Trading volatile stocks is no child’s play. The risks are many and one needs to have the ability to run the risks in order to get good profits. Understanding the concepts of ‘volatile stocks’ and ‘day trading’ properly is essential before we trade actually in the markets.
Day trading involves buying and selling of securities on the same day. You can buy first and then sell the securities, or simply go short by selling the shares first and then covering the positions before the market closes for the day. Profit can be earned both ways depending on your expertise and talent. Also referred to as intraday trading, this trading activity is usually carried out by experienced market participants with sound technical analysis and fundamental knowledge.
Volatile stocks are those stocks which show abnormal movements or fluctuation in price on either sides. Their movement is much more as compared to the movement of large cap stocks or the broader markets. So, in times of a bull market, you can expect these stocks to out perform the markets convincingly. At the same time, in case of a market crash, these stocks will be the first to go down. Volumes traded in these stocks are never constant, and depend on actions of speculators.
Tips for Intraday Trading
There may be more volatile stocks and less volatile stocks. There are no set rules or standard formulas to trade these stocks successfully. Largely, you have to depend on your logic, instinct and decisions, and this makes such trading a high risk proposition. However, if you have the risk taking ability, go through the trading tips given below.
Analyze the Market Situation
Analyzing the trend of the market as a whole, becomes important. This is because it is from this analysis that you will be deciding your strategies. Be ready to play on both sides-long and short, to reap maximum benefits.
Understand Supports and Resistances
Every stock has support and resistance points on the technical charts and your challenge would be to find them exactly to trade in a professional manner. Entry and exit decisions are largely dependent on these two factors and hence technical analysis practice and knowledge would help a lot.
Volumes denote investor interest in a particular stock. Volumes also help to predict movements of stocks and hence, volume analysis plays an important role in the success of a day trader. You can note down the volumes in select counters during the course of the day for your convenience.
Accurate stop losses matter a lot when trading in volatile stocks. Though it may be difficult to determine the stop loss point, you need to use your experience gained from precious trades and lock your profits at the right levels with stop losses.
Continuous practice and hard work is necessary to trade volatile stocks in the right way. Initially, you might incur losses and might make some wrong choices, but experience will teach you to exactly understand what action you should take at a particular situation, which might lead you maximize any opportunity and make profits.
Day trading can be a difficult profession and hence, you should enter it at your own risk. All the best and do well!