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Is Intraday Trading Profitable?

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Is Intraday Trading Profitable - 5 Point Guide
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There is no elevator to success. You have to take the stairs

Zig Ziglar

Long-term investing in equity is the best way to create massive wealth.

Countless investors have burnt their fingers in their attempt to master intraday trading as a shortcut to wealth creation.

I met one such investor recently at an outing who kept asking me for short-term tips and recommendations. I tried explaining to him the importance of patience in investing and why long-term investing in equity is the only way to create wealth. But he refused to understand. So, I asked, “Can you name one person who has created wealth by trading in the stock markets.”  

He was speechless. I shared a small but powerful story with him about Buddha and his disciples to help him understand the importance of patience in investing.

Here’s what I told him:

During a long journey, Buddha and his disciples came across a small lake at a distance. Buddha asked his youngest and most impatient disciple to fetch some water from the lake as he was thirsty. So, the disciple went to the lake but stopped when he noticed a cart pulled by oxen crossing the lake, close to the shore. Slowly, the water became muddy. On seeing this, the disciple thought, “I can’t give the teacher this muddy water to drink.” So, he went back and told his master, “The water is very muddy, and so we cannot drink it.”

Half an hour later, Buddha asked the young disciple to return to the lake and get some water to drink again. However, the disciple found the water was still dirty on reaching the lake. So he went back and informed Buddha that the water was still cloudy and would be better if they walked to the nearest town to get some water to drink.

Buddha listened to him calmly but did not reply. Finally, after some time, Buddha asked the disciple to go back to the lake and bring him water. As he didn’t want to question his master, he went to the lake furiously without understanding why Buddha had asked him to return again despite knowing that the water was muddy and they couldn’t drink it.

When he arrived at the lake shore, he was surprised to see that the water looked crystal clear. So, he collected some water in a bucket and brought it to Buddha. Buddha looked calmly at the water and asked his disciple, “What have you done to clean the water?”

The disciple failed to understand the question. It was evident that he hadn’t done anything to clean the water. Buddha smiled at him and clarified, “You waited, and the mud settled on its own, making the water clean. Your mind is also like that!

When it’s muddy, you have to give it some time. Be patient. It’ll reach a balance on its own without you having to try to calm it down. Like the water, everything will pass on its own as long as you don’t hold on to it.”

I hope you understood the story as well and, of course, the importance of patience. Still not convinced; here’s another example inspired by real life.

Suhas Sharma, a Pune-based sales executive, first started intraday trading in 2019. Buoyed by success in his initial few trades, he quit his full-time job with a pharmaceutical company to become a full-time intraday trader. He believed that even if he could make anything above Rs.1000 per day, he would still be earning more than his job paid minus the hassles of traveling to different Pune locations for his daily work.

However, two months later he realized that things were not quite working as expected. Rather than making profits on his intraday trades, he was making significant losses eroding his capital amount. Determined not to give up, he enrolled on a training course in intraday trading to learn how to trade based on charts and candlestick patterns. While this new learning gave him a renewed sense of confidence, the actual profits in his intraday trades were still miles away.

Strangely, he felt that the charts and stock price movements always matched his analysis but only when looking at it after market hours, while things were never as expected when checking for the same in real-time. Finally, frustrated with things not moving the way he expected in intraday trading and almost 70% erosion in his capital, Suhas decided to quit intraday trading altogether and instead invest for the long term while taking up a regular job. Suhas Sharma is not alone. The same story has been repeated countless times with investors.

Intraday trading refers to buying and selling or selling and buying stocks on the same day to make profits by capitalizing on the difference between the prices at which the stocks are bought and sold. In theory, this looks like a great way to make quick profits and become rich in a short time. But in practice, intraday trading is not a breeze, and most intraday traders make losses, with many even losing their capital invested.

Why is intraday trading not profitable?

Let’s take a detailed look at the drawbacks of intraday trading:

There are multiple types of risks involved in intraday trading

Stock markets are highly volatile and unpredictable in the short term. So even if a trader selects the right stocks or strategies to trade, there is always a danger of some unforeseen event impacting the stock price or stock markets.

Some famous examples of such events include the 9/11 terror attacks in America, the American drone attack killing Iranian general Qassem Soleimani in 2019 and the aerial dogfight between India and Pakistan in 2019 when markets crashed unexpectedly. Of course, no trader can anticipate unexpected events, and even a well-planned trading strategy may go for a toss in such a scenario.

Besides this, there is always a risk of excessive exposure due to the easy availability of credit. Leveraging allows traders to take exposures in the market that are much higher than they can afford to cover. However, taking high exposures to earn higher returns comes with the risk of more significant loss.

One of the most significant drawbacks of intraday trading is that it is highly addictive and may create a gambler’s mindset. Most intraday traders are highly influenced by their emotions which motivate them to take high risks beyond their means. Many traders tend to place their trades driven by their instincts or past experience rather than logical thinking in pursuit of higher profits and also tend to overtrade.

Since intraday trading is based on speculating on the price movement of stocks, the addiction to trading could lead to compulsive gambling. In addition, extreme competitiveness and failure in the initial few trades of the day often drive traders to indulge in revenge trading, where they take more significant risks to cover past losses, leading to additional losses.

Intraday trading is highly stressful

Intraday trading is very stressful as traders are always hooked to their computers or mobile phones, so they don’t miss out on opportunities. In addition, it highly impacts other activities and day-to-day work, causing high-stress levels

Intraday trading cannot create sustainable wealth

A trader requires consistent success in his intraday trades to create sustainable wealth. Given the high risk and limited time duration, the chances of making consistent profits in intraday trades are highly negligible. Only a fraction of intraday traders make profits regularly. So, it is almost impossible to create sustainable wealth from intraday trading. Besides, there is always the risk of losing heavily in a trade, which may eat away the gains from previous transactions.

There is no such thing as a success shortcut. Be willing to take the long road, or you will hit a dead end

John Di Lemme

Patience is a crucial aspect of long-term investing in equity which multiplies your wealth with the power of compounding. An ability that all short-term investors are completely unaware of. Don’t just take our word for this.

Check out the numbers below, which validate what we are saying about the amount of wealth one could generate by investing for the long term.

Here is what you may earn if you are invested for five years:

Amount Invested

CAGR @ 20%

CAGR @ 25%

CAGR @ 30%

CAGR @ 35%

Rs. 2,00,000

Rs. 4,97,664

Rs. 6,10,352

Rs. 7,42,586

Rs. 8,96,807

Rs. 5,00,000

Rs. 12,44,160

Rs. 15,25,879

Rs. 18,56,465

Rs. 22,42,017

Rs. 10,00,000

Rs. 24,88,320

Rs. 30,51,758

Rs. 37,12,930

Rs. 44,84,033

Rs. 25,00,000

Rs. 62,20,800

Rs. 76,29,395

Rs. 92,82,325

Rs. 1,12,10,083

The calculations in the above table are for illustration purposes only and are not to be taken otherwise. But wait, that is not all.

The real power of compounding is still not visible in the table above. If you would continue to stay invested for the next 5 years as well, here is what you would get 10 years from now:

Amount Invested

CAGR @ 20%

CAGR @ 25%

CAGR @ 30%

CAGR @ 35%

Rs. 2,00,000

Rs. 1,238,347

Rs. 1,862,645

Rs. 2,757,170

Rs. 4,021,311

Rs. 5,00,000

Rs. 3,095,868

Rs. 4,656,613

Rs. 6,892,925

Rs. 10,053,278

Rs. 10,00,000

Rs. 6,191,736

Rs. 9,313,226

Rs. 13,785,849

Rs. 20,106,556

Rs. 25,00,000

Rs. 15,479,341

Rs. 23,283,064

Rs. 34,464,623

Rs. 50,266,390

The calculations in the above table are just for illustration purposes and are not to be taken otherwise.

If you check the above two tables, they clearly showcase the power compounding would have. Even at a CAGR of 25% annually, you have the potential to grow your wealth 3x every 5 years. However, you can experience the real power of compounding in investments if you invest for the long term and probably for a lifetime.

What this means is if you invest Rs. 500,000 now, its value would be over Rs. 15 Lakh after 5 years or over Rs. 45 Lakh after 10 years. That’s a whopping 9 times the sum invested. The table above shows what happens to your one-time investment. Imagine the magnitude of wealth you can create if you invest every month.

Frequent charges and taxes reduce the trader’s profits

Frequent buying and selling as a part of intraday trading means higher brokerage costs, as well as higher taxes. Short-term capital gains are chargeable at a higher rate compared to long-term capital gains, which are applicable if you sell stocks after holding them for a year or more. Most traders overlook this aspect in the long run, which reduces the overall gains.

Bottom line – Is intraday trading profitable?

It is challenging to earn consistent profits from intraday trading due to the limited time at hand for an intraday trader in addition to huge market volatility in the short term. On top of it, there is intense competition from big players in the stock market, including those using algorithms which can identify and react to market trends in near real-time thus giving them a competitive advantage over traders, who execute their trades manually.

For the average retail investor, the best way to create wealth is by investing in fundamentally sound stocks for the long term. It is a proven fact that when one remains invested in good quality stocks for the long term, wealth creation is bound to happen. On the other hand, intraday trading can be one of the fastest ways to lose even the capital invested.

As aptly said by the Nobel prize-winning American economist, Paul Samuelson “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

To become successful in equity investment, you need two things – patience and the correct approach to stock picking.

Stock Advisory Service:

A stock advisory service can help you to choose the best stocks for wealth creation after detailed research. However, remaining invested in those stocks for the long term requires a lot of patience, a virtue that an investor has to develop on his own.

Wish to know more about creating wealth by investing in fundamentally sound stocks for the long term? Click here.

This article was last updated on 1/09/22

Read more: About Research and Ranking


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