Take small profits and do multiple trades
The successful strategy for day trading is to ďtake small profits and do multiple tradesĒ.
Basically it has been observed that many times traders especially day traders loose money due lack of knowledge.
For example - Suppose if day traderís buying price is at Rs.200 then he waits till the price goes to minimum Rs.204 or Rs.205 and then they will plan to book profit, which is highly impossible on very frequent basis in single trade or in single move.
If you are expecting Rs.4 to Rs.5 as profit on share price of Rs.200 in single move then you are expecting 2% profit in single trade. So do you think it is convincing you?
We feel this doesnít sound practical and this is the reason why traders loose money after waiting for long time.
Your intention is to earn money in a day, so just concentrate on small profits and do multiple trades instead of wishing to get huge profit in just single trade.
Markets are always right so to avoid the further risk it is always recommended that day traders should keep booking profit wherever applicable.
Take small profits and do multiple trades
This will assure you to that you do profits, and all the profits that you do through out the day, will add up to good amount and this is what you want, right?
So please have a look on following example about taking small profits and doing multiple trades and how it will provide you a good amount at the end of the day.
Following few things about day trading brokerage and taxes calculation
- The current maximum intraday brokerage offered is 0.05% for buying and 0.05% for selling (you may
even have less brokerage and if you are paying more brokerage then you should either negotiate or
change your broker)
- The service tax is of 12.36% only on brokerage.
- The STT (Security Transaction Tax) is of 0.025% only selling amount.
- The stamp duty on total turnover for a day which is 0.002%.
- and finally you have to pay Regulatory charges on total turnover for a day which is 0.004%
Donít worry these all taxes will add up to very small amount at the end of the day compared to your profits in thousands.
Now letís see how to take small profit which will add up to big amount at the end of the day by doing multiple (more then one) trades.
Example - Buy KotakBank at Rs.315, quantity - 100 i.e. Rs.315 x 100 = Rs.31500.
So if you have Rs.10, 000 in your trading account you can do day trading because you get margin on your available amount for day trading.
Some brokers provide 3 or 4 times or even higher margin amount.
So you bought Kotakbank at Rs.315, Qty - 100 i.e. Rs.315x100 = 31500 and sold it at Rs.316.
You took only Rs.1 as profit for Rs.315 share price and you sold 100 shares so your profit is Rs.100.
So you get Rs.100 as profit in single trade.
Now lets calculate how much you have to pay as brokerage and taxes and finally how much you will get as your net profit behind this single trade.
Your buying amount is
= Rs.31500 (Rs.315x100 Qty shares)
= 0.05% as brokerage (we took it maximum brokerage but you may have even less) on 31500 which comes to Rs.15.75
= you have to pay service tax of 12.36% only on brokerage
= so 12.36% on Rs.15.75 comes to Rs 1.92
The total brokerage + service tax on buying is Rs.15.75 + Rs.1.92 = Rs.17.67
How much you earn in a month with the investment of Rs.10, 000?
If you follow a simple strategy ďtake small profits and do multiple tradesĒ then have a look on below example how much money you make in a month.
= Rs.50 per trade as net profit (as per above example).
= 10 trades per day (how much trades are possible, you will come to know by doing your own paper trading, according to our
estimation 10 trades are quite possible)
= total Rs.50x10 = Rs.500 per day.
= total approximate 20 trading days in a month.
So Rs.500x20 = Rs.10,000.
Can you believe you are just making your investment double in one month? What else you want?
On the other side letís imagine you made loss on some days and not able to trade on some days.
Letís consider Rs.5000 as compensation for above losses.
Then also you are making straight 50% (Rs.5000) profit per month.
So the bottom line is forgetting greed factor and taking small profits will make miracle to your investments.
So believe in small and end up the day with big profits.
How to minimize the losses in day trading
Important points to remember before proceeding
To avoid losses and to get confidence do paper trading practice and generate profits and then plan to switch to real day trading.
1. Doing over trading is risky and you may end up in loss.
2. Be in limit and trade and you will get definite success.
3. Stay away from greed like making huge profit in a single day. This is only possible for experience traders and only after spending years and years in the share market.
There is no guarantee that you will make profit for every trade but in fact there are chances that you may end up with losses.
So we will see
1. How these losses occur
2. how to avoid further losses and
3. How to minimize these losses.
1. How these losses occur
Markets are always right, no one can complain about it. It can behave in any manner and in any direction during the market hours. So it is quite possible for you to do losses.
You buy certain share and had put the selling order but at the same time if the market starts moving in downtrend direction then you have to book loss and at the same time the reverse may also happen like if you did short selling and had put the buy order at lower price and suddenly markets starts moving in upper direction. So in such situation you have to come out of the trade by accepting loss.
So to prevent heavy losses, stop loss trigger price has to be implemented.
Losses can even occur due to your own mistakes like,
i. Not able to under the specific share movements.
ii. Not in a proper mindset to do trading.
iii. Sometimes markets moves up down in very narrow range then it becomes difficult to trade and book profit and at the same time it is also possible that you may loose your patience and start doing wrong trades.
So in such scenario you have to stop trading immediately for that day and relax or else take holiday for the day.
Finally to have to accept loss for the day (if you are not getting the market and stock directions) and close the trading for that day, donít ever try to do it forcefully and recover your losses because this may end up with more losses.
You may also come across situations like you did the trade and had put the square off order but your share price is not moving at all for long time say for last 30 minutes and so, so in such scenarios it is advisable to accept the minimum loss or minimum profit like if you are targeting Rs.1 profit then you can accept 50 paisa or so and come out of the trade and look for other trades.
Above all scenarios may or may not come to you but this is just precaution.
Learn how to calculate brokerage & taxes
Tips for buying and selling to do multiple trades in day trading
1. When you buy at the same time (immediately) place the sell order or when you short sell then place your buy order. Donít wait for price to move up or down to that level because you never know how share spikes.
2. For day trading choose shares of higher price like of Rs.300,350,400,450 and so on because we need very small profit behind each share and this small price fluctuation happens in very fast in high price shares.(this is our experience, you can do your own based on paper trading practice.)
For example - The movement of Rs.1 is very easily possible in shares of Rs.300 or 400, so even till Rs.500 you can take shares for profit of Rs.1 per share. (Do your own calculation based on your brokerage rates and see which share price is suitable for your trade).
If you need guidance in calculating the brokerage and taxes, then please write us.
3. Take as small as profit as possible because this assures your profit at very higher rate instead of waiting for huge profit where there are very less chance of success.
4. If you do proper and extensive paper trading practice and follow wait, watch then you will make out yourself how much there is need of using stop loss trigger price.
5. No need to calculating brokerage rates and taxes for each trade. You would prepare your format like for shares of Rs.300 to Rs.500 and for fixed quantity how much profit you have to take behind each share; you do this calculation and keep it with you all the time and follow that while trading.
Same thing you can do for shares of Rs.600 to Rs.800 like wise. The bottom line is taking minimum profit and doing multiple trades.
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Now letís calculate the brokerage and taxes on selling amount
= you sold KotakBank shares at Rs.316, Qty - 100 so the amount comes to Rs.31600 (Rs.316 x 100 Qty shares)
= 0.05% brokerage on 31600, comes to Rs.15.8
= service tax 12.36% on brokerage comes to Rs.1.93
You have to pay STT (Service Transaction Tax) of 0.025% on selling amount which comes to Rs.6.32.
So total brokerage + taxes you have to pay for selling is
= Rs.15.8 + Rs.1.93 + Rs.6.32
Total amount you have to pay on buying and selling is
= Rs.17.67 (buying) + Rs.24.05 (selling) = Rs.41.72.
You also have to pay stamp duty and regulatory charges on total turnover.
Your total turn over is calculated by adding the buying amount and selling amount.
Buying amount is 31500 and selling amount is 31600 which adds up to Rs. 61300
Stamp duty - 0.002% and Regulatory charges - 0.004% adds up to 0.006%
On total turnover amount (Rs. 61300) the taxes comes to Rs 3.8.
So the total amount you have to pay including brokerage and taxes is only Rs 41.72 + 3.8 = 45.52
So now the conclusion is you are paying Rs.45.52 while you earned the profit of Rs.100.
So donít you think more then 50% profit in single trade is quite enough to do thousands per day.
If you continue doing such small trades with such small profits then it will end up with big amount at the end of the day.
Suppose if you do 10 trades in a day which is quite possible to add up to Rs.500 per day (Rs.50 per trade as per above example).
Now letís see how to do thousands with same strategy as mentioned above. Its simple you just have to increase your quantity of shares.
In our previous example you have brought only 100 quantities, if you make it double then your profit will also get doubled.