DAY TRADING FOR BEGINNERS

Courtesy Laxman

Here I will guide you about the setups needed fort day trading.

First off all you need to arrange all the inventories before starting
day trading. I will describe below what you need to do first. All are
inconsideration that you want to be a dedicated online trader and need
to have a fool proof trading system. This setup will keep you in
trading as far as you want.

1. Open a Bank Account, Demat Account & Online Trading Account. You
can contact a broker firm to get these accounts opened.
Brokerage firms: Sharekhan, Geojit, Religare, Reliance Money, HDFC,
ICICIDirect, etc.

Funds from your bank will be transferred to the trading account. Then
shares can be brought using that money. The shares you brought will be
held on your demat account.
While buying a share: Bank account -> (cash) Trading Account ->
(shares) Demat Account
While selling a share: Demat Account (shares) -> Trading Account
(cash) -> Bank Account

The above transactions attracts certain commissions, known as
brokerages. Since, above the value of shares you will be charged some
small amount of money as brokerages. Also you will be charged some
taxes for these transactions and for the gain.

Brokerage: For the whole buy and sell value,
STT(Security Transaction Tax): Calculated on the Weighted Average
Price of the client for a particular days turnover,
Stamp Duty,
Service Tax,
etc.
This doesn't include income tax. You need to pay a particular % of
income tax for all your Gains only, Also you can deduct your losses
from the Gains for the calculation of income tax.

I will post a real life example of a transaction.

Share: UNITECH LTD
No of Shares brought: 200
Buy Price: 147.85
Total Amount: Rs: 29570
Brokerage: Rs: 15
Service Tax: Rs:1.86
NET COST OF BUY: Rs: 29586.86

Now you have a Trading Account ready to buy and sell shares.
For day traders the shares are brought and sold in the same day
itself.
So these shares will not actually go to your demat account.

Now we can discuss about other client setups.
Consider you are a dedicated trader who trades from your home or
office, you need to have the below hardwares and softwares.

1. Sufficient Trading Capital (Money).
3. A good Computer System.
4. A Power Back Up System.
5. A good Trading Terminal Software.
6. A very good Internet Connection.
7. A calm environment where other will not disturb you.

Sufficient Trading Capital
You should have sufficient fund for trading. Broker firms allow you to
trade more than the money you have for non-delivery trading(day
trading) or for 6 days trading with some brokers like Sharekhan. This
is known as leverage, its good you can buy more for less money but,
say for example if you have Rs:1000 the broker firm may allow you to
trade for 4000 and for even 10000 with some brokers. But high
leveraged trading is extremely dangerous and it will kill your trading
capital. So try to be less leverage as possible.

See the danger of leveraged trading by an example,
One have taken the leverage of 10 times his trading capital of 1000
and brought shares worth 10000.
Brought ABC 100 share for Rs:100
After 15 minutes the share price is not moving up but going down. So
he decided to sell the shares at the current price to limit the
losses.
He sold at: Rs:90, means he lost Rs:10 per share.
So, Total loss = 10*100 = 1000. Now Rs: 1000 will be deducted from his
trading account. Now his trading capital is 0, means he cannot trade
since there is no money left.

His Capital: 1000
Brought in leverage: 10000
Lost 1000
Now his Capital: 0
Like wise if you have gained and booked profit at 110 you will gain
1000. Means you have made 1000 from 1000 from a single trade. But a
single loss will kill a greater percentage of your capital and you
will get pain to even recover from the loss.

I know I have detailed roughly about leverage. But consider, many
traders left trading just because they traded with highly leveraged
money. So my advice is to not leverage or leverage very less but never
leverage more than 4 times(4000 from 1000). As a thumb rule don't
loose more than 1% to 2% of your money in any single trade and not
more than 10% at any time.

Computer System
These days all computers are highly powered so there is no need to
discuss much but, for a dedicated online trader I recommend the
following computer setups.
Processor: Dual Core min. 3.2 Ghz(1.6*2)
RAM: 1 GB or more if you are using Windows XP or higher versions.
Monitor: Preferably 2 monitors. 15inch minimum. One for Charts/Graphs
and the other for orders and Index tracking.
Browsers: Internet Explorer + Opera or FireFox

Power Back Up System
You must have a power back up system over your conventional 20 minute
UPS. Buy a UPS which gives atleast 1 hour back up or buy some other
kind of backup system. Even if the power fails you must be able to
trade for the next 1 hour atleast even if you have no power cuts in
your area.

Trading Terminal Software
As a day trader you should have a trading terminal rather than brokers
webpage trading. For this you can signup for brokers providing
software terminals to trade. Below are some brokers who provides
softwares.

Sharekhan: Provides Software(with technical analysis tools).
ICICIDirect: Donot provides software (So, not suitable for day
traders).
Religare: Provides Software.

[Optional]
If you can buy technical analysis softwares (like MetaStock,
Amibroker, etc) will be a good idea. Also you need to buy good real
time data feeds inorder to see charts and prices in MetaStock,
Amibroker,etc. Softwares provided by brokers doesn't need additional
data feeds. The advantage of these Technical Analysis softwares over
broker's trading terminal softwares are the higher ability to do
technical analysis.

Internet Connection
A proper internet connection is a must for every trader. A 250Kbps
internet connection will smooth out your trading. Also take a backup
connection from a different company inorder to continue trading when
the other connection fails of any reason.
Backup Connection is not expensive if you take a usb data card
wireless connection or mobile edge internet connection. All these are
available for as low as 400 per month or even less. You may also
activate the backup connection from your mobile service provider and
can use your mobile as modem to access internet through GPRS or EDGE.
All mobile service providers have this facility for less than 250 per
month. This will save you from a sudden internet blackout.


I wrote these all in a jiffy manner, so please correct if I have
missed something or did anything wrong. Will update and add more
advanced topics regarding day trading soon. But I need your feedback,
questions
THANK YOU