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Trading Psychology (How to Control Losses)

Intraday Trading: Not a Gamble but a Balanced Mind Game

Intraday Trading is the Right Place for Daily Profit Making but it is too risky. Unless you maintain a proper risk-reward ratio, one cannot survive in day trading for a long time.

In the share market, people make good money when they invest for the long term, something like one year and above. Any investment that is less than one year, say a few months, a few days, or even for a day becomes risky for the investor.

We can say Risk is inversely proportional to time. Lesser the time higher the risk and vice versa.

More importantly, when an investor does trading in equity (or) futures (or) options, high risk thus leads to tensions and even psychological breakdown. So, any person who wants to make little profits during intraday will enter the market in the morning and exit by afternoon.

Trading Psychology (How to Control Losses)

Trading is all about Psychology, how well you understand human psychology will make you a better trader. Remember, making huge profits on an intraday is next to impossible. Understanding the psychology, proper entry & exit, strict stop loss, and discipline will make you a profitable trader over a period of time.

Not all traders become successful, our statistics say that over 95% of traders lose money in the stock market. But why?

Following are the major factors

  1. Zero knowledge on technical analysis
  2. Don’t know where to enter and exit
  3. Over trading after losing a trade
  4. No stop loss
  5. FOMO

Maintaining a proper stop loss in trading makes you a profitable trader and one can become a successful trader over a period of time.

Successful Indian/Global Investors : Intraday Trading

In the global scenario, Bill LIpshutz is the master in intraday trading. In 1984, the Salomon brothers made $300 million through day trading within a 12 months period and his name was mentioned in the Forex Division that year.

Likewise, in India, the richest day trader is Rakesh Junjhunwala and is referred to as Warren Buffett of India. In 1985, he began with an investment of INR 5000/- and it was when the Bombay Stock Exchange Index was at 150, and now it trades over 60,000.

Can Beginners try Intraday Trading?

Now, the prime question is should beginners trade intraday. The answer is no. It involves a high-level risk factor, and when trading, one must consider risk management techniques to become a successful trader.

For every new market development, the stocks experience wild price swings beside the inherent volatility of the stocks. Hence, intraday profits are possible with rapid price variations both large and small.

Element of Risk in Intraday trading:

One should understand the volatile and slippery situations an investor faces when investing in Intraday trading at stocks.

An investor adopts a set of algorithms that either enables in making or losing money in an Intraday.

Let us illustrate with an example. In the morning with the opening of the trading session, a trader may buy 10 units of a stock at INR 100 per unit. And, by the end of the trading session, the value of the stock may rise from INR 100 to INR 102. So, the total profit booking on the 10 units will be INR 20.00. It means for an investment of INR 1000.00, the investor has earned INR 1020.00 on it. So, the percentage of profit is 2 percent.

Risky Scenario for Investor:

If one wants to trade with INR 10,000.00 and has only INR 1000.00 then the stockbroker takes initiative to support the investor’s requirement. The broker lends INR 9000.00 to the trader and the combined amount of INR 10,000.00 is put for trading. Here the stock that the trader buys may give profit or loss by the end of the day.

In the case of profit, the trader is in the safe zone but if the stock falls down then they lose everything. Let us say, the stock price falls by fifty percent which means the value of one unit from INR 100 is INR 50. Then the investment value falls from 10,000 to 5,000.00. In this situation, the investor will have to repay the debt of 9000.00. If the selling index is up by 50 percent then the 10,000.00 becomes 15,000.00 and deducting the 9000.00 margin and service charges the remaining amount is the investor’s profit.

Hence margins are a very delicate issue, so the margin taken can become huge debt by the end of the trading session. Hence, taking a margin can scuffle the trader’s throat.

Stop loss Mechanism : A better way to Cap Impending Losses

To make a safe play in the volatile state of stocks at BSE/NSE during the day, the stock exchange provides a stop-loss mechanism for implementation.

The stop loss allows the broker to sell the stocks at that price and the prevention of further losses is possible.

For instance, during an intraday trading activity, an investor makes an entry and buys 10000.00 worth of stocks with a share price of Rs.100 in which credit of INR 9000.00 is taken from margins. The value of stock per unit is INR 100.00.

The stock so bought may begin to fall in price and as the level of fall in price is uncertain, the investor can set a price that signals the broker to put it for selling. Here if the investor sets INR 95.00 as stop-loss then the bought stocks are sold out at INR 95.00 and a further decline in prices shall not affect the investment of the investor.

Although this stop-loss protects the investor it will cause a dent and create a loss because a debt of INR 9000.00 has to be paid off to margins. From this one thing is evident, to make huge profits in a day trading will be a tightrope walk.

Hence investors must never dream to earn huge amounts of Intraday trading and invest in long-term plans instead. In a race to make quick and huge money one may lose peace of mind, and go panic during trading hours. At times this might collapse the investor and risk life as well.

Balancing Act: Intra-trading / Points to Register

  1. Intraday-trading is not advisable to beginners. In case they enter into day trading business one should be cautious.
  2. Remember, it is a practical game where human emotions never show prominence.
  3. Getting attracted to margins for more money into investment can become an immediate debt-trap for an investor.
  4. An investor must learn the fundamentals of stocks in the markets. Check for the company profiles, their performances be it large cap funds, mid cap funds or any.

With knowledge of analyzing stocks, a trader may feel the pinch of volatile markets and lead to health hazards. It usually leads to psychological stress and fatigue. Hence be it a beginner or a seasoned player in intraday trading, the investor must maintain a balanced mind and never jump in making conclusions in hastiness.

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