Day Trading Strategies

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”’►► – ”’ Intraday or day trading is when you buy and sell a stock on the same day. It’s like taking a bet on where the share price is going in the next few hours, minutes or seconds. If a day trader thinks the price of a stock is going up he will buy it, hoping to sell it later for a profit. If he thinks the price is going down he will sell it, hoping to buy it back later at a lower price. Because many brokers offer the option to trade on margin (using borrowed money) and charge much lower fees for day trades, day trading has become more and more popular in India, particularly among young retail investors. It is however a very high risk pursuit. The use of margin trading and the speed at which trades can be made means that for a day trader massive losses are a real possibility. The flip-side of this, that massive profits are also a possibility, is probably the why it is so popular. Some day trading strategies focus on the very short-term; buying and selling a stock several times a day for extremely small profits. More common strategies amongst retail traders involve ‘taking a position’ in a stock, by holding it for a longer period. Event trading or trading the news is a strategy that exploits movements in price after new information hits the market. For example, if Reliance Natural Resources announced the discovery of a massive gas field their share price would rise. Event traders would try to quickly predict how much and for how long it would rise and act accordingly. Trend following or riding the curve is one of the most basic trading strategies. The trader assumes that the current price trend will continue and acts accordingly. In other words, they buy stocks which are moving up and sell stocks which are moving down. As all Swing Traders will tell you, following the trend does not always work. Swing trading is about timing the market and is based on Newton’s law of stocks; what goes up must come down and what goes down must come up. Swing traders try to spot the …


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