01 Mar Short-Term Trading Techniques
What is Intraday Trading?
Intraday trading involves buying and selling securities within the same trading day, with all positions squared off before market close. Unlike regular trading, where settlement occurs over time, intraday trading demands quick decision-making and execution to capitalize on short-term price movements.
Advantages of Intraday Trading:
- Reduced Overnight Risk: Intraday positions are unaffected by overnight news or off-hour market movements, minimizing exposure to unforeseen risks.
- Increased Leverage: Traders have access to higher leverage, amplifying potential profits (and losses) within a single trading day.
- Tight Risk Management: Utilizing tight stop-loss orders helps protect positions and mitigate potential losses.
- Hands-On Learning: The frequency of trades in intraday trading provides traders with valuable hands-on experience, facilitating skill development.
Challenges of Intraday Trading:
- Limited Asset Availability: Certain assets, such as mutual funds, may not be suitable for intraday trading, restricting the scope of investment options.
- Multiple Commission Costs: Frequent trading incurs multiple commission costs, reducing overall profitability.
- Rapid Loss Accumulation: Losses can accumulate swiftly, particularly when margin trading is involved, necessitating diligent risk management.
- Time Constraints: The limited timeframe of intraday trading may not allow sufficient time for positions to realize profits before closure.
- Persons subject to TDS under section 51 of the CGST Act.
Strategies for Intraday Trading:
- Scalping: This strategy aims to capture numerous small profits by exploiting minor price fluctuations throughout the trading day.
- Range Trading: Utilizing support and resistance levels, range trading involves buying at support and selling at resistance, or vice versa, within a price range.
- News-Based Trading: Traders capitalize on heightened volatility surrounding news events to identify trading opportunities.
- High-Frequency Trading: Employing sophisticated algorithms, high-frequency trading strategies exploit short-term market inefficiencies for quick gains.
Tax Implications:
Income from intraday trading falls under speculative business income and is taxed according to the individual’s applicable slab rate. Deductions for expenses such as internet charges, telephone charges, broker’s commission, and demat account charges are permitted. Losses from speculative business can be carried forward for up to four years. Individuals are required to file ITR-3 for reporting intraday trading income and losses.
Understanding the intricacies of intraday trading empowers traders to navigate the volatile market landscape effectively, optimizing opportunities while managing risks prudently.
No Comments