Which trading is better, intraday, short-term or long-term?
If
you are new to stock markets, the first question you would probably face is what
is the right type of trading strategy and how should you go about investing
your money in the stock market? Should it be Intraday Trading, Short-Term or
Long-Term Trading? Let us begin by first understanding each of these three
terms.
Intraday Trading
Intraday
Trading is when an investor squares off his trade on the same day. Simply put,
intraday trading involves buying and selling the stock purchased by an investor
on the same day. The trades done by the investor are automatically squared off
before the market closure, even if they are not done by him.
Let
us take an example. You get 10x the exposure. If you have INR 5,000 in your
account, you can buy shares worth INR 50,000. Say you buy 1000 shares of a
stock Z which are trading at INR 50. If the stock Z moves to 51 on the same
day, you sell all your 1000 shares and earn a profit of INR 1,000 in a single
day.
This
type of trading is mostly done by experienced stock market traders and brokers
who are experts in this field. It requires continuous monitoring of the stocks
and their movements and one should know when to enter and when to exit. So even
though it is luring, beginners shouldn’t attempt trying their hands at intraday
trading if they have no prior knowledge about stock markets and its volatility
or any other stock market technical analysis.
Short-Term Trading
Short-Term
Trading is when an investor holds his stock for a few days or months, but less
than a year. So this essentially means that your money is at risk for only a
short period of time. If you make a wrong decision, you know the results sooner
than having to wait for a really long lock-in period. This gives you an
opportunity to free-up your money and use it in new trading setups.
This
is the ideal strategy that a beginner in the stock market should adopt. Short-term
trading uses less capital as compared to long-term trading because the latter
requires a sizable capital outlay. Another advantage of short-term trading is
that the profit targets, as well as the risk, are both in moderate measures. A
beginner can enter small with the money that he can afford to lose till he gains
a better understanding of the market.
While
the basic principle underlying intraday trading gives high profits on high
risks, short-term trading is a safer approach and gives returns based on the
risk you are willing to take. In short-term trading, you can easily plan your
entries and exits as compared to Intraday trading which requires a specific
level of expertise.
Long-Term
Trading
Long-Term
Trading is when an investor holds a stock for at least 1 year and can go up to
as many years as he wishes. Being a long-term investor does not make you a
static trader who doesn’t actively manage his portfolio. But instead, the
investor spends his time doing some heavy research on the ways to invest and
the companies to invest in, etc. It entails analyzing the technical
performances of companies, in the long run, their stock prices, price
performances, etc.
A long-term
trader does not look to gain profits in a short span of time. The only risk in long-term
trading is if he fails to make a good investment decision in the long run or
the company suffers unexpected deterioration. So, even for long-term trading,
you need to know the technical analysis and other fundamentals surrounding
stock markets.
Fundamental
analysis can help you find which stock can you purchase, which are the
companies you can look at, etc. Technical analysis helps you to know the right
time to purchase a stock. Thus, long-term trading focuses on stocks which are expected
to consistently perform well. Thus funds can be invested in such stocks to
create maximum capital at the end of the term.
Conclusion
To
summarize, it would be a good idea to start off with short-term trading if you
are a beginner. Gain a deep understanding of the stock market and various ‘Technical
Analysis’ techniques to get a grip of the stock market functioning. When you
are ready, you can move on to intraday trading and long-term trading over a due
course of time.
Start
investing by opening a Demat account with Indira Securities, which is a leading share
trading company. We provide our clients with Equity Trading and Portfolio
Advisory Services. We have an experienced team of professionals who are the
best in their field. We give a personal touch in servicing all our clients
right from corporates to small investors. Our teams use stock market analyzing tools
to diversify your portfolios and keep a tab on the current stock market trends
to give you maximum benefit.