How to Create a Day Trading Plan?

 

When it comes to preparing things for day trading, there are hundreds of factors that play a crucial role in delivering the desired outcomes. Conventionally, day trading is primarily about buying low and selling high in a particular day. In other words, this type of trading is essentially about determining opportunities in the market which can be related to a specific stock, industry, or the market as a whole. The secret to success in day trading lies in finding the right opportunity and taking the right decision appropriately.

However, the truth is that it is not as simple as it appears. Mostly, intraday traders tend to get swayed by a number of factors. While some traders get influenced towards the flow of the sentiment, others sway in the adverse direction.

The best way to tackle this variation is to have a well planned day trading plan that can help you perform your day trading activity and keep you stick close to your investing plan. Widely known as day trading plan, this structure enables traders to make trading decisions that are exclusively meant for them. In this post, we are presenting some great tips that can help you prepare a well-informed day trading plan.

Risk is above all

Every investment carries some level of associated risks. So, if you are buying shares, then the price of the share can get affected by different factors such as the country’s economic, social, and political scenario, the firm’s performance, etc. If the government performs a quick policy change influencing the industry where you are extensively invested, then the share price will react either in a positive or negative way.

Risk tolerance refers to the level of risk you can bear without becoming excessively worried and making emotion-based decisions. While long-term investors have time to permit the share prices to go up, day traders hardly have a few hours. You can refer to things like Zerodha intraday tips to gain more insights on this.

Therefore, before you begin with intraday trading, make sure that you evaluate your risk tolerance standards. A number of tools can help you attain that. In other terms, ask yourself if you would favor a higher potential return against an upper risk of losing your invested money OR if you would be satisfied with reduced possible returns with lower risks?

Pick your day trading pattern

Essentially, there are two styles preferred by day traders

1.      Scalping – This is a fast-track trading style. Under this style, day traders book small profits or losses within lesser time. They buy/sell stock and settle it within minutes. This style requires you to acknowledge trivial stock price variations and leverage them. Timing is very crucial in this case. Additionally, to make rational profits, there needs to be a preferred brokerage plan and the presence of large volumes of day orders.

2.      Regular day trading – This style is about revealing a position during the first half of the day and terminating it by the end of the day. This includes an improved understanding of the macroeconomic scenarios that can affect the markets/sector(s). It is about classifying a possible trend and choosing a position consequently.

Learn reading charts

This would help you analyze the open, high, close, low, and last closing price of a specific stock before investing. All these details play a vital role in taking the right investment decision. There are different types of charts like line charts, bar charts, and candlestick charts that provide insightful data about the high and low stocks.

When it comes to learning how to read charts, there are many free online tools available on internet that can be quite useful in decoding the complexity of charts. Even if you’re dealing with the best stock broker in India, a knowledge of these charts can be very useful.

Steps in creating day trading plan

1.      Determine your position – Being a fast-paced activity, intraday trading success depends on how fast you take decision and in the right direction. Before you start investing, it is recommended to do some dummy trading to practice on how efficient you’re in regard to this type of trading.

2.      Find out emotional factors – The best intraday traders maintain distance from the markets if they are not emotionally or psychologically ready for the challenge. Recognize your emotional triggers and how you respond to them and ensure that you omit days when you are not at your best.

3.      Be practical – Be truthful to your risk bearing and investment capacity. Don’t overdo on any on them. The same in the case with the expectation that should be realistic and not imaginary.

4.      Pick a day trading strategy - There are different types of strategies used by day traders. While each of them will need some practice, it can help you perform trading in a more organized manner.

5.      Define Entry/Exit rules – For an intraday trader, it is necessary to remember that sometimes the market soppiness can benefit you, and sometimes it can react adversely. Hence, setting entry/exit rules is a great way to keep your trades price-driven and not sentiment-based.

6.      Maintain proper records – If you’re investing for the first time, it is best to maintain a record of your daily trading activity. You can refer to the same to determine what worked best and what not. In addition, this would also help you in gaining more information about the best day trading strategies.