Intraday Trading vs Long term Investing
Intraday trading and investing in stock trading market are completely different. However for common people there is no difference, they consider both as same. There is a huge difference between the two, people who buy and sell within the same day (or intraday trading) are called as day traders. Whereas people who put their money in particular shares over a longer period are called as investors. These people wait for the shares to increase in value and sell them off at a higher value.
Intraday trading is very complicated unlike long term investing in shares. In case of long term investing, the only thing that an investor needs to know is the fundamentals of a company you are investing in, the market trend and overall economic conditions. However day trading is risky, the trader should make quick decisions and be very proactive with gathering and determining the technical view of the company as well as over market for the day in case of intraday trading. Few minutes can make or break a day trader’s fortune.
Smart Intraday Trading
Smart intraday trading starts much before you actually start trading. When it comes to intraday the profit margins are less and the volumes are high, so it is imperative that one should get the best brokerage. When it comes to brokerage there are no hard and fast rules, one can convince his relationship manager where he is having his trading account to offer him competitive brokerage. The other things that one should consider are;
- The kind of trading software that is offered, it should be easy to use, fast and compatible with the OS you use. It should have sufficient security features but should not slow you down while trading. In intraday trading speed and accuracy is the key thing
- The available markets; few companies allow you to trade only in stock market, whereas other will give yo access to commodity, forex and other markets as well. So go for the one which offers you access to all the markets(you may need to apply for individual markets seperately)
- The brokerage should be nominal and they should keep sending you market data feeds regularly.
- Avoid software that includes a lot of factors since it will be difficult for you to identify the leads.
- Choose your market wisely. The markets are suited for different kinds of trading thereby the importance of determining the correct market for you. Factors that are considered when determining the best kind of market for a trader include tick sizes, starting and maintenance margin requirements, volatility and values.
Other Smart Tips for Intraday Trading
1) It is very important to know everything about a stock in which you are going to trade. The first thing that you need to consider is the volatility and liquidity of the shares. Liquidity refers to the volume and allows you to enter and leave the market at the right price, if there are very few sellers and buyers for a particular share, then it becomes difficult to enter and exit the script at the right price. While low volume shares can be bought for long term, it is definite no for intraday trading.
2) Another thing which the traders should keep in mind is the availability of short selling options. Short Selling (also known as shorting or going short) is the practice of selling shares, that have been borrowed from a third party (usually the broker) with the intention of buying identical shares back at a later time to return to the lender. So if you think that the share price of a particular company will fall, then you can sell that share in the morning even with out owning those shares. But before the end of the day you need to cover it by buying the same shares.
eg: Assume that you predict that a company ABC shares will fare poorly that day due to certain reasons, but you don’t own any share of the company ABC. Now if your broker allows short selling, then you can actually sell the shares of ABC even without owning them in the morning. Assume that you sell 1000 shares of ABC in the morning at 28 dollars, and by the end of the day the price of the shares fall to 26. Then you can buy the same 1000 shares of ABC for 26 dollars. Here you will make a net profit of 2000 USD. A day trader should be adept with short selling as well.
3) Don’t carry over the stocks for the next day, the trends will not remain the same and secondly if you carry over then it becomes long term and you will end up paying more brokerage.
4) you should alway stay updated with the latest news since markets go by public sentiments rather than rationale.
5) Diversify your trading in to Forex. Trading in forex can bring you lot of addition revenue, if you are prepared and use the right tools. It can be said as an extended intraday trading as the forex markets are open 24 hours on week days. Learn how to Start Trading in Forex and How to use Forex Systems to your advantage