When the duration between buying and selling ranges from a few days to a few weeks, it is considered as short-term trading. To survive this period and emerge successfully, you need a strategy. You must also understand the risk-reward ratio for each trade. Sometimes, success at short-term trading is termed as “luck”; nonetheless, the trick to always being “lucky” has to be mastered.
To achieve success in short-term trading, you need to have a specific mindset and follow some thumb rules: We never suggest buying stocks based on news. Please remember that news is out when the party is over. Sometimes it is part of stock manipulation to provide an exit for existing investors. In this article, we discuss short-term trading in detail step by step.
1.Things to remember while short-term trading
2. How can generate regular income from Short Term Trading?
3. How to Select Stocks for Short Term Trading?
Things to remember while short-term trading
You should be aware of your entry and exit points and stick to them no matter what. You should also know your stocks – their strengths and limitations – and how to not get greedy or panic. If you fail to trace and maintain your exit points, you might face massive losses. However, with the advent of online trading platforms, you can schedule buy/sell orders and trade in a disciplined fashion.
You should be completely alert to global happenings. For example, when Political thing happens, the stock market fell from 1-0.5%. News, both at the macro and micro levels should be studied, and strategies should be implemented accordingly.
You should be very careful about the leverage. In intra-day trade, you have the maximum advantage as margin required is just 10% of position. This way, profits can be amplified, but so can lose. Hence, it is advised to be prudent with leverage.
Homework – before the day starts and after it ends – is very crucial. You must go through and analyze each chart, graph, and position of a stock before investing in it as the share market is highly volatile.
Short-term trading is not everyone’s cup of tea, but those who know the exact recipe enjoy it the most. Many times, success in short-term trade is committed to luck, but it is not the same as winning a lottery ticket. It takes guts, perseverance, and a disciplined mind to achieve it.
How can we generate regular income from Short Term Trading?
The answer is very simple. Either you identify any stockbroker who offers accurate stock tips/recommendations. According to research, we observed that almost 99% of these stock tips are part of Stock Manipulation. The traders accumulate Stock A and jacked the price from Rs 100 to Rs 150. Now is the time to book profits but they need buyers to book profit as they will turn sellers. Therefore, with the help of stock brokers, a buying tip of Stock A will be floated among the clients.
I am not saying 100% tips from stockbrokers are wrong. To keep paid clients in good humor, fake tips are normally 2 out of 10. The stockbroker may receive money for this kind of recommendations. Therefore, there will be buyers of stock A and traders will exit the stock after booking profit.
The second approach is to Do it yourself. I personally believe in this approach but most of the people are not comfortable in the analysis part. There is a famous saying that if you give the same set of ingredients of the same quality and in the same quantity to 5 different people. The dish will taste different in all 5 cases. The same goes for the stock analysis. You give the same set of data to 5 different investors and the conclusion of all 5 will be different. Therefore, besides analysis, the conclusion of the analysis is also critical.
We observed that in order to make a regular income from short-term trading the strike rate should be min 67%. In other words, out of 10 stock tips, the 6-7 should work in your favor. Now, why 6-7 should be profitable. The reason being one profit making stock will balance the one loss-making stock assuming you invested an equal amount in all 10. The balance profit-making stock will help you generate a regular income.
How to Select Stocks for Short Term Trading?
Please note that a real test of the short term trading is when the market is on a downward trend. There is a common misconception that when markets are going down then for sure investor will be at a loss. It is true to a large extent but please note that some of the stocks still ride against the tide. The index only comprises of handful stocks. For example, there are 1699 stocks listed on NSE. One fine day when the NIFTY dropped by 1% that is a huge fall. Out of 1699, there were 318 advances, 82 unchanged and rest 1299 declined. Therefore the point I am trying to make is that short term trading opportunity always exists even if the market is on a downward trend. Therefore, stock selection for short term trading should be such that stocks selected should ride against the tide at least for short period.
Following as key parameters to select stocks for short term trading. Also, note that none of the following parameters should be considered in isolation.
1. Price Movement:
It is no brainer that price movement is most crucial for a stock. Let me admit that price movement is difficult to track and predict. The reason being, profit booking start after Y% run-up. Therefore, you can keep track of X no of day’s price movement to establish the price movement. Based on my experience I can say that wide data range is suitable for long term investment. For short term trading, a data range of 3 to 5 days suffice.
In my opinion, the volume trend is very tricky to predict. Recently while doing the analysis I observed that the volume is on an increasing trend over the last 7 days. When I compared with 30 days average, the 7 days volume was just 60%. Therefore, it shows a sharp drop during last one month and last 7 days was just recovery from lows. In my opinion, to conclude volume trend for short term trading, you should compare 3 days, 7 days, 14 days and 30 days average volume to identify a trend.
3. Delivery Percentage:
Delivery volume is quite misleading. For any serious buying in the stock, you should check the delivery percentage. You should monitor 3 days, 5 days and 7 days average delivery percentage. Here the catch is some stocks are traders stock and others are investors. For example, average delivery % of Stock Z is around 85%. It shows an increase to 91%. In this case, it is not a BUY signal as such. On the contrary, a Stock with average delivery % of 65% shows an increase and jump to 90% plus then something is cooking up.#HappyTrading