Are you a newcomer in the stock market who doesn’t want to commit to long-term investments? Don’t worry; there’s something for you called day trading. It is a great way to start trading without long-term commitments.
Now, what is the meaning of day trading, and what are the various day trading strategies?
Let us take a look!
What is Day Trading in Stock Market?
Day trading means purchasing and selling financial instruments within the same trading day. Day trading, also known as intraday trading, is done with the aim of capitalising on short-term market movements.
Now, how does this form of trading for beginners work?
In day trading, you can hold positions for only minutes or hours. The goal is to earn a profit from small changes in the prices of the stocks.
Let us understand the Intraday Meaning with Example:
Imagine you buy 50 shares of a company at ₹200 per share in the morning. During the day, the price rises to ₹210 per share. Thus, you decide to sell all 50 shares before the market closes.
Here is how intraday trading works:
- Buying Price: 50 shares * ₹200 = ₹10,000
- Selling Price: 50 shares * ₹210 = ₹10,500
- Profit: ₹10,500 – ₹10,000 = ₹500
According to the above figures, you will make a profit of ₹500 by buying and selling within the same day.
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What are the Strategies for Day Trading?
Here are some day trading strategies that you can easily learn:
1. Scalping
Scalping means making small profits from numerous trades throughout the day. In this intraday trading strategy, traders buy and sell quickly. Their goal is to make a profit from tiny price changes.
Imagine you buy 100 shares of a stock at ₹100 and sell them at ₹110 after just an hour. You will make a profit of ₹100 (excluding fees and taxes).
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2. Momentum Trading
It is a strategy in which traders focus on stocks showing strong trends in one direction.
Let’s say there‘s a stock that suddenly starts rising rapidly due to positive news.
This marks an opportunity!
Momentum traders jump in early following the upward trend in the market. Their goal is to make a profit as the stock continues to climb.
3. Breakout Trading
It is a strategy where traders aim to profit from stocks that “break out” of their usual trading range.
Now, what does this breakout mean?
Breakout means when you look for stocks or other assets that are about to break through significant price levels, like highs or lows from previous trading sessions.
It’s like spotting when something is breaking out of its usual range. Traders hope to catch these breakouts early because this can lead to quick gains if the breakout continues.
4. News Trading
News trading is one of the most common intraday strategies. In this, investors make decisions based on current stock market news.
For example, if a company reports better-than-expected quarter earnings, investors might buy its stock in expectation of a price increase.
What are the Advantages of Day Trading?
For a beginner, it would be amazing to see that day trading may offer you these advantages:
- You can earn profits within a single trading day from short-term market movements.
- You can avoid the risk of market changes that happen after trading hours.
- Intraday traders can benefit from high liquidity and volatility, providing more trading opportunities.
As we say, not everything that sounds easy and simple is without risk. Intraday trading also involves certain risks!
Disadvantages of Day Trading
There are certain things that you must keep in mind while stepping into intraday trading:
- High Risk: Day trading carries high risk. You should be cautious when stepping into it.
- Time-Consuming: Day trading requires significant time and dedication. You must do proper research and have your stock market basics clear.
- Market Volatility: While it can provide opportunities, market unpredictability is also a common factor that affects day trading!
Conclusion
Day trading is a quick way to explore the stock market’s ups and downs. However, remember, don’t just get attracted by abrupt profits; intraday trades may also result in abrupt losses.
Start small, and keep learning!
