Making Daily Profits in Share Trading - Myth or Possibility?

  • Posted By :
  • Friday Oct 06, 2017

Key Takeaways

  • Have a strategy
  • Choose 2–3 sectors
  • Maintain a ghost portfolio for a few months
  • Then start with mini trades, a few per week
  • Always follow a stop-loss system
  • Factor in all the transaction costs you’re likely to incur
  • Ensure that your profit taking at least meets your 85% target

What are the pre-requisites for short-terms repeat profits? We’ll assume you’re not talking about intra-day trading, but making short-term trades. Basically, you’re looking at following a trading style that specialises in taking profits on small price changes, generally soon after a trade has been entered and has become profitable.

The premises on which this style is based are:

  • Lessened exposure limits risk – A brief exposure to the market diminishes the probability of running into an adverse event.
  • Smaller moves are easier to obtain – A bigger imbalance of supply and demand is needed to warrant big price changes. It is easier for a stock to move upwards by a few rupees than it is to move upwards of a hundred rupees or more.
  • Smaller moves are more frequent than larger ones – Even during relatively quiet markets there are many small movements that a short-term trader can exploit. Choose 2–3 sectors for example banking, IT, Pharma, Energy etc. Then study about the fundamentals of the sectors i.e. look for their performances in the past year and gauge what news affected them the most. After the sectoral overview,, look for specific stocks in that sector (up to 3–4 per sector) which have been performing well and/or look fundamentally sound for growth and expansion prospects.
  • The first prerequisite is to have a strategy. Don’t jump in with all your money at once. Observe the market, and study movements daily. You can never keep eye on each n every stock or sector in the market as its literally not possible.
  • The ideal entry plan would be to maintain a ghost portfolio for a few months, the more detailed your mock-up is, the more experienced you get. Then start with mini trades, a few per week (taking profits daily is unlikely) Through all of this, obsessively record your performance. Aim at making small but consistent profits.
  • Get started with booking small profits on multiple trades, as small price rises are likelier than larger ones
  • For day trading, choose shares of higher prices, such as Rs.300, 350, 400, 450, and so on. Because you intend to sell for a very small profit behind each share, small price fluctuations happen in higher priced shares at a faster rate than nominally-priced ones.
  • Always follow a stop-loss system. Set your trigger at the time of purchase itself, and don’t’ get swayed by others’ margins and risk-appetites – you’re in this for multiple, small wins – stick to that mantra.
  • Pre-calculate what you expect to incur as transaction costs* on the various deals within the price range in which you’re transacting and determine how much needs to be your profit - e.g. I want to make at least 85% profits from each deal, and forgo a maximum of 15% in transaction costs. Don’t get caught up with calculations on each trade, ensure that your profit taking at least meets your 85% target.

* Transaction cost= Brokerage + STT + Stamp duty + service tax + Other charges

  • Brokerage is applicable on purchase and sale (this has the biggest impact on the transaction cost, so take the decision of your broker after comparing options)
  • STT is 0.1% of turnover (total transaction value/s) upon delivery, and 0.25 on intra-day trades
  • Stamp Duty = 0.1% upon delivery
  • Turnover tax: 0.0035% on turnover
  • Service taxes = 14% on brokerage & 14% on turnover tax
  • Other charges such as Swachh Bharat Cess and Krishi Kalyan Cess

Short-term trading and intra-day trading can be very profitable for traders who decide to use it as a primary strategy, or even those who use it to supplement other types of trading. Adhering to the strict exit strategy is the key to making small profits add up to into large gains. The brief amount of market exposure, and the frequency of small moves, are the key attributes that make this strategy is popular among many types of traders.

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