Day Trading Strategies
Intraday or day trading is when you buy and sell a stock on the same day. It's like taking a bet on where the share price is going in the next few h...
Intraday or day trading is when you buy and sell a stock on the same day. It’s like taking a bet on where the share price is going in the next few hours, minutes or seconds. If a day trader thinks the price of a stock is going up he will buy it, hoping to sell it later for a profit. If he thinks the price is going down he will sell it, hoping 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.
Some focus on the very short-term; buying and selling a stock several times a day for extremely small profits. More common strategies amongst retail traders involve ‘taking a position’ in a stock, by holding it for a longer period.
Event trading or trading the news is a strategy that exploits movements in price after new information hits the market. For example, if Reliance Natural Resources announced the discovery of a massive gas field their share price would rise. Event traders would try to quickly predict how much and for how long it would rise and act accordingly.
One of the more basic day trading strategies is simply riding the trend curve. In this kind of a trading technique, the trader will just assume that the historic movements of the price, if they have been following one consistent trend for a period of time, Eg: moving up constantly, will continue. The trader will then purchase the stock and ride the upward movement until he feels the need to sell it.
Then there are traders called “Swing traders”.These people will try and time the market based on the ’swing’ that they expect to happen to the prices. They will attempt to predict the point where a stock that is on the rise is about to start falling, where they will sell it, and the other way around as well.
Trading a range is when the trader assumes that there is a limit to how high the price of a stock will rise or how low it will fall. These limits (called support and resistance lines) are often based on recent prices or levels at which the price has changed direction before. Someone who is trading a range will buy a stock when it falls towards the bottom of their trading range and sell it towards the top.
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 to 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
Chaitanya is from India, and he is part of Moneyvidya.com, where you can find by proven experts with a transparent track record. Moneyvidya has been integrated to both BSE and NSE, so you can find NSE tips as well as here.