Intraday trading has received a boost in India after the onset of the coronavirus pandemic. In January 2021, the Central Depository Services (CDS) oversaw the opening of more than 1.4 million accounts which is a new record.
2021 has been an exciting ride for the Indian stock market, giving plenty of opportunity to traders to make profits. However, it also gave us some important learnings.
Here are three important intraday trading lessons that the markets taught us in 2021.
Minimize Your Losses:
Once you discover that the market is refuting the idea behind your
trade, you should cut your loss-making trades as soon as possible.
For example, the markets declined on December 21st once the news of the Omicron variant spread. Almost every trader shorted stocks in anticipation of a sustained fall in the markets.
However, unexpectedly, on the next day, the markets recovered instead of declining further. This is a great example of how you should closely monitor trends and actively cut losses rather than stick to fixed ideas. After you are certain that the trend of the market has changed, you should change your bets accordingly.
Follow Your Trading Rules:
As a rule of thumb, intraday traders should always abide by the rules they set for themselves. This not only helps you stay calm in difficult situations, it also guides you on the next step.
For example, having a stop loss is a rule followed by almost every trader. When Star Health’s stock fell 13% in a single day (15th December), sticking to the stop loss would have helped cut losses.
Yes, there are scenarios when it is better to break your own rules, but it requires a lot of experience to identify such situations.
Avoiding FOMO and Doing Your Own Research:
A lot of traders depend only on market hype to make trading decisions. This can lead to negative results. For example, the PayTM IPO was highly hyped but PayTM stock did not perform well and PayTM stock price is still trading at a significant discount from its opening price.
You should always monitor market trends and hype, however, this should not be the only factor on the basis of which you make your trades. Your trades should be backed by proper research and analysis regardless of the hype.
Don’t Be Greedy:
It’s important to know when to book your profit. Holding on to profitable positions for too long can be counter-productive. For example, several traders who went long on IRCTC shares failed to book their profits before the IRCTC share price began to enter a bearish phase after 18th October. The same can be said for the Bitcoin crash after prolonged bullishness.
How do you know when it’s time to book your profits? Once the stock reaches the target that you set for it before entering the trade. You can also use an up-from-cost strategy to determine when to book profits.
Select the right platform:
All things said and done, you don’t want a bad software ruin a good trade. Make sure you choose a software with minimum downtimes and glitches in the middle of a trade. (Hint hint: Try PHI 1 for free!)
Let’s begin 2022 with some hard lessons learnt in 2021. After all, you can only become a better trader by learning from your mistakes.