Short Term Trading - How to Generate Regular Income From it

A trading strategy can have a significant impact on your trading income. It is safe to say that the right strategy can do wonders for your financial health. On a broader level following three trading strategies have been observed:

• Day Trading :Here, an investor takes and closes a position in a single day only.
• Positional Trading: This involves holding positions for more than a day up to a few weeks or even months with the aim to book profits.
• Long-term Trading: Here, an individualinvests and holds the stock for a long period, say a year or more.

While investors can earn income from any of the above, usually short-term or positional trading is preferred to generate regular income.

Many investors use short-term trading to earn a regular income from stock trading. While intra-day trading carries a huge amount of risk due to the daily market volatilities, long-term trading is better suited for capital appreciation than income generation.Positional trading focuses on capitalising on small price movements. Investors study the market, make the best and complete the trade in a short period. Since the investor usually focuses on short price changes, the profit generated is usually small. Therefore, there must be multiple successful trades so that an investor can enjoy a good profit.

• Majority of Your Trades Should Result in Profit Since it is about volumes, about 60-70% of your trades should bring you returns to generate a steady stream of income.
• Minimise your Losses If your profit to loss ratio is a close one, say 55-50, then the amount generated will not be sufficient for a steady income.

Hence successful trade bets are an essential part of building a steady income from short-period trading.

• Reversal Trading Here, the trades are made on the opinion that the market trend is going to reverse. For example, if the market is on a decline, then reversal traders will take trade positions when they feel that the market will not further decline and instead climb up.
• Momentum Trading Here, the trades are initiated based on an opinion that a declining or a rising stock will keep on declining or rising in the coming period. Hence adequate positions are taken by the investors.
• Breakout trading Here, the investors focus on looking for the points of break out where the stock prices will break out of the range. The investors aim to beat the market and take these broken positions to profit from the on-going market trend.
• Range trading Here, the investors invest in a stock based on its range. Often stock fluctuates between 2 price points that can be ascertained after analysing the stock price. The investors then trade within this range to generate a quick profit. For example, the price of a stock can fluctuate between Rs. 80 to Rs. 85. Under this short term trading style, the investor then trades between this price range.

Researching the market and following a specific strategyis crucial to earning a profit regularly. Start by making small trades to practice the knowledge learned. Make corrections to your strategy, and over time, you will successfully generate a good income with this method.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.