You all know that intraday trading(Is intraday trading safe) in the stock market can earn great profits in a very short time, but in such a situation, we should not forget that there are two sides to every coin. There are many types of risks in intraday trading, so is intraday trading safe for the beginner trader?
For this, it is very important for a trader to know the advantages and disadvantages of the stock market, so let’s start with intraday trading meaning.
In short, intraday trading is the process of buying and selling shares on a single trading day, in which the trader makes profits from small changes in the market. This is a type of short term trading.
Intraday trading involves buying stocks when prices are low and selling them when the price is high in one day trading hours, or selling them first in a falling market and buying again. Now because important decisions have to be made in a short time such as which stock to trade, when to enter and when to sell, all of these have many risks.
But if traded by following the right strategy and the rules of the stock market, then you can also earn a lot of profit in a short time. Now let’s know whether intraday trading is safe or not, some of its advantages and disadvantages.
Advantages of Intraday Trading
Intraday trading is the first choice of traders due to buying and selling and making more profits on the same day. There are several advantages of intraday trading, which are further talked about:
1. Trading App Feature
Intraday trading can be done online on mobile and desktop trading apps. All you need is a trading account. You can set the target price, stop loss meaning in advance on the application or platform.
Along with this, many trading apps also provide you with the option of advanced order type so that you can avoid market volatility and trade by determining your losses and profits in advance.
2. Margin facility
To do intraday trading, you need more funds because you have to trade in volume to earn profits. For this, stock brokers offer margin facility for intraday trading so that you can get a margin of up to 5 times depending on the funds kept in your trading account.
If you have Rs 20,000 in your account, you can trade up to Rs 1 lakh. With this, you can increase your profits by many times, but at the same time there are more risks in it, because if the market goes in the opposite direction, then your loss can also increase manifold.
3. Earning quickly
Unlike long-term investments, you can get earnings from intraday trading almost immediately. Once you exit trading, you can calculate your profit based on your strategy and performance.
You can also plan to re-trade profits in your trading capital pool or withdraw it by putting money in your bank account.
4. No overnight risk
One of the biggest advantages in intraday trading is that you do not keep your shares in the stock market for the next day. Because of which you avoid the risk of changes in the market overnight.
Many times the share price changes between the closure of the market and the opening of the market due to newspapers and other sources and this fluctuation can affect the share price. But if you are an intraday trader, you can sleep peacefully at night.
5. Chance to make profits in bearish trend
An important advantage with intraday trading is that you can also make profits in the Bearish trend. Instead of buying a particular stock, you can sell that stock and buy them later to make profits. This process is called short selling.
Therefore, whether the market situation is bullish or bearish day trader can earn money by trading in both situations. This benefit is usually not available for other investment options.
6. Low brokerage
One of the advantages of intraday trading is that brokerage has to be given very little. Many discount brokers offer the facility to work on very modest brokerages for intraday trading. This gives the trader a chance to earn more profits.
Disadvantages of Intraday Trading
Whether intraday trading is safe, the correct answer is given by considering the advantages as well as the disadvantages associated with the trade, then a trader can get the right information. Here are some disadvantages related to intraday trading.
1. Risks during volatile markets
Volatility is a major reason in intraday trading by which a trader can make profits, but this volatility sometimes causes a trader’s loss. An early trader does not understand the rapid fluctuations in the market and loses itself.
In intraday trading, it is suggested to trade in volatile stocks up to 3-5%.
2. Possibility of loss
There is every possibility of profit as well as loss in the stock market. The stock market fluctuates every second, causing a change in the share price.
It is important for day traders to be fully focused and prepared to change their strategies and methods in the stock market. A weak and unpretentious strategy brings more harm than profits for the investor in the stock market.
How to Make Intraday Trading Safer
There is no complete denial that there is no risk in intraday trading. Fluctuations in stocks are not understood by the common man. But the huge returns we get continuously also attract us to it.
The stock market is the only instrument with the help of which large capital can be created through less capital. If you also want to do intraday trading, but there is a fear of losing money. A trader should focus on whether intraday trading is safe and how to make it safe by looking at the tips below.
By the way, by constantly trading, you will master it over time.
1. Start with less money
Intraday trading does not require large capital investments. If you suffer losses due to unexplored patterns in market trends, make sure your losses are minimized. Experts say that you should not put in more than 2% of your total trading capital on any given day while trading intraday.
2. Choosing the right time frame
You can limit your losses by trading in the right period along with intraday trading time. Since these hours are known for significant market activity, using them can help maximize your profits. Experienced intraday traders can also lose their money when trading outside the best time frame for intraday trades.
There is a lot of volatile for an hour after the market opens, which can cause both profits and losses of the trader. In such a situation, a beginner trader should always enter the trade only by assessing his risks.
3. Use indicators
When it comes to making a profit in intraday trading, you need to do a technical analysis of the stock. For the same purpose, you have to use some indicators. Intraday trading indicators prove to be beneficial tools when they are used with a strategy to maximize returns.
4. Take advantage of technology
For those starting intraday trading, it is important to leverage technology. Make sure your broker provides you with the latest and state-of-the-art charting tools. You have to make yourself tech friendly, so that you can be able to access the information and research shared by the broker.
The technology will help you move faster and make quick decisions based on chart pattern analysis.
5. Define entry level and target price
It is important to clearly mention the entry level and target price before placing any order. If you stick to defined parameters in the beginning, it will work in your favour.
6. Maintain a strict stop loss
Stop loss is a level you set and is used to sell shares automatically. If the price falls below the stop loss level you set then it helps you avoid losses, as it eliminates emotions from trading decisions. This is an important tip for beginners in intraday trading.
You can use support and resistance in bull and bear markets to determine a correct stop loss.
7. Stay in line with the market
One of the most important intraday trading tips for beginners is to follow the market trends. Sometimes, even the giants with the most advanced charting tools are unable to predict what the market will do.
To avoid huge losses, it is wise to step out of your position if the market moves against your expectations.
Another important tip that is for beginners is to constantly try to improve their trading skills. Use newspapers, trading apps and stay connected with podcasts and webinars that help you hone your skills.
Even if you do the smallest thing, you do a thorough investigation about it. But when you invest money in the stock market, you do so only at the behest of some acquaintances or brokers. It is important that you increase your information related to the stock market as your information increases, you will find yourself that your risk is decreasing.