Often times a beginner is faced with a decision as to what type of trading to choose: intraday, short-term or long-term?
But first, let’s understand how you define each of these different types of trading. Intraday traders are traders who do not hold any positions overnight, i.e., they Buy and Sell within the same day. Short-term traders are those who hold positions for a few days to 2-3 weeks. Long-term traders (also called investors), hold positions for at-least six months.
So how does one decide what type of trading to do? When faced with this decision, most novice traders decide to go for intraday trading because 1) it requires lesser capital, and 2) most beginners think that by trading intraday they can make a lot of money. Nothing can be farther from the truth though.
Intraday trading is difficult for beginners because of the volatile intraday movements and especially more so for those who jump into it without any paper-trading or practicing proper Technical Analysis techniques.
If you are a beginner, it is always a good idea to first try your hand in short-term trading (assuming that the long-term trend is a lack-lustre sideways trend which pretty much rules out any long-term trading until a proper long-term trend emerges), and, if you are able to time the market well using Technical Analysis, then jump into intraday trading.
Here is a short check-list to use when deciding your efficacy in trading:
- Are you able to time your entries?
- Are you setting your stop losses (SL) properly? If you are getting hit by stop losses too often, it’s probably a sign that either your entries are not right or your stop losses are not set correctly. It is generally a good idea to set a SL of 0.5-1% for intraday, 5-7% for short-term and 7-10% for long-term.
- Are you able to time your exits properly? Selling is always more difficult than buying and for a good reason. When we sell a stock, we humans sometimes tend to mix up emotions with our selling decisions, thus clouding a decision which should be totally objective rather than subjective.
To summarize, in Indian market conditions, its always a good idea to start off with short-term trading, perfect your trades using proper Technical Analysis techniques, and then venture into intraday trading.