of life!
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