UNDERSTANDING DAY STOCK TRADING :-SOME IMPORTANT WRITEUPS THRU QUORA

 

No.1

First, I will explain what is day trading?

Day trading is defined as the purchase and sale of a security within a single trading day. It can occur in any marketplace but is most common in the foreign exchange and stock markets. Day traders are typically well-educated and well-funded. They use high amounts of leverage and short-term trading strategies to capitalize on small price movements in highly liquid stocks or currencies.

Here I am sharing some strategies for day trading.

Scalping. Many day traders sell as soon as a trade becomes profitable, after covering commissions, interest costs, and overhead. This strategy is effective as long as the majority of small trades are in fact profitable and the trader is equally quick to curtail losses.

Fading. Many traders short sell stocks with rapid upward movement, anticipating that other investors may take a long position. The combination of short-sellers and those taking a profit creates an imbalance between buys and sells, driving the stock downward.

Daily Pivots. Anticipating that many stocks trade in a daily range, day traders may buy at the low price (a “support” level) and sell at the high price (a “resistance” level) or, conversely, short sell the stock at resistance and buy back the position at support.

Momentum. Traders buy a stock if it is moving upward with increasing volume. They sell when the price is trending downward with volume, assuming that the price direction continues after they take a long or short position, so they can close the transaction with a profit.

Now I m sharing some real facts about day trading.

Be prepared to suffer severe financial losses.

Day traders do not "invest".

Day trading is an extremely stressful and expensive full-time job.

Day traders depend heavily on borrowing money or buying stocks on margin

Don't believe in claims of easy profits.

Watch out for "hot tips" and "expert advice" from newsletters and websites catering to day traders.

Remember that "educational" seminars, classes, and books about day trading may not be objective.

Check out day trading firms with your state securities regulator.

I have shared my strategy on intraday trading but as per the question I can say as per my experience it is very risky, I never prefer intraday trading as I have lost so much when I was doing it on my own in the beginning. I would suggest if you have enough capital then go for positional only if your strategy is perfect and market movement is in favor of yours then you will get the profit in intraday only.

After losing so much, in the beginning, decided to take advice from any advisory firm and met my research team. Through their strategy only I have learned that if your strategy is perfect it is possible for you to earn in intraday with the positional call itself.

Stay Safe Stay Happy !!!!!! 

No2 

In the days before personal computers, instantaneous communications, and sophisticated software, many Wall Street brokerage firms employed veteran traders to sit and interpret the paper tapes of stock transactions that spewed from mechanical tickers across the city. These traders, known as tape readers, would note the price and volume pattern of individual trades in the hopes that they could identify opportunities for quick profits. For example, if the latest trade of a stock differed significantly from previous trades in either price or volume, this might be interpreted as the work of insiders acting before news that could affect the company is announced. The tape readers would then act similarly, hoping their intuition was correct.

Definition of Day Trading-

By definition, day trading is the regular practice of buying and selling one or more security positions within a single trading day. No position, long or short, is held overnight. Day traders frequently deal in thousands of shares, often with leverage, and look for small-percentage profits on each trade – often less than $1 or $2 per share. They take positions based upon their analysis of a stock’s probable price direction within the trading period.

Risks of Day Trading-

Despite the benefits, day traders must manage a number of financial and psychological risks-

2.Capital Loss-

Even if a majority of trades are profitable, considerable up-front costs such as hardware, software, and initial news services must be paid before one can begin trading. Also, ongoing expenses such as ECN fees (or commissions if the trader is not using an ECN), interest, real-time news fees, financial analysis and charting packages, and communication charges must be maintained.

2.Market Movement-

Michael Sincere, day trader and author of “Start Day Trading Now,” claims it is hard to make money when the market moves less than 100 points in either direction from the day before. According to Money Beat, 2013 was one of the least volatile years of the S&P 500, moving an average of 0.55%, below its post-1928 average of 0.76%. Too many traders are chasing too few opportunities, meaning that only those quick enough to recognize an opportunity and act are likely to make money. Being late on a trade can turn a potential profit to a loss.

3.Psychological Addiction-

According to Ed Looney, executive director of the Council on Compulsive Gambling of New Jersey, day trading is “like crack cocaine – it’s much more addicting than other kinds of gambling.” Some psychologists suggest that gamblers and day traders are similar in that they tend to be competitive and of above-average intelligence.

  

No 3 

If you have ever thought about day trading then you need to know that it can be a very risky endeavor to get involved with. Day traders rapidly purchase and then sell stocks during the course of the day with the hope that these stocks will continue to go up in value or drop in value for the minutes (or in some cases seconds) that the traders own the stocks for. This would make it possible for them to lock in fast profits. Day traders very often buy on money that is borrowed with the goal in mind of reaping higher profits by way of leveraging. The down side to this is that they also run the risk of having to cope with higher losses.

It is important to point out that day trading is by no means illegal nor could it be described as being unethical. However it can be very risky. How risky depends upon the stakes and how many of your dollars you are willing to put at risk. The average individual investor does not have the money, the time or even the energy or temperament to earn money in this manner and to risk the huge losses that can accompany day trading.

There are certain aspects of day trading that every investor should be aware of before they decide if it is for them. First of all day traders often suffer devastating financial losses during the first few months of trying it out. What this means is that they are forced to bow out before they can reach the point where they will see profit coming from their day trading activities.

Due to the potential for loss and the outcomes that day trading often brings with it those who still wish to try it out for themselves should never use money that they need to pay their mortgage or rent or their day-to-day living expenses. They should also not use money that has been set aside for retirement or take out a second mortgage. It is a gamble that you are not likely to win and it is not worth it, especially if you have a family that is depending upon you to make smart financial choices.

If you want to invest then you need to know that what day traders do cannot be described as honest to goodness investing. What they do instead is they watch for split second opportunities. They sit in front of computer screens and practically glue their eyes to them. They look for stock that is either climbing or falling in value. Their wish is to ride the momentum of any given stock and then get what they want from it before it switches to another course and goes up or down.

The day trader has no idea which direction the stock will go in. The hope is that it will move in one specific direction, be it up or down. Those who are bonafide day traders do not own any stocks overnight due to the risk that prices will alter in a radical nature from one day to the next which would lead to devastating losses for them. Day trading is very unstable and nerve wracking to partake of.

To be a day trader you must be committed to watching the market continuously throughout the run of the day. That means that you cannot allow your eyes to stray too far from the computer terminal or you could miss something. This is very difficult to do and demands a high level of focus and concentration. You must watch and process in your head dozens of ticker quotes as well as price fluctuations in order to spot the trends in the markets. The risk to you all depends upon how much money you are willing to put on the line. 

 

DAY TRADING ON MARGIN

What is day trading on margin?

Day trading, otherwise known as intraday trading, is the practice of selling securities that one has bought within the same day itself with the goal of locking in instant profits from stock price movement. Day trading on margin allows a trader to borrow funds from their broker so they can buy more shares than the cash that is currently within their account. Intraday trading margins also allow traders to short sell their positions. By utilizing the power of leverage one gets to amplify their returns.

However, one can also potentially amplify losses. Day trading has its inherent risks since it is highly dependent on the fluctuations in the prices of the stock on any given day. Intraday margin trading can result not only in substantial profits but also huge losses in a short period of time. One’s margin is calculated by considering the total exposure the client has in the current market. One’s margin is the total of their VAR or ‘value at risk’ and their ELM or ‘extreme loss margin.’

In short, day trading no margin allows an intraday trader to increase their buying power. They are allowed to buy greater amounts than they currently possess the cash for, with their brokerage firm filling their shortfall at interest. As the dictum does, with higher risk comes high returns. A fair warning is that there are no guarantees to these returns. Margin trading for day traders has certain requirements. These are as follows.

Margin Requirements by SEBI

According to guidelines detailed by SEBI, those who wish to trade on margin need to maintain 50% of their total investment amount as their initial margin and 40% of the market value as their maintenance margin respectively. SEBI has also mandated that these amounts need to be paid in cash. Until this year, traders were required to meet their margin requirements in their account by the time the trading day ended. New margin rules from the Securities and Exchange Board of India, however, require that one fulfill their obligations for margin trading at the beginning of each new intraday deal.

The stock exchange will calculate a trader’s margin requirements based on how volatile the market is, which constantly fluctuates throughout a single trading day. From the 1st of December, a clearing corporation that is an official entity under the stock exchange will send at least four client-wise separate intimations each day so traders can meet their intraday trading margin requirements.

Since September of 2020, the margin requirement for trading on the cash market has also been changed by SEBI. Intraday traders, for example, have to deposit about 20% of the funds from their total transaction volume with their broker so that they can avail of the margin facility. As collateral, one is required to pledge any existing securities. Simply ask your broker for the latest list of instruments you have invested in which can be used as collateral by you.

What are Day trading Margin Calls?

Day trading margin calls, as well as a maintenance amount for margin trading, are required for intraday margin trading in India. As an intraday margin trader, you are required to maintain a certain amount in your account when you are margin trading. If you fail to maintain this amount within the same trading day, a margin call will be issued. The call will demand you to either close out your positions, or add money into your account to bring it back upto to margin maintenance value.

A margin call can hike up one’s costs in the case where one’s trades underperform for whatever reason. Consider the following example when it comes to day trading on margin. Let’s say that a trader has ₹20,000 more than the amount required for margin maintenance. This will give the trader with day trading purchasing power of ₹80,000 if she traders on a 4x margin (4 x ₹20,000). Suppose that this trader indulges in purchasing around ₹80,000 of ABC Corp’s stock at 9:45 am.

At 10 am, the trader then goes ahead and purchases ₹60,000 of XYZ Corp on the same day. She has now exceeded her purchasing power limit. Even if she were to sell both of these positions during her afternoon trade, she will be receiving a day trading margin call on the next trading day. Note that the trader could have prevented herself from receiving the margin call if she chose to sell the ABC Corp stock before purchasing the XYZ Corp stock.

Sebi's New Margin Norms Kick In. Here's What They Mean For Market Players

Between December 2020 and February 2021, traders had to pay at least 25 per cent of the peak margin; the margin was raised to 50 per cent between March and May, and will be 75 per cent from June to August

The new peak margin norms of 75 per cent imposed by the Securities and Exchange Board of India (Sebi) to curb speculative trading have kicked in today i.e. June 1, 2021. Margin trading implies that traders purchase shares by paying a marginal amount of the actual value to the brokerages concerned. Under the new margin rules, 75 per cent of the required margin for all equity and derivatives positions will be collected upfront by brokerages.

Sebi has been implementing new margin trading rules in a phased manner from last year. Between December 2020 and February 2021, traders had to pay at least 25 per cent of the peak margin. The margin was raised to 50 per cent between March and May, and will be 75 per cent from June to August. The margins will be raised to 100 per cent from September 1, according to the market regulator.

Moreover, under the new system, investors will no longer be premitted to use shares lying in their demat accounts to make margin payments unless such shares are pledged with the broker after a proper client authorisation process. The client authorisation will take place through email and a one-time password (OTP). And clients will have to pay a penalty for any shortfall in margins.

 

The new margin rules may impact intraday trading volumes as brokerages would not be able to provide the same leverage as was done earlier. On the other hand, the new margin system is likely to strengthen the risk management system and make the markets more efficient in the long term.

BSE clampdown hits small, mid-cap stocks

21 stocks locked in lower circuits; 2,500 close in red

A mad rush among retail investors to get out of small and mid-cap stocks on Tuesday led to a panic situation. As many as 521 stocks were locked in lower circuits with no buy orders for them. A BSE circular is being cited as a key catalyst for panic selling in a large number of small and mid-cap stocks.

On Monday, BSE said it was capping the rise in share price of stocks exclusively listed on its platform. Brokers said that any kind of curbs on free movement of stock prices is a suppression of free markets and will not be accepted by investors.

Market regulator SEBI had given its ascent to such a measure, which the brokers are now calling draconian. There are nearly 2,000 stocks that trade only on the BSE and the exchange stands to lose volumes in these counters due to the curbs, brokers said.

 Additional surveillance

BSE said that its move to cap the rise in share price was part of additional surveillance measures. India is one among the few global markets that have stringent caps on the share price increase. A stock, which is not in the derivatives segment, can rise by a maximum of 20 percent. Similarly, there are shares that attract circuit filters 2 per cent to 10 per cent every day. Then, there are several shares where delivery is compulsory and they also require 100 per cent upfront cash to purchase them.

Brokers say traders are more attracted to derivatives as any stock in the segment is free to rise any number of times and option prices can move even 1,000 or 2,000 times in a short span of time and nobody schemes manipulation. However, the view within BSE is that the exchange will act if anyone points out that its platform was used for share price manipulation.

BSE said its new cap on price rise will be in addition to the existing measures and circuit filers. As per the Monday circular, a stock that is priced at ₹100 and already in the 10 per cent circuit filter category can rise only by ₹30 in a week and ₹100 in three months. Similarly, stock priced at ₹100 can fall by ₹25 in a week and ₹50 in three months. It has spelled out several such caps with regard to stocks that attract circuit filters between 2 per cent and 20 per cent.

Though benchmark indices closed with marginal gains on Tuesday, small and mid-cap stocks witnessed heavy selling with 2,500 stocks closing in the red. The S&P BSE Midcap was down 0.85 per cent while the S&P BSE Smallcap was down 2.05 per cent.