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What is the Right Type of Strategy – Intraday, Short-Term or Long-Term?
MARKET STRATEGY | July 12

What is the Right Type of Strategy – 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.

If you are a beginner and you have a fear of investing in the stock market, you can read our article ‘How to Overcome the Fear of Investing in Stock Market.’[sg1] 

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 Trade, 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.

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