How to make money in stock market trading
We hear stories of millionaire traders and their trading riches every now and then. What makes them successful?
Intra-day stock and commodity trading has emerged as a suitable alternate career for many individuals who like a financially independent career path with working hours flexibility and high financial rewards. Unlike a typical day job, where one's performance is measured and rewarded at the end of one year, a day trader's performance is measured and rewarded at the end of every day!
An intra-day trader can be compared to a lone soldier, where s/he enters the trading battlefield at the start of a day with her/his strategies and ammunition and hopes to emerge victorious at the end of the battle-day.
There are few traders who are consistently successful in the game of intra-day trading. We hear stories of millionaire traders and their trading riches every now and then. How do these successful traders prepare themselves for a new trading day?
In fact most of super successful intra-day traders follow a daily regime, not unlike a trained soldier in the armed forces. Soldiers believe that preparation is the key and their motto is Prepare to Win or be Prepared to Die.
Before launching an attack, an army has to plan and plans well. Similarly, an intra-day trader needs to prepare before he takes his very first trade of the day.
A look at the daily training regime of an intra-day trader and how to be successful at this craft.
An intra-day trader should prepare herself/himself in the following manner before taking her/his first trade of the day:
1. Overnight news and happenings:
An intra-day trader should start the day with refreshing himself with the overnight news and global happenings. Remember that the capital markets never sleep and there is always trading happening at some other exchange of the world, while you were sleeping.
So, there will be a lot of overnight action happening when markets were shut in India, and this will affect your intra-day trading and trend of the market. Read, read and read some more!
2. Fundamental shifts in market
Some markets and instruments experience a long-term fundamental shift and as an intra-day trader, one should be aware of these fundamental shifts.
For example, there was a period lasting over several months, when natural gas (NatGas) was in downtrend due to oversupply coming from a new fracking technology (that helps in the extraction of gas from shale deposits).
Similarly, when the supply contracted, NatGas resumed its uptrend. So as an intra-day trader, one should not be standing in front of a powerful trend, but actually should profit from it, by playing the trend right.
3. Long-term, medium-term and short-term trend of the instrument
Instruments like stocks have a long term positional behaviour, medium term swing behaviour and intra-day day pattern. These three can be conflicting and hence have the potential to confuse a trader.
For example, very often a stock maybe in uptrend from past several months, but has faced a short-term selling from past one week, and today might be getting support at a local support level. So, whether you should buy, sell or hold this instrument?
That's the preparation and strategy, one should be aware of before entering the battlefield.
4. News calendar of the day
News releases through the trading day when the markets are still trading can disrupt your trade, even though you were positioned in the right trade.
For example, there is quarterly monetary policy, where central banks revise interest rates. The schedule for these news items is pre-published.
Similarly, quarterly results of companies, PMI (Purchasing Managers Index) data, GDP release and many such news items create short term volatility in the market, which may push you out of your trade by hitting your stops.
The best strategy is to take the trade post the volatility subsides after the news has played out.
Typically, after the newsbreak, markets have a clear direction and trend for quite some time. Such instances give a good opportunity to benefit from news-based trends without actually hitting your stop losses.
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Photographs: Dominic Xavier/Rediff.com