Few Tips for day trading in India
Before you start day trading in India, Find out is day trading meant for you?
DON’T CHASE STOCKS
Stocks go up because people (usually large numbers of people) are buying the stock. As a trader, this is usually not a good time to also be buying. As such, be very cautious about buying stocks that are rapidly moving away from you. The true money in stocks is made by buying stocks prior to a sudden move, not during a sudden move. The one possible exception to this may be if there is some very positive news that has caught the markets off guard and/or if the news is so outstanding that there is a high probability that the stock may benefit for multiple days. Sudden moves tend to reverse and if you get into the habit of chasing stocks that are moving up, more times than not you’ll end up paying overly high prices and/or getting caught in a downward move shortly thereafter.
Again, generally, people that buy late are buying on pure emotion (greed and fear). Those are the two worst reasons to buy anything – not just stocks. True, you may miss out on the stock, however, in most all cases, it’s better to wait and find another stock, than to pay too much. Patience in the stock market is very important; usually, you’ll do better by avoiding the temptation to “jump” when that impulse is largely a result of a move in the share price alone.
DON’T RUSH INTO ANY TRADE
This is along the lines of the above comment; however, it is worth elaborating on. Often time’s stocks will give you many chances to get into them at current (or sometimes even lower) levels. Generally, there are few cases that require sudden action if you are really careful in how you trade. Sometimes the best trades are ones in which you wait patiently for the stock to come to you. If you feel the need to rush to order a stock, that’s sometimes (not always, but sometimes) a warning sign that you are acting not on a well laid out plan for the trade, but an impulse to “get into a trade” regardless of whether or not the stock is trading at what is really an ideal price.
Keep in mind as well: it’s often not a bad idea to take up positions in a trade little by little. If you plan to own 1000 shares, consider buying 300 shares and then seeing how the stock trades. Often times this will allow you to better judge the market and take advantage of Intraday weakness. If you do happen to miss purchasing the additional shares, there is almost always another trade you can put the cash to work in.
TRYING FOR TOPS AND BOTTOMS
People tend to have a desire to buy at the bottom and sell at the top. Not just near the top, but the “exact” top. It’s simply human nature to want to be the best at something and day trading in India is no different. Most people that take up day trading in India want to be the best they can be. I would much rather give away 10% at the top and 10% at the bottom. You will drive yourself crazy if you punish yourself for not selling at the high or buying at the low, as it’s almost impossible for most people to do on any sort of consistent basis. Far more often than not, you’ll simply end up missing the trade. Even missing a top or bottom by 20% is nothing to worry about. As many a successful trader has said, “You can worry about the tops and bottoms and I’ll worry about the remaining 60%”. In fact, it’s often much safer to wait until a stock clearly signals a move either up or down before taking up your position.
DON’T GET GREEDY
Two of the biggest emotions a trader has to overcome is fear and greed. Many traders fall victim to greed once they see a trade become profitable – simply by not having a firm exit point in mind. It’s generally best to decide on what levels you wish to sell prior to entering into a trade to avoid this. If you feel yourself trying to justify higher levels of the stock and/or ignoring the current profit “as though it were nothing” you probably need to stop and consider not only the value of your profit but the current risk to it by holding longer.
Often times traders who are successful tend to lose respect for the actual value of a dollar. Regardless of how much money you have, you must not lose sight of what each trade produces and the value of the returns in relation to the capital used to produce those gains. An example might be someone with several million dollars. If this person puts $10,000 in a position and saw it produce a gain of $2,000 they might not realize it’s time to take profits. While $2,000 is nothing when compared to several million, a 20% gain should always sound alarm (i.e. Sell) bells in a trader’s head. A common method to help combat this is to look at your trades strictly from a percentage standpoint of view, rather than a dollar standpoint. This allows you to always calculate gains and losses with consideration to the amount of capital at risk for any given trade.
In the movies, “greed is good”, but in day trading in India, it’s generally an emotion that does little more than getting in the way of clear and level headed thinking.
Generally, a trader should meet buying with selling and vice versa when it comes to the stock market. Typically, stocks (especially when considered on an intra-day basis) will only go so high, or so low, before tending to attract the next group of contrarian thinkers and switch direction. Often times crowds (such as the markets) are wrong in their actions and overreact to the up or downside. When the “markets” as a whole are moving up dramatically or down dramatically, there is a strong case to be made that these actions ultimately will be wrong or will tend to reverse simply as the contrary views of things build on each side of the fence.
If you can train yourself to go against your natural emotions, you’ll tend to be able to keep a clearer outlook on the markets. When stocks are being bought, you have to train yourself to think “These stocks are buying bid up too high – maybe I should sit back and wait”. By the same token, when there is a great deal of panic selling in the market, you need to train yourself to think “Wow, look at all these prices falling – I may find good deals here soon”. It’s more difficult than you think to be “happy” when the markets are falling and “cautious” when the markets are rising. However, normally taking this view of things will help improve your trading over the long haul. The old saying, “Buy when there is blood in the streets” stems from this basic idea of going against the masses on Wall Street.
STAYING ON THE SIDELINES
Sometimes being in cash gives you the best strategic position from which to trade – and this is often an overlooked fact of day trading in India. Remember, you can’t take advantage of market dips if you are already in the market! In my view, it’s better to be out of the market more for day trading in India than in the market. This will allow you to get in and out with profits quickly and be on the sidelines should dips occur. It also drastically reduces the risk to your capital as compared to just sitting in stocks that aren’t moving and/or holding trades for excessively long periods of time. Try to be out of the market more with your trades and in the market more with your investments (as long as they are good investments of course).
Some people use stop orders quite often; some people hardly use them at all. In my view, stops are best used to protect a nice profit and/or limit downside risk in a trade that isn’t acting as you think it should. How a stop is used (or placed) is largely dependent on the individual stock and how the overall market is behaving at any given time as well.
Often times using stops also help to remove some of the emotions from trading. It’s far easier to place a stop on a trade than watch it trade tick-by-tick and try to decide the exact moment to get out.
ABOVE ALL ELSE
One of the most important and most widely overlooked aspects of being a successful day trader is working on your personal life and how you conduct yourself. Most of the personality traits required to be a successful trader are also the traits found in someone that is said to have Character.
Rarely have I met a successful trader in India that I didn’t like. I’ve found – almost without fault – that people who are successful in the stock market are also fairly successful at “life”. These are people that show integrity in their lives, as well as consideration and honesty. They are people that deal with others in a generally polite and honest manner. As mentioned above, rarely have I run into a successful trader that will “point a finger” or blame others for their mistakes. Integrity, honor, character, and fairness – these are all qualities that not only make up a general character in a person but also are the foundation of a successful trader.
I’ve often said if you aren’t naturally “humble” that the stock market will do an excellent job of teaching you how to be 🙂 Always keep in mind that the stock market is nothing more than dealings between human beings – it’s mere people doing business. And how this business is done is a reflection of all involved, as well as you yourself.
To be successful in the market, you must start by getting your house in order when it comes to yourself and how you deal with other people. If you are a dishonest person, or you blame others for your own mistakes or have a lack of integrity in your character, chances are higher than this will come back to haunt you in the end – not only in life but in the stock market.
Discipline, fairness, and honesty – those are all traits I have found in successful people and above and beyond all else, successful traders. My simple words of advice to people entering the stock market are these: “Take stock of yourself before you take stock from anyone else” 🙂