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.
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