What is the Right Moment to Invest in Online Trading?
The internet age has made online trading accessible to all. You can now buy or sell stocks with a single click from the comfort of your home. Online trading has, thus, made stock investing less time-consuming and hassle-free. In case, you have any query regarding how to start trading online, you can get information on the same from web search engines.
However, with the proliferation of online trading platforms, investors need to be aware of the pros and cons of each. Moreover, online trades have short-term focus. You wish to maximize your returns within a few months, weeks, days, or hours. Intraday trading analysis further drills down to minutes and seconds. Thus, you should have the requisite skills to succeed at it.
In the subsequent paragraphs, we will understand some intraday trading rules to understand the right moment to invest in online trading.
Intraday trading rules
- Buy a stock when its price is low
The best time to purchase a stock is when its price hits a record low. Even, if the price drops further after you made the purchase, it is better than purchasing at a high price. The higher the purchase price of stock, the higher will be the losses, especially when the market is bearish.
Usually, markets rally for some time after hitting lows. So, you can buy at the lowest possible price and short the stocks the moment prices start rising again.
The technical oscillators will give you strong ‘buy’ and ‘sell’ signals during the course of the day. They are useful in studying the market momentum too. Accordingly, you can choose the right moment to trade online.
- Trade on lucrative days
Generally, Monday is the best day to buy stocks and Friday is the best day to sell stocks. In other words, stock prices are the lowest on Mondays and the highest on Fridays. However, if everyone follows this maxim, then Mondays will be seller-less, and Fridays will be buyer-less. But this is not the case. Thus, it is not a standard rule and must be taken with a pinch of salt.
- Trade when markets overlap
When two or more exchanges are simultaneously open, a market overlap occurs. The biggest stock exchanges are Sydney, Tokyo, London, and New York. Trading in foreign stocks or currency during the overlapping hours is more profitable.
During an overlap, more traders are active. Thus, prices are very volatile. The continuous price movements give you multitude opportunities to book profits. If only one exchange is open, then prices may stagnate with lesser opportunities for gains.
- Trade with a stop-loss limit
Capital protection is utmost important. In intraday trading you must specify a stop-loss limit to minimize losses and prevent capital depletion. Trading without stop losses may lead to higher Mark-To-Market (MTM) losses.
- Decide your profit target
Your risk-return appetite determines your profit target. Ideally, your profit target must be a multiple of your stop loss.
Price troughs are an indication to buy and price peaks are an indication to sell. When the overall momentum looks bearish, book profits as soon as price starts declining after an intermittent rally.
- Do your homework.
Investment advisors or brokers will give you a lot of insights. However, markets are unpredictable. So, doing your homework helps. Understand DCF (Discounted Cash Flow) valuation technique to deduce overvaluation or undervaluation of stocks. Master technical analysis tools to catch market momentum. Follow news and corporate announcements diligently as they will affect market sentiments.
These were some intraday trading rules to find the right moment to invest in online trading.
However, none of the above-mentioned rules will always work. Euclid states, “There is no royal road to Geometry”. Similarly, there are no golden rules as such for intraday trading. With relentless practice, you will be perfect in it over time.
