The Indian stock market is one of the most popular investment avenues. The participants in the form of traders and investors are increasing regularly to earn higher returns. Individuals are now opting to become a full-time trader to earn regular income through share trading. Intraday share trading requires the right set of skills and technical knowledge to be successful. To assist you in earning higher returns through share trading, we will list down some tips in this article.
Tips for Earning Higher Returns from Share Trading
Knowledge is King
Apart from knowing the technical analysis strategies, it is important to keep track of the latest news and developments of the stock market. Make sure to complete your homework and keep all the information before trading a stock. Scan for information on different websites. This approach will help you in making higher intraday profits.
Focus on Few Stocks
The smart trader is one who can focus on a small universe of stocks and take the right trade accordingly. By focusing on a few stocks, you can build expertise about the technical levels, fundamentals, F&O data and many more aspects of a particular script. By committing yourself on few stocks you will be able to employ more capital with higher conviction. Therefore, to earn higher profits spend your time and energy on a few stocks.
Focus on Volatile Stock
Intraday trading is all about taking the trade and squaring it off on the same day. This trade can be successful only if there is high momentum or volatility in stock price. Pick stocks with a higher beta for trading as they would give you ample opportunities to enter and exit with profits. By focusing on high momentum stocks that show good swing in the stock price will help you in making profitable trades.
Do Not Fear To Short
Most traders prefer taking a long position in the market. A long position is purchasing stock at a lower price and selling it at a higher price. When traders prefer only one type of trade there is a good probability of incurring losses when the market is in a bear run. Therefore, the trader must not fear to short the stock i.e. sell the stock at a higher price and purchase it again at a lower price when the price of the stock falls. This way the trader will be able to take advantage of both rising and falling markets to make good returns.
Trade With A Favorable Risk-Reward Ratio
Managing risk is very important in intraday trading. One way to manage risk is to trade in stock that has a higher risk-reward ratio i.e. you will make more profits than the amount of loss if the stop loss is hit. Higher risk-reward means higher capital employment and the size of the trade is also big. If the management of the risk-reward ratio is done properly, the trader can make huge profits.
If you are a beginner in the stock market than you must start intraday trading with small amount. This is because you are relatively new to the market and you lack experience. Small trades will help you in confidence-building and can be a learning curve. If you are successfully making profits in small trades than you can go a step ahead and increase your trading capital. Gradually enhancing the trading capital will always keep you cautious and slowly you would be able to make more profitable trades on regular basis.
Time Your Trade
When the market opens the price of the stock is very volatile because many traders place orders as soon as the market opens. A trader with good experience will be able to recognize the pattern of stock price when market opens and pick his stocks accordingly. By taking advantage of rush hour opportunities the trader can make good profit with intraday trading.
Put Limit Orders
Before taking an intraday trade you must know what type of trade you will be taking. You can execute your trade with either market orders or limit orders. When you place the market order trade, the trade is taken at the best price available in the market with no price guarantee. On the other hand, limit orders ensure a guaranteed price but not the execution. As a trader, you must always put limit orders in place because it will help you to trade with more precision and you will be able to enter or exit a stock at the right price.
Keep Emotions Away
The stock market has no place for emotions. Make sure that you make decisions using the technicals and screen reading. Any trade taken or held out of emotions can lead to severe losses. In some cases, the trade with the involvement of emotions can wipe out your whole capital. Therefore, you must ensure that the decision in the market is taken on logic and not emotion.
Know Your Risk Tolerance
Knowing your risk tolerance is very important in the stock market. You should not indulge in intraday trading without knowing your loss bearing capability. You must know up to what amount of money you can bear the risk. The perception of risk varies from person to person. Therefore, any trade taken after acknowledging the risk tolerance will always be beneficial for the trader.
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If you go into the history of intraday trading you will find that the majority of people who are successful have the knowledge about technical analysis of stocks. Technical analysis is predicting the future price movement of a stock using historical data, graphs and statistics. By learning technical analysis you can enter into more profitable trades and your consistency of making profits will increase.
It is always advisable not to put all your money in a single trade. You must take multiple trades to protect yourself from the risk of losing everything in just one stock. By trading in multiple stocks, you can cover the loss of one trade with profit from the other. The safest strategy that a trader can adopt in the market is diversifying his trade to make higher returns.