Advantages and Disadvantages of Intraday Trading
Now that we understand the concept of intraday trading, let us discuss some advantages and disadvantages.
There are a few reasons why Intraday Trading is considered to be a better method of trading when compared to others:
A. No overnight Risk:
The primary advantage of intraday trading is that there are no overnight risks involved. This is because all the trades are squared off on the same day they are executed. Sudden news on a stock after the market has closed will not impact our trades. Thus, any stock market tragedy, be it global or local will not be able to affect your profits on that particular day.
Most of the brokers usually allow leverage on intraday positions to 5-10 times. Leverage gives us the ability to magnify our profits by investing small amounts of money. Leverage is a two-sided sword, it can magnify our profits, but, it can magnify our losses too.
C. Short Selling:
Many indicators give a sell signal in a market. Even if we don’t own a stock, we can still sell it with an anticipation to buy it back at a lower price. An intraday trader can short sell a stock as he will be buying and squaring off his position on that particular trading session. This helps him capitalise on any bearish speculation on the stock.
On the other side, some risks of Intraday Trading are:
1. Highly Risky: One of the primary disadvantages of intraday trading is that it is highly risky, which is the reason why most traders lose their initial capital within 2-3 months of starting this job. Risk and trade management is the key to success in intraday trading and one must learn to incorporate them mindfully.
2. Not a part-time job: Intraday trading requires a person to sit in front of his/her desk from 9:00 A.M - 3:30 P.M, track the markets efficiently and then have a speculative bias. It requires a full-time commitment, precision and a lot of discipline which is just not possible with a part-time job.
3. Needs extreme focus, attention to detail and mental Strength: Some traders execute trades every 15 seconds in Intraday. In that scenario, hovering off to some other work, or looking at the smartphone can make us miss a trade. A person’s attention to small details and focus needs to be very high throughout the day in intraday trading. Intraday is mentally exhausting and isn’t for everyone.
4. Volatility: The volatility of a 5-minute or a 30-minute chart is very high when compared to a monthly or a 6-month chart. This is why it is a little easier to trade on the long-term charts.