My Day Trading Experience Today And 15 Lessons From It

 I had a modest day trading experience today. It has been a really long time since I ever did day trading. Last time I remember was in the first half of 2008. Out of less than 10 such days, I used to trade only in one or two stocks all through the day. In that aspect today was a good development as I traded in four stocks and at varying times. Earlier I used to make entry at the start of the day and close later for profit or loss.

Yesterday I got notification in office that office will be closed for today in observance of nationwide strike for petrol price hike. To make sure there is also no national holiday, I checked for trading holiday list on NSE. Then I decided I must use this rare opportunity for day trading. My preparation entailed only finding high volume stocks that have potential for big swings and for which my broker allows upto 10X leverage for intra-day. It was quite tedious task to go through 200 such scrips. I got bored and stopped after checking few stock charts. I noted about 17 of those stocks (arvind, ifci, mtnl, relcapital, sail, essaroil, godrejind, hcc, apollotyre, itc, jublfood, mrf, ofss, pantaloonr, gmdcltd, rpower, divislab). It was clear I wasn’t up for day trading. I decided to watch a movie or two for the night before and slept late. After watching Limitless (2011) for yet another time, I had decided to do some trading whenever I wake up.

I woke up at 10:45 and didn’t feel like trading at all. I thought “Anyway, how much can I do with low capital?” But I had bought a NIFTY option yesterday as a test to find out brokerage rate. I got the idea of checking whether limit orders are possible for options. This had excited me to stop sleeping and get a start with trading. I was able to place a sell order for option at 11 rupees while it was quoting at 0.15 rupees. That was amazing as it is beyond 100%. Earlier I had mistakenly assumed that there is a 20% range around cmp within which we should place limit orders. Wildly swinging option prices shouldn’t have such limits. Otherwise it would require me to monitor the option price all through the day. Thankfully, there are no limits so it opens up lot of possibilities.

After placing an option order, I had logged into Power Indiabulls software and Sharekhan browser based terminal. The market gapped down already as expected as US markets fell by more than 1% across the board. That was also one reason to lose hopes on day trading and selling my about to expire option. Nevertheless I had decided to try atleast to explore day trading. I had created a new watchlist in Power Indiabulls with those above 17 stocks and began checking intraday charts of stocks one by one ordered by alphabetics and percentage changes for the day.

I ended up looking up ARVIND (first on the list), SAIL (last on the list), HINDALCO (opened by mistake from NIFTY list as it also rose by 4%), DELTACORP (as it was already in my delivery portfolio). Now I don’t remember exactly why I bought ARVIND but I bought 100 shares at market price. While it was quoting at 77.8 the broker did its worst to buy above 78. I noted down my first lesson for the day!

ARVIND had already bounced twice from its lowest price for the day so I thought it is worth trying its upside. I had placed alerts at 77.5 and 78.9 and a limit sell order at 78.9. Now I had time for other stocks. I looked at order book of DELTACORP and noticed it steadily rising 0.10 every minute and stopped at 59.2. I had decided to short-sell at 59.2 and buy back at 58.25. I placed orders for these in Sharekhan which gives lower brokerage rates. I had placed alerts in PIB and stop loss buy order for covering the margin trade. I was watching SAIL and HINDALCO. HINDALCO was already up 4% and was not sure if there is further upside to it.

I had repeatedly watched all the four stocks LTP, % change, order book, intra-day charts along with checking out MTNL and OFSS as well once in a while. Intermittently I had completed my morning ablutions (but in the afternoon  :)) and decided to go for lunch. It was already 13:00.

Then HINDALCO was at 1.5% which meant it retraced by 2.5% from its high price for the day. So it looked like a good intra-day opportunity and what is better than following the trend? Like the saying “trend is your friend”. I had placed a buy order for only 10 shares (as I didn’t want to take time to calculate how much margin is left in Indiabulls) at 115.9. My Sharekhan margin was already over as I had portfolio holdings and crossed 10X margin already for the day with the DELTACORP orders. I felt I was screwing up but didn’t care as the primary concern was to eat some food. I checked ARVIND, DELTACORP again and again for 15 minutes, as they didn’t move an inch I went out for lunch. Before going I had placed a stop loss sell order at 115.4, just in case. I had ARVIND without protection because it was clear it won’t move much for the day and is off its lows for now.

After half an hour I was back and had a pleasant surprise from HINDALCO. It was up to 117.6. As I was deciding to sell it crossed 118. I sold the shares at 118.15 but regretted for not buying for as much worth as I did for ARVIND. That is when I dug into margin reports and experimented with changing open positions from cash to intra-day and vice versa to see their impact on margin utilized. That was a good learning opportunity. My margins for delivery for 40% while for intra-day were 10%. By default orders are for delivery (or cash segment). While placing buy or sell orders, if I choose the order type to be Intra-day instead of cash (default), my leverage would be upto 10X. On fast moving days, there won’t be much time to change open positions or learn these stuff anew.

The rest of the time till 14:30 no movement happened in ARVIND or SAIL. But DELTACORP reversed trend, crossed upper limit and stop loss order got triggered. As its position got closed and the stock was well off its lows, I had placed a buy order in cash segment for 32 shares mainly to check how long margin is allowed for delivery trades in Sharekhan. I had 1000 rupee margin, so I bought for more than that. I will know whatever happens in 6 days. If margin is allowed for 5 days, I can forever stop trading with Indiabulls as they are adamant at not reducing brokerage rates.

Sometime around 14:45 or so, SAIL was showing strength. I bought 40 shares (this time with intra-day margin) at 94.65 and watched it jump up and down. After few minutes ARVIND started moving up from its average price of 77.8. I had watched both of them compete for sometime. I had a sell order for SAIL at 95.9 and alerts at 94.9, 95.25. ARVIND crossed its intra-day high and was struggling to go up further. From 14:55 to 15:00 it was full of suspense like those last few Overs in Cricket. After 15:00 intra-day square-off can begin at any time so I wanted these stocks to reach my targets before that.

I thought there may be few minutes before square-off begins. But my intra-day sell order got cancelled already. Luckily just a minute before 15:00, I had converted ARVIND and SAIL from intra-day to cash segment. They were within 40% margin limit. I had removed all sell or stop loss orders to be within 40% margin limit.

Now all the open positions were risky and they will go for delivery and lurk in my portfolio for many days. I had checked their EOD charts to see if there is hope for holding them overnight. As I wanted this to be a pure intra-day experience and the stocks not being too strong on EOD charts, I decided to sell them before 15:30. First off SAIL was doing good, so sold it at 95.55. ARVIND went up to 78.75 and quickly started falling down, on huge volumes. I was looking for a break but it wasn’t taking any. I thought it was enough when it reached 77.5 and sold at market order. Once again the broker did its worst to sell it at 77.4 while the quote was at 77.5. This one stock ruined my feeling for the whole day.

Anyway, when I looked at the consolidated details of the four day trades, I had noticed some improvements to my day trading. Instead of just looking at one or two stocks, I had explored more stocks and traded four this time. Of them, two were closed with stop losses and two were profitable.

My profitable trades had more percentage profits than losses. However the capital allocated was less. This had turned the net gain to the negative side. I am taking below lessons from this day-trading experience:

1. Don't place market orders unless the stock is moving fast and the strategy is pyramiding. The broker do their best to get worst prices for our fills. Hence study order book and place limit orders.
2. Overnight preparation alone is not sufficient for day trading. Some stocks must be followed a week or two before the day.
3. Indiabulls was charging exorbitant brokerage rates. I would reduce these charges significantly by using Sharekhan alone.
4. Net gain was -70 rupees. If brokerage was reduced and all trades are allocated as much capital as for ARVIND, it would’ve been +90 rupees. I could spot opportunities, but I need to do better money management as well.
5. Capital allocation: till I can feel the weight or strength of different stocks, it is wiser to allocate same amount of capital for each stock. Following Tony Oz’s advice, one should not allocate more than 1/3 in one stock. Which means I can go upto 2.5/3 (cash segment), or 10/3 (max trade) times the available cash.
6. Orders should be placed with type Intra-day to avail of maximum margin. However this reduces the time available by half an hour. Close the max trades before 15:00 to avoid being squared-off.
7. Find stocks that have gone up or down by large percentage. Such stocks are likely to reverse or continue the trend, with large percentage swings. These are the best candidates for intra-day trading. It is random to find a stock which will break out from narrow range but it is more certain to expect wild swings in stocks that have just done a wild swing. Top gainers and losers of the day before provide a good list for this.
8. Be patient; don’t just keep watching the same stock all the time. Place alerts for each stock being watched and move on to explore other opportunities.
9. In day trading not all days are profitable. Especially the one like today where the broader market swing was narrow the possibilities are limited. Don’t take a bad lesson from this.
10. Place stop loss orders with intuition. The idea is only to reduce losses as much as possible. It is okay to get stopped-out with profits as well.
11. Don't just jump into any stock for the sake of day trading. Wait till a compelling opportunity presents itself.
12. Sometimes do scalping if stock is bouncing in a range. Do with the broker giving lowest brokerage rate.
13. Study the direction of a stock for which there is huge volume. For ex, if a stock suddenly rose occasionally during the day and the volume supporting that short time was higher than other times, then trade for uptrend and vice versa.
14. Buy the strength, sell the weakness. All of my trading now revolves around this. Rulistic strategies won't work under many circumstances. Hence I study a stock's price movement to determine its weakness or strength. If it is strong, it will fall lesser than broader market while rise faster.
15. Trade divergences. Divergences are the best opportunities. I look any stock that is diverging away from general market trend.

This wasn’t too bad. After many years, it was still possible to apply day trading rules. Good to know that it was still possible despite lack of enthusiasm or motivation or enough preparation. It just needs more practice to get to the professional level. I will keep that for the upcoming post-meltdown days.

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A Simple Strategy for Consistent Intra Day Trading

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There are a lot of ways to do intra-day trading of stocks. The beauty of intra-day trading is that it makes you feel like you are doing a full time job out of trading shares. Even with a single strategy you can keep trading all through the day. There is a simple strategy that I want to share today. This is really the simplest one as it does not take much effort on our part to find stocks and execute the trades. But it does have considerable risk and accordingly higher chances and potentially higher rate of returns.

Intra-Day Trading Needs Persistence

When day trading shares, most important thing to consider is to note the boundaries of the time that is fixed within that day. This is what makes the intra-day trading to be difficult, if not encouraging, for most traders. Even if you learn to accustom to this time boundaries still to persist all through the day is challenging. What if I tell that by sticking to one simple strategy you can persist all through the day?

That is what I am going to share now. When trading shares intraday consistently trade after trade, we need to make the task easier. Each trade consists of several activities within the same day. You need to find stocks, you need to look at their charts, order books, second order and if possible third order quotes as well, before deciding to make an entry. After making an entry, you should place it on auto-pilot with a trailing stop order and move on to other trades.

Trading Only Stocks at Their Highest or Lowest Levels

Now to make these tasks easier we can choose to trade those stocks that are closer to their intra-day highs or lows. Plan to go long on stocks that are trading near their intra-day highs and go short on stocks that are trading near their intra-day lows. As long and short trading share similar principles but in the opposite direction, it suffices to explain one direction.

Let us take the case of stocks to go long. It does not matter what time it is during the day. You can always find some stocks that are just closer to their highest value of the day. To find such stocks you should not just look at the list of top gainers, losers etc, though these also give the stocks list with least effort on our part. If these lists are exhausted meaning you took advantage of them already and they are still gainers of the day but not at their highest points of the day, then you need to go deeper in search.

Finding Stocks

Fortunately it is pretty easier to find such stocks by going to nseindia.com and keeping a list of stocks that show open, high, low and close prices at any point of time during the day. If your brokerage account’s terminal can show the same list as a table in one window that will be even better because they show real time quotes as close as less than a second. NSE India site shows with a delay of 15 seconds. It can be considerable time lag when trading volatile stocks with this technique.

Once you find a stock that is moving near its high of the day, place an order to buy just a little above high price. Now you need to place a buy stop order and not an ordinary limit order as beginning traders do. Because the trade gets executed immediately after placing an order to buy above the current market price.

This is not the way to trade with this strategy. We need to get in only if the stock were to breakout once again and make a new high higher than the present high price. This ensures that we will be in the trade only if the stock were to continue the uptrend that it started. If not our stop order will make sure that we never enter that stock. Don’t try to reverse the order thinking the stock might fall. Sometimes stocks just don’t move anywhere all through the day.

Placing Orders for Entry

In your entry order, you should place stop price just a little above the high price of the stock at that time. How much is the ‘little above’ depends on the volatility of the stock? I prefer to consider +0.15% for the stop price for highly volatile stocks. For non-volatile stocks this strategy is not very useful but if tried it is good to try with a +0.1%. Don’t increase this further as the brokerages in Indian markets charge 0.3% as typical rate.

The Limit price in your order should be again 0.1%-0.15% above the stop price. All in all you are betting on the stock making a move higher than a total of 0.6% from current high price to make sure the trade is atleast even. But note that often if the stocks breakout you could be in a ride as long as 10% of the stock.

The reason why we trade stocks at the highest point when common sense tells that we are paying higher price is because the probability of the stock going higher is high when it is trading at its highest point of the day. Otherwise tell me how can stocks move higher? One is by opening with gaps. But we are talking about trading through the day and not overnight. Expecting a gap up at tomorrow opening and buying shares at today’s close is a completely different strategy and is more riskier than the one I am talking about now.

If you want to take advantage of a sudden and surefire movement of the stock then go long on the stocks at intra-day highs and vice versa for going short. You can take any intra-day chart. If you generalize different charts of the same stock on different days or different stocks and different days, the chances of a stock making a sudden up move are higher than the chances of trend reversal when the stocks are at their intra-day highs.

Placing Orders for Exit

Putting the fear to rest, one important thing to mention is the exit strategy. As these stocks make rapid moves once they break out of the high price, they are likely to retrace of their move in the same pace. If you want to move onto another stock that you just found it is good to guess an exit point say 1% or 1.5% above the high price and place a limit order.

If you are a multi-tasker who can switch between observing charts, order books of multiple stocks that you have entered, then instead of placing limit orders try trailing stop orders. As the stock price moves upwards it will keep on making pull backs of small magnitude. Whenever a pull back appear to be larger than a pull back on both sides, take the lowest point in that pull back as the stop price for your trailing stop order.

If the stock were to continue the trend, the trailing stop price too should keep going up. When you change it continuously the profit will be locked when the stock makes a bigger pullback for the day or the hour.

Word of Caution

This strategy entails risk. So it is not a one time thing you should do. If it turned out that the first attempt of the day went bad, then it is natural feeling to not try again. To avoid great risks, use stop loss order compulsorily at just below the high price of the day after making entry into the stock. When a stock makes a high, breaks it and couldn’t find a support at this high, it is likely that it will break down further. Don’t worry too much about closing with a loss including brokerage costs for the potential profit can be much better with this strategy.

All of the time you should note that in intra-day trading all percentages, price differences would be very small. Don’t try this if you cannot digest these small numbers as big for the time during the trade.

Easy to Persist

It is easier to persist with this method in intra-day trading because the sudden move in the stock immediately after entry will get you excited. As much as the excitement if you also close the trade even with little profits and maintain stop loss order just after entry very close to the entry price, you are likely to persist with this strategy.

Another important thing to note is that finding the stocks not very hard. For any given day you can prepare the list of stocks the day before that by finding all stocks that made a white candlestick. In other words on the previous day the stock should have made a close higher than the open. The chances of a bigger move are high if there are atleast two white candlesticks after few black candlesticks till previous day.

You can also sort out stocks that just made 1%-5% gain within the half-an-hour. You can place alerts in your brokerage terminal (if they allow) or write a script to do that on your computer which suddenly pops up a window to tell that a stock just reached close its intra-day high. The ideas to find the candidate stocks are only limited by your imagination.

After some time, I realized that this one is similar to Opening range breakout day trading strategy. In short form, it is written as ORB. ORB strategy is different from this in that we pick stocks to trade from ORB based on range established in the first hour of the day.

The one I am talking about can follow along the line of hourly gainers strategy. One can look for stocks breaking the high made in the previous hour at any time of the day. Though both can be good day trading strategies. For novices, it is better to start with something that is simple to practice to get confidence and understand risk management practically. Then try more strategies.

One can play with options as well with this idea. As options anyway give leverage and increased price swing, start with large caps that do not swing wildly. Instead of the stock buy the option. Then one can play with call or put option depending on which side the price is breaking out.

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