Why Trade Intraday?

Go To Las Vegas
Instead!!!
Everyone wants to earn money and that too quickly. Let me tell you
a best-case scenario:

You wake up in the morning all excited about the money you
are going to make via day-trading.

You get in front of your system sharp at 09:00 am.

You make a trade of Rs. 20,000 with a 5X exposure at 09:15

am.

Your security goes up by 5% at 09.30 am and suddenly you

richer by Rs. 1000!!!

This continues for the 250 odd yearly trading days, and you
happily accumulate close to Rs. 2.5 lakhs.

Lastly, the best part is that you are now earning more than 2.3
times the per capita GDP of our country and that too by
devoting less than 150 odd hours in the entire year.

Thats great right? No, not at all! This has a 99% chance of
becoming a nightmare you wouldnt be able to forget for a very long
time. There were two very important things that are yet to be
considered before you start intraday trading as a source of side
income or maybe a full time thing. Firstly, this was a best-case
scenario that did not consider the time allocated for research, and
secondly the hidden expenses. Well discuss more on this after some
time.

To be clear, this time we are going all guns blazing against

intraday trading and hope that by the end of this article, even you
will start advocating the concept! Rather than giving you examples
this time, well directly start with why intraday trading doesnt work
the way you want it to!

Im sure you might have heard the statistics that 97% intraday
traders lose money, 2% manage to make a living out of it and only
1% actually make money! Yes, those numbers are harshly spot on. It
is that 1% population that lets everyone know about their feat and
create a sort of illusion that anyone can do what they just did!
Consider for a moment that everyone in that 95% category started
following the so-called-rules including the 1-1.5% stoploss protocol
toted out by the 1% lot who now consider themselves as market
gurus. So, what happens next? Stop loss orders would trigger all
over the market and prices would inflate and deflate just as they do
now. In simpler words, everyone trying to do the same right thing
facilitates the same market movements when they are doing their
own wrong thing. The point is, it doesnt matter how people trade or
if everyone traded the same way most would still lose like they are
losing now.

When we discuss this with our clients, we get a lot of

resistance. Some say that if intraday trading is so
unbecoming, why do the Dalal Street and Wall Street
professionals day-trade all the time? Are they so absurd?
Heres what they missed out:

1) Most of these traders are trained professionals who get paid to

day-trade using other people's money. Apart from that cushion of
not using their own money, they earn a fixed percentage on the total
traded amount as well on the profit. On the other hand, the average
retail trader trades using her/his own money. So, they not only have
to break even, but also bear the costs of brokerages, taxes,
information, etc.

2) Secondly, the most important thing that matters is the difference

between the resources a Dalal Street professional and a stay-at-
home intraday trader have at their disposal. The skills, the privilege
to first hand information, the tools, the cushion of not gambling with
their own money, etc is what the latter can only dream of. This
makes this competition like a college football team against, say
Manchester United FC. Will it be possible for them win? Yes. But it is
highly unlikely (1 in 1000 cases).
Intraday Trading is a zero-sum, infact a negative sum game if you
factor in the commissions and service costs. Every paisa earned by
one trader comes out of the pocket of another. In most of the cases,
the average retail traders belong to the latter category. Think about
it by yourself, given the resources, the chances of Dalal Street
professionals losing is very low and their winnings have to come
from somewhere, which is why they thank you for playing with
them!

Finally, well come to the part where we say that it is better to go to

Vegas and gamble or simply work at McDonalds than to day-trade!
Apart from the above mentioned reasons of how illogical it is to
compete with the professionals, intraday trading is a dumb job. Yes,
you read that right, it is actually a dumb thing to do which ensures
that you lose money almost all the times (considering a 1 year
horizon here). Have a look at 8 such reasons:

1) Intraday trading = Pure gambling

It might be fun to day-trade just like gambling, but it is nothing less
than it, infact worse. Like you learn nothing when you gamble, you
literally learn nothing from intraday trading also. But unlike
gambling, you pay hefty fees irrespective of how much money you
make or lose.

2) Hope becomes your strategy and Uncertainty becomes

your best friend
You are a retail trader with no great resources as your disposal.
Thus, you are bound to get to a point where you hope you dont get
ruined and this is where you should realize that you have something
wrong! Hoping is not a bad thing, but if its the only thing you rely
on, means you havent considered all the possible outcomes.
Remember, hoping for good things to happen is the most powerful
as well as the most forgotten prayer.

3) You take too many or too less risks

Some traders take too many risks and go bankrupt and some people
are just too cautious. Both do not fit the day-trading job! Some
people are so afraid of a risk that they end up booking small profits
which are all wiped out by one single loss.

4) Intraday trading takes a toll on your health

It pulls everything out of your life. One bad trade and you dont
sleep well, you dont eat well and you dont feel well! This goes on
and on and you suddenly become depressed with your life. The only
question here is, WHY?

5) You develop a thing called commitment bias and make

Greed your no. 1 enemy
When you trade intraday and it doesnt work out, even when your
heart wants it to, you simply start averaging. You think, just because
youve already put in your time, energy and money, you should stick
to the plan no matter what; and eventually end up losing more.

It is at times like these when your margin based portfolio get wiped
out if you are not lightening fast! Consider the following scenario:

Balance Exposure Tradable Amount Case Overall Loss Your Balance

Rs. 20,000 5X Rs. 1,00,000 Case I: Loss Rs. 5,000 Rs. 15,000
5%

Rs. 20,000 5X Rs. 1,00,000 Case II: Loss Rs. 10,000 Rs. 10,000
10%

Rs. 20,000 5X Rs. 1,00,000 Case III: Loss Rs. 20,000 Rs. 0
20%
As in the above given table, if your portfolio is margined with 4/5th
of the money borrowed from the broker, a 5% decline in the price of
your stock as in case I, will result in a 25% decline in the portfolio.
Simply put, a x% decline in the stock price will result in a 5x%
erosion of your wealth. The situation worsens when the exposure
given by the brokers increase. What we fail to understand is no one
but the broker is the winner here. You on the other hand, are
not only paying him interest on the money borrowed, but a ~0.05-
0.1% brokerage (approx Rs. 150) and some hidden taxes for
intraday trading as follows: (case 1 considered)

1. Service Tax of 14.5% + Swachh Bharat Cess of 0.5% + Krishi

Kalyan Cess of 0.5% (applicable from June 2016) which is applied on
the brokerage. (Updated Mar 2016) i.e. approx Rs. 24

2. STT (Security Transaction Tax) of 0.025% is only on the selling

amount i.e. approx Rs. 24

3. Stamp Duty on the total turnover for the day which is 0.002% i.e.
approx Rs. 4

4. And finally Regulatory Charges on the total turnover for a day

which is 0.004% i.e. Rs. 8

Also, you have to pay a 15% tax on the profits youve made via
intraday trading over a period of one year. So the initial
brokerage+tax accounts to Rs. 210 for the day. Well thats pinching!

7) You start getting desperate for the so-called tips!

Another big threat to aspiring day-traders is from the community of
fraud tipsters. Tips from these fake research companies who
sometimes dont even have real analysts can lead to more and more
losses, but, theres more to it. You try to pin that blame on these tip
providers instead of analyzing the causes for your loss. Yes, you will
feel victimized here, but it wont stop your losses from continuing!

8) What if trading fails? What next?

Suppose you give in everything for day-trading, you do all the
research, you follow all the protocols and you still dont get lucky!
What will you do next? At one point, you will have to quit, and when
you do so, all the time and effort youve put in will count for nothing.
In fact:

40% of day traders quit within a month

87% of day traders quit within 3 years

93% of day traders quit within 5 years

It will be like youve lost all those months or years. Theres no going
back!

But on the other hand, if you had dedicated that time doing a real
job, like at McDonalds (no offense), you could atleast use that
experience for a better opportunity in the future. Just for your
information, McDonalds average hourly pay is around $4/hour i.e.
instead of day-trading, if you work at this fast-food chain for 3 hours
a day, you will end up earning approximately Rs. 800. Shocking
right? Also, you could just go to Las Vegas or any casino for that
matter and simply blow off your money. Who knows, you might get
lucky once in a while, but you at least know that the chances are
negligible.

Remember, if its a bull market, everyones a hero. Else, this

approach has its own huge drawbacks and a 100% (well almost
100%) chance of eroding your wealth. Real money is made by
holding stocks and not trading them. This is where theres a huge
chance of you getting fooled by the self-named TV Experts. The
same experts, who suggest you to buy a stock when it has peaked
out, will advise you to sell it after it has made the lows. All they can
do is follow the tail. If they were actually good at it, they wouldnt
have done it for free. So beware. Theres a reason why well known
names in the world like Warren Buffet, Peter Lynch, Bill Gross, etc
were not traders but long term investors. Also, you will find that
most of the books on investment advice have been written on them
and not traders.

Spend time in researching the fundamentals of a company and

understand how good the business model is, instead of looking out
for short term gains. You might get lucky once in a while, but overall,
intraday trading makes you a big time nothing!

When markets are tried to be understood, the idea that everyone

can make money is not only inaccurate, but impossible and
laughable. Everyone making money means there is no market,
because who would be taking the other side of the trade? Our job is
making sure that you are on the right side of it! Keep in mind that
most traders lose money because the market requires them to do
so. You will most likely hear more stories of people making it big by
intraday trading rather than hearing about people losing everything.
Those rarest of the rare success stories will make you believe you
have that one special something that will make it work for you, but it
wont.
There are no shortcuts to anything in the world, especially making
money in the stock market. So take a step back if you are into it and
make the right choice! Happy Investing!