Professional Documents
Culture Documents
Id 10297 2
Id 10297 2
Keep a close watch on Supply and Demand - Supply and demand means how many buyers are willing
to buy (this indicates the demand) and how many sellers are aggressive to sell (this indicates the
supply). Always remember the stock price movement depends on supply and demand. Simple thing to
remember (not only in stock market or day trading but also in general life) that more demand and less
supply means price is going to move up and if more supply and less demand then price is going to come
down.
Overcall if you study this strategy carefully then you will come to know whether the people are interested
to buy or sell the stock and hence the price moves accordingly that is if see more buyers then the price
is going to move up and if you see more sellers then price is going to fall down.
Page 1 of 13
Information on Day trading tools
A successful day trader or share market trading requires couple of disciplines and following trading
requirements -
• PC with internet - If you need to do trading yourself then you need to have a PC or else you can do
trading in internet café also. A PC with good internet connection speed. The internet connection should
not be slow or should not face any other problem especially in Day Trading.
• Online Trading Account (Demat Account) - You need to open online share trading account with any of
the available banks or online brokers.
Price Volatility
The Price volatility means the movement (up and down) of share price should be more (or high) through
out the day. In other words the fluctuation in share prices should be on high rate so that it will be easy for
you to buy and sell on different prices. Suppose if share is moving up and down in very narrow range
then on what price you will buy and sell? So it is always better if you choose shares, which have high
volatility in price movement.
Volume (quantity)
Volume means trading quantities. The shares, which you choose for day trading, should have high
volumes (or high traded quantity).
Why this is required?
The high volume indicates that there is more liquidity. Liquidity means lots of transactions have taken
place on this share and more people are interested to trade in this share. This will ease your trading job
because you will get more exposure to the price to buy and sell at anytime. Due to high volumes there
will be also high price fluctuations.
Page 2 of 13
indices (NSE or BSE) and not moving (or moving within narrow range). At such time either you wait or
come out of trade, don’t loose patience and fall under loss.
• Don’t change your trend on volume volatility - Some time you enter in trade by seeing the buy and sell
quantities. For example, suppose you bought shares by seeing more buy quantity than sell quantity,
expecting more buy quantity may push the share/stock up but after few minutes you see exactly reverse
that you see more sell quantity and less buy quantity or both buy and sell high quantity or the difference
of buying and selling quantity is decreased as compared to what you had seen before. So this point is
very important, don’t panic here and sell off your stock, wait and realize the situation properly and
then take action. This situation comes many times but if you are sure that your share is going to move
up then only stick to it.
• Beware of companies’ acquisition or any announcement by Government - Suppose in the morning,
before market begins, you should read or view the news of any Indian Company has acquired any
foreign company (or part of foreign company). If you see this is actually the best new thing for an Indian
company. But if acquisition amount is far more than expectation then this good news will turn into worst
news. The shares of that company will start falling. So you should not get in trade and buy shares you
have to wait and watch how market or other people are responding to these shares and once you
understand then you can trade. So always watch where the market heading towards and then react.
Announcement of Government - You should also be very careful to decide your trade based on any
government announcement.
For example, if government has declared any hike in interest rate then its good news for bank stocks
and hence the shares will rise but if government has declared 2nd rate hike in very less span of time as
compared to first one (say within duration of one, two month or three month) then this news will be
worse for bank stocks, the share may keeping fall during the trading period. So realize and analyse the
news and finally watch market behaviour and you will get success.
Entry Strategies
Certain stocks are ideal candidates for day trading. A typical day trader looks for two things in a stock:
liquidity and volatility. Liquidity allows you to enter and exit a stock at a good price (i.e. tight spreads
and low slippage). Volatility is simply a measure of the expected daily price range - the range in which a
day trader operates. More volatility means greater profit or loss.
Page 3 of 13
Definition of 'Candlestick'
A price chart that displays the high, low, open, and close for a security each day over a specified period
of time.
We will look at the intraday candlestick charts and focus on the following three factors:
There are many candlestick set-ups that we can look for to find an entry point. If properly used, the doji
reversal pattern (highlighted in yellow in Figure 1) is one of the most reliable ones.
Typically, we will look for a pattern like this with several confirmations:
First, we look for a volume spike, which will show us whether traders are supporting the price at this
level. Note that this can be either on the doji candle, or on the candles immediately following it.
Second, we look for prior support at this price level. For example, the prior low of day (LOD) or high
of day (HOD).
Finally, we look at the Level II situation, which will show us all the open orders and order sizes.
If we follow these three steps, we can determine whether the doji is likely to produce an actual
turnaround, and we can take a position if the conditions are favourable. Typically, entry points are found
using a combination of these three tools.
Finding a Target
Identifying a price target will depend largely on your trading style. Here is a brief overview of some
common day trading strategies:
Strategy Description
Scalping Scalping is one of the most popular strategies,
Page 4 of 13
which involves selling almost immediately after
a trade becomes profitable. Here the price
target is obviously just after profitability is
attained.
Fading Fading involves shorting stocks after rapidly
moves upward. This is based on the
assumption that (1) they are overbought, (2)
early buyers are ready to begin taking profits
and (3) existing buyers may be scared out.
Although risky, this strategy can be extremely
rewarding. Here the price target is when buyers
begin stepping in again.
Daily Pivots This strategy involves profiting from a stock's
daily volatility. This is done by attempting to buy
at the low of the day (LOD) and sell at the high
of the day (HOD). Here the price target is
simply at the next sign of a reversal, using the
same patterns as above.
Momentum This strategy usually involves trading on news
releases or finding strong trending moves
supported by high volume. One type of
momentum trader will buy on news releases
and ride a trend until it exhibits signs of
reversal. The other type will fade the price
surge. Here the price target is when volume
begins to decrease and bearish candles start
appearing.
Definition of 'Doji'
A name for candlesticks that provide information on their own and also feature in a number of important
patterns. Dojis form when a security's open and close are virtually equal.
Determining a Stop-Loss
When you trade on margin, you are far more vulnerable to sharp price movements than regular traders.
Therefore, using stop-losses is crucial when day trading. One strategy is to set two stop losses:
1. A physical stop-loss order placed at a certain price level that suits your risk tolerance. Essentially, this
is the most you want to lose.
2. A mental stop-loss set at the point where your entry criteria are violated. This means that if the trade
makes an unexpected turn, you'll immediately exit your position.
Retail day traders usually also have another rule: set a maximum loss per day that you can afford (both
financially and mentally) to withstand. Whenever you hit this point, take the rest of the day off.
Inexperienced traders often feel the need to make up losses before the day is over and end up taking
unnecessary risks as a result.
Page 5 of 13
reality, many day traders lose money. However, by using a well-defined strategy that you are
comfortable of trading, you can improve your chances of beating the odds.
How do you evaluate performance? Most day traders evaluate performance not so much by a
percentage of gain or loss, but rather by how closely they adhere to their individual strategies. In fact, it
is far more important to follow your strategy closely than to try to chase profits. By keeping this mindset,
you make it easier to identify where problems exist and how to solve them.
But huge price swings in any market tend to be anomalies where crowd mentality has taken the price out
of line with fundamentals. When this happens, one of two things will occur: either the fundamentals will
change to meet the new price, or the price will come back into line with the real fundamentals. Either
way, prices typically become erratic when this happens. If you use any type of technical analysis in your
trading, you probably already know that this can make reading the market very frustrating. This activity
often renders technical analysis very difficult to master.
This is an important point about stops. A stop becomes a market order when the market trades at or
through your price. For example, on the sell side, a stop to sell gold at Rs.650 will be executed at the
next possible order when the market trades at or below Rs.650. If the next possible trade from Rs.650 is
Rs.649.90, you don't have much to worry about. But what happens when the market trades at Rs.650.10
and then gaps lower to Rs.645? That could be a problem for some accounts.
A primary reason for this is that the swings of the market you are trading must fit not only your profit
objectives, but your risk tolerance as well. If you are looking to trade predetermined markets without a
solid reason as to why, you need to throw that idea out the window and begin your plan from scratch. (It
is possible that you may end up with the same market at the end, but you need to substantiate your
reason to trade the markets you are trading).
Begin by determining the amount of risk capital you have available. You will need to determine what type
of trading suits not only your personality, but also the time you have available to trade. Figure out what
type of profits you are targeting and the amount of risk you are willing to take. Only then will you be
ready to develop, build, and/or fine-tune your trading plan. Only from that point it is logical to begin
analysing markets.
Investors can use the P/E ratio to compare the value of stocks: if one stock has a P/E twice that of
Page 6 of 13
another stock, all things being equal (especially the earnings growth rate), it is a less attractive
investment.
News
Like merger announcement, this news will impact more if the Merger is related to foreign company.
Merger and Demerger announcement may have major impact on related company shares.
Political News
News like elections in the country or in any particular state, news of any major change in political upfront
or in any change in rules will also have major impact on Indian share market. Political news related to
any particular State will have major impact on companies located in that state.
So the conclusion is any major political news will have major impact on shares.
Sector News
The shares of Indian share market has different sectors and if any announcement by Government for
any particular sector will have major impact on shares of that sector.
Following are few sectors.
Most of the time Indian market will follow this Asian markets. If these Asian markets open in positive and
lead to positive direction than the Indian markets may react accordingly provided that there is no major
news in India.
USA market - USA markets like NASDAQ and DOW will also have major impact on Indian market. So,
in short in the morning around 9.30 am get all news about USA markets and Asian markets and then
plan your trades accordingly.
Page 7 of 13
on their shares in Indian share market.
Every company declares its quarterly results. If any company declares extra-ordinary results then this
will definitely affect its shares.
Most of all share traders and analyst concentrate much on company's profit and sales. If company
achieved good profit and declare dividend, bonus shares etc this will make positive impact on shares of
that company.
Fundamental News
Fundamental news means companies future turnover announcements, any change in director body,
future product releases etc.
If the company has good fundamentals like board of directors, companies expansion plans, future
acquisition etc then its worth to invest in such companies for long term.
Individual share - If the share is over bought, then some profit making will takes place (price may come
down) and if share is over sold then you may see some buying (price may go up) than you can plan your
trades accordingly.
Page 8 of 13
Because the given buy price may be the resistance price, if it breaks then share price goes up or else
may not go up above 150.5. So plan to buy at given targeted price, don’t buy below target price.
In this manner, you can earn small profit instead of loss then you can do another trade and again earn
small profit.
Likewise if you keep earning couple of small profits in a single day then all your small profits will add up
to huge profit amount in a single day.
“Get satisfied in small profit and do multiple trades”.
Don't Overtrade
First and very important is not to Overtrade - Never put all your money/savings in share market.
Most of the borkers provide margin amount but it is up to you how to make use of this margin amount.
Most of the traders make use of this margin amount for over trading which is risky.
Don’t Panic
Don’t make early trades and even don’t square off your trade early - Even if you see the script has
moved up drastically, don’t buy, confirm the volumes of buying and selling and then decide your trade.
Don’t square off /exit from your trade early if you see script/share has come down bit from top. If it is
coming down from top means it is cooling, if you see more buyer than seller then you can hold your
position. You must know which share has what momentum, means if the share price is Rs.120 then you
can expect upside from Rs.1 to 5 and not Rs.50 to 100. If the script is going up, it will go in ladder
fashion, it will go up and it will come down bit and it will again continue its upward journey.
Page 9 of 13
proper knowledge. Read books, refer websites and get prepared before you plan for share market
trading or investing.
How much profit you will make in a month? Will you believe, if we say 30%?
If you follow a simple strategy which is called as “Take small profits and do multiple trades” which is
explained in following example
Let’s see following example including the calculation of Brokerage and taxes
The current maximum intraday brokerage offered in the market is 0.05% for buying and 0.05% for selling
(We provide 0.03% for buying and 0.03% for selling)
Don’t worry all these taxes will add up to very small amount at the end of the day compared to your
profits.
Example -
Suppose you bought the shares of Kotak Bank at Rs.315 and quantity 100, so the total amount you have
to pay is Rs.315 x 100 = Rs.31500.
Brokerage charge
0.03% as brokerage (It’s our brokerage rates) on 31500, which comes to Rs.9.45.
Service Tax
The service tax is 10.36% only on brokerage, so 10.36 % on Rs.9.45 comes to Rs 0.98.
Brokerage charge
0.03% brokerage on 31,600, comes to Rs.9.48
Service Tax
The service tax is 10.36% only on brokerage, so 10.36 % on Rs.9.48 comes to Rs 0.99.
Page 10 of 13
Total brokerage + service tax + STT on selling amount is
= Rs.9.48 + Rs.0.99 + Rs.6.32
= Rs.16.79
Also you have to pay stamp duty and regulatory charges on total turnover.
Your total turn over is calculated by adding the buying amount and selling amount.
Buying amount is 31500 and selling amount is 31600 which adds up to Rs. 61300
Stamp duty is 0.002% and Regulatory charges are 0.004% which adds up to 0.006%
So on total turnover amount (Rs. 61300) the stamp duty and regulatory charges comes to Rs 3.8.
So the total amount you have to pay including brokerage and all taxes is only
Rs 27.22 + 3.8 = 31.02
Conclusion
So now the conclusion is you are paying Rs.31.02 (brokerage and taxes) while you earned the profit of
Rs.100.
So your profit is Rs 69 (100-31)
So don’t you think 69% profit in single trade is quite enough to do thousands per day?
If you continue doing such small trades with small profits then you will end up with big amount at the end
of the day.
Suppose if you do only 10 trades in a day by taking only Rs 1 as profit then it will add
up to Rs 690 (Rs 69 x 10 trades in a day).
Now let’s see how to do thousands with same strategy as mentioned above.
Its simple, you just have to increase your quantity of shares.
In above example you have brought only 100 quantities, if you just make it double then your profit will
also get doubled.
So Rs.690x20 = Rs.13800.
Trading without losses is not possible for any trader, but trader has to reduce the losses and maximize
Page 11 of 13
the profits.
(Please visit our different sections how to reduce the losses in day trading)
If you follow above-mentioned simple strategy then have a look on below example how much money you
can make in a month.
Now let’s imagine you made loss on some days or due to some reason you are not able to trade on
some days, so let’s consider 5 days profit as loss. So 5 days loss comes to Rs 3450 (Rs 690 per day x 5
days).
Total Profit
Then also you are making profit of Rs 10350 (Rs13,800 - 3450) profit per month.
Your investment is Rs 35,000 and you are getting profit of Rs 10,350 per month so in just 3 to 4 months
you are making your money double.
Please note
1. You can even invest less amount like Rs 5000 or 10,000 and earn profits in a month.
2. In above example you are not using margin amount so if in case the trade goes against you then you
can hold them and sell later. If you use margin amount then you have sell them on the same day.
3. So the bottom line is forgetting greed factor and taking small profits will make miracle to your
investments.
If you don’t want to take high risk in day trading then you can avoid using margin amount and trade only
using available amount in your trading account.
Generally it is risky (if you are new and not experienced) to do over trading by using margin amount or
even requesting your broker to add more margins for a day.
Note - Margin trading also depends on share category on which trading is done.
For example - “A” category shares gets full margin while “B” category shares gets less margin and this
will go on decreasing as you move down.
We have also the information that even some trading terminals square off your trades automatically at
3:00 pm if you use the margin amount.
Page 12 of 13
So if you use the margin amount then you have the time restriction irrespective of whether your trade is
in profit or loss you have to square off your trade because the margin amount is not your money its
brokers money which is given to you only for a single day for trading.
If you forget to square off your trade then you have to pay heavy plenty or some brokers charge interest
rates on the margin amount.
So the bottom line is if you use the margin amount for day trading then you have to square off your
trades irrespective whether you are making profit or loss.
Suppose if you have Rs 25,000 in your trading account then trade only of rupees 25,000.
In other words buy and sell shares of rupees that is available with you and which is your money
and not broker money so now there is no compulsion that you have to square off your trades
before 3:30 pm.
If your trade is in profit then you can book your profit and if your trade is in loss then if you want
you can take delivery of those shares and sell when the price goes up.
So if you avoid margin amount then you can avoid the major losses.
It is not compulsory to use margin amount it is just an additional amount given to you for day trading.
Page 13 of 13