Nifty Intraday Trade Experiment: Hands Burnt and Lessons Learnt

Disclaimer:: This is long and a boring post.Moreover, there is no Investment or any kind of advice imparted in this article.So,please don’t try this at home or anywhere:)


The title very much surmises my routine from 10:00 AM to 12:00 PM since two weeks.Blame it to the change in my project timings but then I had been waiting for this chance encounter with the seductress that goes with the name “Intraday Trade”.Seductress you say?? Trust me, if you do manage to read till the end, you will do anything but agree with me.Before i get on with my experiment, i figure it wont harm to get into some de-jargonising some of the things that will be the essence of the post.If you are smarter than the avergae Joe, you might wanna skip the boring but essential definitions.

What is Intraday Trade:

Investopedia Way:: Another way of saying “within the day”. Intraday price movements are particularly important to short-term traders looking to make many trades over the course of a single trading session. The term intraday is occasionally used to describe securities that trade on the markets during regular business hours, such as stocks and ETFs, as opposed to mutual funds, which must be bought from a dealer.

 So, basically what it means is that we decide the fate of our stock picks within a day.When you either buy/sell a share in Intraday, you are doing it to make profits from price movements within the course of that day itself.All the positions are squared off at the end of business hours that day.So, profit or loss, you book it.However, there is an option to convert Intraday positions to Cash, but we will keep that for another day.

Why should i do Intraday Trade
I may not be the right person to answer this, but here are some of the thing which i think make Intraday worth the risk

• A good way to counter the volatile markets.Volatility in Stock Markets may not provide the Investor with long term investment decisions.Hence, In Intraday we can actually play our cards based on daily volatility basis.For eg:: If a company X bags a big order or wins a legal lawsuit, there is going to be lot of speculation around it when the news breaks out.So, instead of buliding long term positions, we can utilize the particular day to make a killing in the stock.
• A Cash Cushion in the form of margin.Intraday trades allow us to build positions for much larger amounts than we actually have available.This margin acts as the cushion and is provided by your trading account broker.So basically, you can actually place a buy order of 100 shares of X trading at 100 CMP with 1000 bugs in your account instead of 10,000.The % might actually vary depending upon the broker.

The reasons mentioned above are not exhaustive but tempting enough to make the plunge.And I made the plunge too.Now with the details of the
experiment.

Experimenter: Yours Only
Stocks Involved :: Tech Mahindra(TECHM)      
Time Frame: 1-2 weeks

To start with, please don’t even ask me to disclose why i chose TECHM as the stock to fiddle with.Frankly, even i don’t know.But, what i did watch for before making the plunge was huge volatily, good volumes and a graph with lot of crests and trough.Since, I am not a technical guy, thats all I thought is necessary to get into the IntraDay game.

If i remember correctly, i started trading the stock around 477 CMP on a fine Monday morning.Now, call it implusive trading or the post election hype, I was bullish on the stock.

• I placed a BUY order and kept stalking the movement(Mistake1)
• A rise to 485 odd levels and I placed a SELL call.(Mistake 2)Voila!! Was i delighted or what.Profits booked without blocking any cash.
• But the stock was still moving in the positive direction.So, i place another BUY order at 490 CMP(Mistake 3).The stalking started again.Suddenly, the stock tanked to 480 again and there i was cursing myself and TECHM.
• There i went clicking again and executed a SELL call at around 480 booking some loss(Mistake 4).
• For the sake of Experiment terminolgy, lets say the major part of the experiment continued with lot of interations of Mistake 1,2,3 and 4 with occasional bouts of Mistake 1,2,1,2,3,4,2 and so on.

PS:: In the end, even thought the outcome has led to capital gains in the portfolio, but then it also made me realise the foolishness on my part.

Lessons Learnt From Intraday Experiment

Mistake 1: Stalking the price movement every other second can only lead to anxiety and even serious cardiac disorders if you are weak hearted.Yes, I am alive and kicking but belive, i went numb quite a few times.

Mistake 2: Booking profits at the first sign of an upscale or rather not having a pre-determined target (ROI).This leads to frequent BUY-SELL calls with a comparitive lesser profit margins.Moreover, You end up paying a lot of overhead costs as Brokerage.So, when you are making peanuts, your broker is minting cash.

Mistake 3: This is ver much an outcome of Mistake 2.If the Stock is zooming, there is every chance it would have gone higher then the price you sold it at.What this presents is another oppurtunity to place a BUY call. Trust me, if you watch the movement of TECHM, you would be seduced to enter another BUY call.Now again, the vicious circle starts with the repeation of Mistake 1 and 2.


Mistake 4:  Enter the contrast to Mistake 2.With no brains and only impulsive sentiments at play, there is every chance of entering the stock at its peak and see it tanking.What do i do, book losses at the first signs of the price going down to keep my losses at bare minimum.This again is a classic case of not pre-deciding the kinda downside risk you are ready to take.The best part happens when the stock rise again the next moment and there starts the vicious circle of Mistake 2,3,4 and so on.

If you are any saner then me, it would be clear by now of the horrible experiment and its much horrible outcome.But as i mentioned of still being in positive, it is only *good luck* at play.

The experiment has foolishness written all over it.
But then, we all learn from our mistake, don’t we.So, off i was discovering the right way to indulge in Intraday Trade.I have discovered some real good resources and methodoligies associated with IntraDay trades.But, there is so much more to know.

But I am sure, i am gonna do a sequel to this post with some useful insights into Intraday Trading.If you did like reading the article, you won’t wanna miss the next post .So, feel free to subscribe to the posts to ensure you don’t miss out on it

Infact, it would be interesting to know if you can give a term to each of the 4 mistakes mentioned.I sure could identify them.I will keep them for the next post. If however, your answer is going to be ‘FOOLISH’, you are right, but then go ahead and get more creative than that 🙂
Hope to see some feedback on this one.

PS:: The draft of this post has been sitting for quite sometime.At the time of writing this and making this post live, I am fortunately in positive as far as the Returns On the Investment is considered.

Tip To Self:: Go take some serious lessons on how to tame this Intraday seductress better.And make sure I blog about it too!!!

Image Credits: IllustrationOf via Google Images