Intraday trading is an alluring proposition for expert traders. The flexibility to earn from anywhere in the world makes it all more attractive. However, it requires in-depth analysis and painstaking research. Hence, amateurs usually start as part-time day traders.
Part-time day trading cannot be defined based on the number of hours spent on active trades by an investor. This is more like trading for some hours with quality than quantity. Thus, part-time trading can be defined as trading along with other commitments like a full-time job or other activities.
Guidelines to become a part-time day trader
Some key technical indicators
There are many technical indicators that assist you in intraday trading. However, it is not needed that you master all of them. You just need to be thorough with the key indicators listed below.
- SMA (Simple Moving Averages): SMA calculates the mean for a range of closing prices in a certain time period. The 20-day, 50-day, and 200-day SMAs are commonly used. You will get a fair idea about the support and resistance levels of stock. The SMA evens out price fluctuations over a period of time.
- RSI (Relative Strength Index): It is a market momentum oscillator plotted on a scale of 0-100. A reading above 70 suggests the stock is overbought and a reading below 30 implies a stock is oversold. In bullish markets, readings are in the range of 40-90. In bearish markets, they are in the range of 10-60.
- MACD (Moving Average Convergence Divergence): It is a momentum indicator calculated by subtracting 12-day EMA from 26-day EMA. A 9-day EMA line is plotted along with the MACD line. Crossovers between the long-term and short-term lines indicate market swings and trend reversals.
Some common intraday trading strategies
- Breakout: A dramatic fluctuation in a stock price that has been relatively stable for long. Sudden peaks and troughs indicate breakouts.
- Scalping: Shorting stocks as soon as they become profitable. This strategy involves taking advantage of price spreads.
- Momentum: This strategy involves forecasting market sentiments and price movements based on trending news.
- Fading: This is a high-risk strategy that involves acting against the current trend and conventional wisdom. For example, buying at peaks and selling at troughs.
Some common stock price patterns
- The waterfall pattern: This pattern is caused by current news, world events, corporate announcements, or a general buzz. It is characterized by a sudden stock price explosion. The price will reach a high peak and then reverse sharply. It’s not so easy to predict the intensity of the price rise or fall. It is risky but will give you ample of opportunities to go long or short.
- The stair stepper pattern: This stock price pattern resembles a staircase or plateau with intermittent peaks and troughs. During a downswing, the prices fall steeply followed by price corrections in subsequent cycles. Price adjustments create new support and resistance levels.
4. Intraday trading platform
You need a robust online trading platform to execute trades quickly and seamlessly. Many online trading platforms provide you with comprehensive technical analysis tools. These tools help you in picking the right stocks for trading. A little research from your end will help you choose the right trading platform. If you go With a proliferation of online trading platforms in the market,
Demat and Trading Accounts
As per SEBI guidelines, you need a Demat and trading account for online trading. A Demat account holds your physical securities in digital/Dematerialised. A trading account allows you to trade securities in the secondary markets. Many brokerage firms allow you to open Demat and trading accounts for free.
These were some basic guidelines to become a part-time day trader. Sticking to a trading plan, continually learning, avoiding big trades. You should do your homework while selecting stocks. These are some other useful tips to become a successful part-time day trader.