Can you earn a living doing intraday trading? It is really a tough question. The answer to this question is yes and no.
Why two answers? The reason.. it depends on you, you as an individual. It depends on your character, how emotional you are, how quick you are in decision making, and lot more..
Let’s analyze the positive side first
In order to become a successful trader, you need to have some basic qualities in place
- Create and follow a treading plan – What are the things which you need to consider while creating your trading plan?. I have summarized some of them below. This is not the final list, but it includes most of them
- Select your stock – You need to select the stock as per your trading style. For example, if you are an intra-day trader, you may require the highly volatile stock to generate a decent income on a daily basis. Moreover the volume traded is also matters. If the traded volume is less then you may get trapped at the time of an adverse move. There may not be enough buyers or sellers available to square off your positions. On the other hands, for a positional trader, a little passive stock is also suitable because he is not aiming for sudden movements in the market.
- Position sizing – How many shares (or lots) to trade. It is very important to size your position properly. It gives you an idea “how much” for each and every trade. Whatever your objectives happen to be, your position sizing strategy achieves them. Poor position sizing strategies are the reason behind almost every instance of account blowouts. You can learn more about position sizing on VanTharp.com
- Entry / Exit Strategy – Most of the traders lose money, just because of wrong timing. Your analysis may be correct, you might have selected the right stock. But ultimately you must know when to enter and when to exit. If you don’t have a plan for this, you may enter into a trade too early or too late. It will impact your profit at the end of the day. Similarly, you should know when to exit from a losing trade.
- Understand the Trading Psychology – the Stock market is nothing but the collective reaction of all the traders and investors who are participating in the market. Since most of the participant follow similar kind of technical analysis, you should have a good knowledge of technical analysis to beat them. Moreover, you must have an understanding of support and resistance level. Don’t sell near to a support level and don’t buy just below a resistance. You can learn more on technical analysis on various trading websites.
- Learn to accept small losses – For most of us, it is very hard to take a loss. But in trading, you need to learn to take losses. Always cut your losses by accepting them. You will get another opportunity to make up your losses another day, so be patient. Just think, out of 10 trades you have lost 2 points 6 times and won 4 points in other 4 times, you are still in profits. You can download and play the trading game from Vanthap’s website. It is worth to download and play this game to understand the trading process better.
If you can follow the above points, you can be a successful trader. It not easy to stick to a particular system for a long time. But remember, those who have patience earns in markets and others lose.
Now let’s check the Negatives
When you are trying to make money from the markets then you are trying to outsmart the market. What is a market? It is the cumulative wisdom of the participants. These participants includes the FIIS and DII who are full-time traders having a sophisticated trading system and pump millions of order to the market in a fraction of seconds. There are algo traders and robots also participating along with human. So you are not only competing with humans but with machines also. Obviously, a professional trader is smarter than a retail trader unless he is an exceptionally skilled trader.
When you are doing intra-day trading you are attempting to beat the market participants on a daily basis. It is a tough situation for a retailer. If you can do it on a consistent basis, you can be a good trader.
Before jumping onto the live market you should spend a lot of time in analyzing and understanding technical charts. If you have the patience and time to dedicate, only then think about intraday trading. Otherwise, it is better to stick to positional trading or investing strategies.