Intraday trading, also known as day trading, is an activity where buying and selling financial assets takes place on the same trading day. The aim of intraday trading is to capitalize on short-term market movements.
However, the path to success in intraday trading is full of challenges and misconceptions. Many new traders enter the market with preconceived notions that can mislead them and lead to significant losses. While intraday trading offers the benefit and attraction of earning quick profits, it is important to break these myths to help new traders succeed.
In this article, we are going to debunk six common misconceptions about intraday trading and uncover the truths behind them. Let’s get started!
Myth 1: Intraday Trading Guarantees Quick Profits
Many people think that intraday trading is a sure way to make fast money. However, a study conducted by the Securities and Exchange Board of India (SEBI) has revealed that over 70% of individual intraday traders (7 out of 10) in the equity cash segment incurred losses in the fiscal year 2022-23.
The proportion of loss-makers increased to 80% for traders who engaged in more than 500 trades in a year. This data highlights the inherent risks and challenges associated with intraday trading.
Truth: If you want to succeed in intraday trading, it requires a deep understanding of the market, disciplined strategy implementation, and effective risk management. It’s not a guaranteed path to quick profits. Rather, it’s a challenging activity that demands continuous learning and adaptability.
Myth 2: Only Experts Can Succeed in Intraday Trading
It’s a common belief that only seasoned professionals can make a profit from intraday trading. It is true that experience can be beneficial, but success in intraday trading is not exclusive to experts.
With proper education, discipline, and a well-thought-out strategy, beginners can also understand the markets effectively. It’s essential that you start with a clear understanding of market basics and gradually build experience.
Truth: Beginners can achieve success by dedicating time to learning, practicing with virtual trading platforms, and developing a solid intraday trading plan. Patience is key, as proficiency develops over time.
Myth 3: High Capital is Necessary to Start Intraday Trading
Another myth is that substantial capital is required to begin intraday trading. While having more funds can give you more flexibility, many platforms allow traders to start with small amounts. The trick here is to manage risk effectively and not overextend your financial capacity.
Truth: Many brokerage firms in India offer accounts with low minimum deposit requirements. This enables individuals to start intraday trading with limited capital. You can implement strict risk management strategies, such as setting stop-loss orders and limiting the amount risked per trade to protect your investment.
Myth 4: Intraday Trading is Pure Gambling
Labeling intraday trading as gambling ignores the analytical aspect of the practice. Successful traders rely on research, technical analysis, and informed decision-making rather than chance. Treating trading as a disciplined activity differentiates it from gambling.
Truth: Unlike gambling, which is based on chance, intraday trading involves analysing market trends, understanding economic indicators, and making informed decisions. A disciplined approach, combined with continuous education, can tilt the odds in favour of the trader.
Myth 5: Following Tips Guarantees Success
Relying solely on market tips or recommendations can cause harm. The market is influenced by various factors, and what works for one trader might not work for another. Developing a personal strategy and understanding one’s risk tolerance is very important.
Truth: Blindly following tips without conducting personal analysis can lead to losses in intraday trading. It’s vital to critically evaluate information, understand the rationale behind trade recommendations, and ensure they align with your trading strategy and risk appetite.
Myth 6: More Trades Lead to Higher Profits
It’s tempting to think that executing more trades will result in higher profits. You should also consider that overtrading can lead to increased transaction costs and potential losses. A focused approach that emphasises quality over quantity often gives better results.
Truth: Overtrading can erode profits due to transaction fees and increased exposure to market volatility. You should focus on high-quality trade setups and being selective can enhance profitability and reduce unnecessary risks.
Bonus — Myth 7: Intraday Trading Can Be Done Part-Time
Many feel that intraday trading can be pursued as a part-time effort alongside other commitments. But the reality is that intraday trading demands constant attention and swift decision-making. The markets can be highly volatile within short periods, and missing out on timely actions can lead to major losses.
Successful intraday traders often monitor market movements, news updates, and technical indicators throughout the trading session to make informed decisions. Treating intraday trading as a part-time activity can lead to missed opportunities and increased risk exposure.
Truth: Intraday trading requires a full-time commitment to effectively analyse market trends, execute timely trades, and manage risks. As an aspiring trader, you should be prepared to dedicate substantial time and focus during market hours to understand the complexities of intraday trading successfully.
Conclusion
Intraday trading offers opportunities but is accompanied by risks. By debunking these myths and approaching trading with informed strategies, you can increase your chances of success.
You should also keep in mind that continuous learning and disciplined execution are essential in the ever-changing world of intraday trading. Happy trading!
