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7 Secrets to Profitable Day Trading in Futures and Options

At the outset, kindly peruse my article 'Are you driving your Maruti 800 on the F1 race track?', that cautions against doing day trading in Futures and Options. 

Despite that, however, if you still are bitten by the day-trading bug, it is very much advisable that you adequately protect yourself against its 'sharp and harmful' bites.

1. Play around with only limited money
Do not employ more than 3-5% of your equity corpus. Day trading carries very high risk. So even if you lose all money, it won't hurt your overall financial situation. Yes the loss will pinch, but you will get over the pain before long. Moreover, it would enable you to come back and try again. Too large a loss has put many a people out of the markets...forever.

2. Technology does not mean easy money
People are attracted to day trading due to exposure to stock market tickers 24 hrs a day; easy availability of fundamental information / technical charts; and most of all the ease of online trading. But these are mere technological tools that only facilitate easier availability of data and execution of trades. Data does not make anybody a genius. We must know how to interpret it correctly and convert it into meaningful information.  

3. Illiteracy is extremely hazardous
It is a must that you comprehend all the lingo of day-trading such as futures, call option, put option, delta, straddle, strangle, stop loss trigger etc. etc. You should also be well aware of the economic situation and company financials so as to take a proper view on the trends in the market / stocks. 

4. Bigger the better
Do your trades in either the index or large cap stocks which have high trading volumes. You don’t want to get stuck with an illiquid stock. Moreover, such indices / stocks will have good amount of technical information. Further, concentrate on just 2-3 scrips at the most to make trading more manageable. Moreover, over time you will get a feel of these scrips, which will help you to trade better.  

5. ALWAYS book your losses (and gains)
People lose money in day-trading due to aversion to book losses. If you have taken a wrong call or the market is not going as per your expectation, be very sure to cut your losses and get out. Do not live on hopes of a turnaround. Following stop-loss rules strictly is the key to becoming a successful day-trader. Always focus on limiting your losses, not maximizing your profits. And never add to a losing position. It is a prescription for disaster. 

Similarly, don’t be greedy. Book profits at regular intervals. A number of small gains is a more realistic strategy than going in for one or two big kills. In the short run, markets are never logical. So don’t assume anything and flow with the market. 

6. Master your emotions
Discipline and emotional balance are critical to success. Profits should not make you over-confident nor should the losses intimidate you. No two people, with same set of stocks and information, will make same amount of money. It is their mental framework, which determines success or failure. Further, try to play on the general direction instead of trying to hit the tops and the bottoms.

7. Over-trading is stupidity
Low margin requirement in F and O often lead to big trades, beyond one's capacity. Hence, make sure that your total trade value is within your financial means. Also, day trading doesn't mean that you have to trade every day. Even 2-3 trades in a month may be more than sufficient. Trading opportunities don’t happen everyday, so bide your time. Even if you miss some of them, don’t rue. Markets are not going anywhere. You will get your opportunities sooner or later. 

Caution :  Day trading can be extremely injurious to your financial health. Therefore, it is strongly recommended that you keep away from it. But if you find it irresistible, follow the above rules to minimize any damage.

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