How to Place and Modify Stop-Loss for Intraday Trades?
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Effect of Dividends, Bonus, Splits and others on your MTF positions
Did you know that corporate actions such as dividends, bonuses, splits, and rights issues can affect your MTF position? But before we have a look at that, let’s go back to the basics of the Margin Trading Facility (MTF).
MTF Basics
When you buy stocks using MTF, you pay only a part of the total transactional value, while the rest is funded by ICICIdirect. It’s important to note that the stocks purchased under MTF are held in your Demat account but remain under the pledge (PL) status since you have not fully paid for these positions.
Now that you understand the basics, let’s explore how corporate actions affect your MTF positions.
Effect of Corporate Actions on MTF Positions
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Dividends
You are eligible to receive the full amount of the dividend as long as you hold the stock on the record date. -
Bonus, Splits, Mergers, or De-mergers
For corporate actions such as bonuses, splits, mergers, or de-mergers, you must convert your MTF positions to delivery by paying the full amount before the record date. You will be informed about the last date until which you can hold your stock under MTF. After this date, your positions will automatically be squared off.
Rights Issues
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How to do Risk Management on Your Trading Strategies?
It is humanly impossible to be 100% correct in all trades, irrespective of how thoroughly we research stock markets. This is why we must think about limiting the risk undertaken for each trade. Moreover, knowing where to draw the line helps you refrain from overburdening yourself.
In that case, what should be your risk tolerance? Let's find out. The most commonly recommended rule by experts is the one percent rule. This means that a stock trader must not lose more than one percent of his total position value in a single trade. So, if your account holds positions worth one lakh, your maximum loss per trade should be within one thousand. That's why you should always place an appropriate stop-loss on your trades. You should adjust your position size as per the loss amount predetermined by you. Position sizing involves calculating the number of shares, lots, or contracts you will trade based on your predetermined risk per trade. For example, if you are buying a particular share at rupees 100 and keep a stop-loss at rupees 95, your loss per trade is 5, and hence your position size will be 1000 divided by 5, which is 200 shares.
How much risk you take depends on how comfortable you are with the potential loss of capital. This is why some traders also push their risk tolerance to two percent. But how does this slight change make a difference? Let's say A has a position of rupees 50,000, whereas B has rupees 1 lakh. A uses a threshold of two percent, whereas B uses one percent. This effectively means that both A and B will lose 1000 per trade, despite the sizeable difference in their account balance. As both have different levels of risk tolerance or risk appetite.
While mentioning risk tolerance, it is also important to mention emotional control. Greed and fear are the two emotions that you have to deal with strongly. You should always exit the trade when your maximum affordable loss has been reached. Holding on to a loss-making trade with the hope of recovery can deepen your losses. A risk management strategy in stock trading is as important as a sail is to a boat. If the price moves opposite to your expectations, you should recalibrate and exit your position without much delay. It's generally recommended to avoid risking a significant portion of your total capital on a single trade. Diversification is key to risk management. Consider allocating a fraction of your overall capital per trade, such as one percent to five percent, to ensure that losses on individual trades do not severely impact your portfolio.
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Stop Loss order in Intraday trading
Investing in the stock market is a good way to earn money but it is risky! In the same way, intraday trading is also subject to the same rules. However, if you want to minimize the risk of suffering a large loss, then you can opt for a good exit strategy or a stop loss order. However, before we go into how a stop loss works, let us first take a closer look at what a stop loss is.
The purpose of this trading strategy is to help intraday traders limit the losses they incur as a result of their trades. So, it works as an advance order to set a command to exit your position if the share price reaches a certain level. Think of it as automating the closing of your open positions before you find yourself in a tight spot. You will still be aware that for stock marketers two aspects are very crucial to them; these are making profits and protecting capital.
Three different methods can be used in determining a stop-loss strategy, and they are:
-
Support and resistance levels:
Stock close and highs are defined by these technical indicators. -
Using other technical indicators:
In addition to the support and resistance levels, you can also set the level by using either daily or weekly moving averages as a guide. -
Percentage:
As far as your stop loss level is concerned you can choose to set it at a percentage of loss that you can afford.
Besides these three strategies there is also a trailing stop loss strategy often used by long-term investors which can help you protect your profit. All that needs to be done is to set a stop loss limit at a level where your profits will be protected at all times. So guys, I really hope that one of these strategies will be able to help you in some way make sure to invest wisely and also be sure to set up your own stop-loss strategy so that you can minimize your losses.
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Options Trading at ICICIdirect
options trading, how to do option trading in ICICIdirect, options trading strategies, option, icici direct
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How to Pick Stocks for Intraday Trading
What is Intra-day trading?
Intraday trading, is the act of buying and selling the stocks within the same day. Traders buy and sell stocks during regular market hours and close their open positions before the market closes.
How to pick stocks for Intra-day trading? (5 Simple Strategies)
-
Trade in liquid stocks
Liquid stocks are traded in large volumes and allow you to enter and exit positions as needed. -
Pick stocks with medium volatility
Pick stocks with a reasonable amount of movement within a day but use the stoploss feature to minimise potential losses. -
Buy stocks that you understand
Trade in stocks that you have followed, tracked and know about. Avoid trade in stocks that you have no knowledge of; or which are manipulated or move based on rumours. -
Avoid penny stocks
Avoid trading in stocks which are available at very low prices i.e. in single digit prices. -
Make focused investment based on research
Don’t trade in too many stocks. Do your research and focus only on a few stocks that you can track and review easily.
Pre-requisites for intra-day trading
Have a trading or demat account and a bank account.
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Difference between Market Order and Limit Order
Understanding the difference between a market order and a limit order can give you an advantage.
Market Order |
Limit Order |
|
A market order is executed immediately, at the current market price. |
A limit order is executed only at a price specified by you. |
|
Ex: You see a stock trading at Rs 51 (this is the last traded price). You place a market order. Your market order is immediately executed at the current market price whether it is lower or higher than Rs 51. |
Ex: Let’s say you want to buy a stock at Rs 50. You should place a limit order at Rs 50. Only if the price falls to Rs 50, is your order executed. |
|
Market orders are good when you want to buy a stock for the long term and a few ticks in the price don’t matter. |
Limit orders are good for the traders who want to lock into a stock at a specific price especially in volatile conditions. |
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Difference between Intraday trading and Investing
Intraday Trading |
Investing |
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Short-term: A day trader has a short-term view, lasting no longer than a single session |
Long-term: An investor typically has a longer-term view stretching several months or years. |
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Buy and sell: A day trader does not take delivery of the shares- all his shares are squared off before the market closes. |
Buy and hold: An investor takes delivery of his shares and sells them at the appropriate time, as per is requirement. |
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Selling short: A day trader can go short; sell shares he does not own. |
Going long: Investors typically don’t short the market. They are in it for the long haul. |
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Quick takes: A day trader looks to take advantage of small price movements. |
No short-cuts: An investor seek shares that will have large upside price movements over time. |
|
Volatility: A day trader seeks to benefit from short-term volatility. |
Stability: An investor is not influenced by sudden price swings. |
|
Technical: A day trader mostly uses technical analysis. |
Fundamental: An investor relies on fundamental analysis. |
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