How to make money doing intraday trading? Is it even possible to trade intraday for a living? Is Intraday trading better or should I stick to positional trading or investing? How much money can I make once I learn the rule of intraday trading?
If you are new in trading and have same questions as above please read on.
What is Intraday trading?
Intraday trading means you buy and sell the shares on the same day before the market closes. If you find a share of an index in momentum then you can buy it and sell it higher to earn the profit. Or you can even sell it without owning it and later buy at the lower price to earn the price difference.
The goal of intraday trading is solely to earn profit without talking ownership of any share.
Pros and cons of intraday trading
Benefit of Intraday trading:
- In intraday, you buy and sell shares on the same day, so there is no overnight risk associated with it. For example, if you buy a share of company A and after the market hours, some bad news came then the next day you can expect the share to open significantly lower, hence giving you losses. But with intraday trading, you do not have to worry about this as you will square off your position before the market closes for the day.
- You get higher leverage on your amount. So depending on which type of share you are buying you get up to 10 times the limit of your trading balance. So for example, if you have 10000 rupees in your trading account and you want to buy group A shares then you can buy up to 1Lac rupees worth of shares. Exciting, isn’t it? This limit varies from broker to broker.
- In intraday trading, you can buy a share and sell it later or sell a share first and later buy it. So you can do it anyway around, as the shares do not go or come out of your Demat account. This is a big benefit compared to delivery based trades who can only be a buy. For positional trading, if you have to sell you will have to do it in derivatives only.
Drawbacks of intraday trading:
- As intraday trading provides good leverage, most of the people who do intraday trading get very emotional while trading. It becomes a double side sword for them.
- You will have to do both the transactions ( buying and selling) on the same day. So the time is very less and it’s like you are in a battle fighting for your share of money with many other traders.
- If you have not come prepared for trading you will end up buying or selling random stocks which will lead to losses. This happens with most of the traders. That is why more than 90% of traders lose money doing intraday trading.
5 golden rules to follow to earn money in intraday trading
- Make you plan before you enter the trade
Consider intraday trading as your war room and you should be prepared with your entry plan, exit plan, and other plans. You will feel more confident and the chances of your success will be higher.
- Trade in the direction of long term established trend
You might have heard it “trend is your friend. And this is where you need to apply it. So if you want to buy a share for intraday, please check major timeframes like 15 minutes, hourly, daily are in an uptrend or not and you can buy on a retracement or breakout of a short period time frame. This way odds of your success will be higher. If in the long-run stock is directionless then avoid such type of stocks.
- Have Money management and risk management plan before you place your first trade
If you want to buy a share because you are thinking it will go up and you have reasons supporting it, you should buy it. But you should not buy with the full amount you have or your broker is providing to you. Instead, you should first know how much money you are ready to lose based on that your money management and risk management should be prepared ( I prepare it on excel ), so even if the trade goes against you it will not hurt you emotionally.
- Trade with both long and short opportunities
As we discussed earlier that intraday trading provides us with the benefit of trading both long sides as well as the short side. If the stock trend is up we should look to buy it but if the stock trend is down we should look to short-sell it, thereby earning profit whichever direction the stock goes. Because remember, in intraday trading our aim is to earn profits.
- Have a trading journal
You should have a trading journal, where you should record all your trading activities and why you take those actions. It will help you to grow because you can analyze your own trades and why you took them. So you can rectify if you have made some errors.
Which is better for You: Intraday or positional or Investment?
Many people have this question whether they should go for intraday trading or positional trading or go with investments.
Well, it depends on the type of personality you have. And each one of us has a different personality. More than time intraday trading demands your tough mental attitude. You can not earn in each and every trade. Also, you may have a streak of days with losses. But if you stick to your plan and execute it you will earn money.
For people who are doing some kind of a job can also do intraday trading, it is not always that you will have to give full time while doing intraday trading. You can develop systems that require your limited amount of time.
You can also do all of them together and after doing it for 6 months you can decide which one suits you most. Many people set aside different capital for different purposes, like 10% for intraday trading, 30 % for positional trading and remaining for investment purposes.
How much money I can earn doing intraday trading?
This is another question which many newbie’s ask. There is no direct answer to this question. There are people I know doing intraday trading for a living earning a good amount. And many I know who lost their entire capital. But as a beginner, your aim should be to follow your rules, even if you cannot earn money from the market. Once you get the hold of the market ( say after 3-4 months of regular practice and improvement) you can expect to earn 0.5% of your capital. And it’s a very big amount.0.5% a day means 10% a month and nowadays bank FD is giving you 6% annual returns.
So if you practice hard then the reward is definitely very fruitful.
Summary of earning money through intraday trading
To summarize, you can earn money through intraday trading if you are disciplined, have a trading plan, have risk and money management plan and are not affected emotionally by few trading losses you incur. Remember, persistence is the key. You should have a trading system in place before you start intraday trading. But the trading system is just 20% of your overall trade plan, rest is mentioned in the article.
All the very best for your trading.
Thank you very much for reading this. How do you like this article? Please write in the comment box. Also what other topics you want me to write?