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Is Intraday Trading Profitable? – Research & Ranking

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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 huge wealth.

There are countless investors who 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 continuously 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. Hence, I asked him a question – \”Can you name one person who has created wealth by trading in the stock markets.\”  

He was speechless.

To make him understand the importance of patience in investing, I shared a small but powerful story with him about Buddha and his disciple.

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 that lake as he was thirsty.

The disciple went to the lake but stopped when he noticed a cart pulled by of oxen crossing the lake, near the shore in shallow water. Slowly, the water became muddy. On seeing this, the disciple thought, \”I can\’t give the teacher this muddy water to drink.\” Thus, he went back and told his master, \”The water is very muddy, and hence we cannot drink it.\”

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

Buddha listened to him calmly but did not reply. After some time, Buddha asked the disciple once again 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 the reason why Buddha had asked him to go back again despite knowing that the water was muddy and they couldn’t drink it.

When he arrived at the shore of the lake, he was surprised to see that the water now looked crystal clear. So, he collected some water in a bucket and brought it to Buddha. Buddha looked calmly at the water and asked the 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 make an effort 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.

If you are still not convinced, here\’s another example inspired by real life.

Suhas Sharma, a Pune-based sales executive first started intraday trading in the year 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 what his job was paying minus the hassles of traveling every day to different locations in Pune in connection with his work.

However, two months down the line, he realized that things were not quite working the way he expected. Rather than making profits on his intraday trades, he was making significant losses that were eroding away his capital amount.

Not determined to give up, he enrolled for 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.

Frustrated with things not moving the way he expected in intraday trading and almost 70% of 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 the activity of 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 intraday trading is 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 even impacting the stock price or stock markets. Some famous examples of such events include the 9/11 terror attacks in America, drone attack killing Iranian general Qassem Soleimani in 2019 by America and the aerial dogfight between India and Pakistan in the year 2019 when markets crashed unexpectedly. No trader can anticipate any such unexpected events beforehand, and in such a scenario, even the well-planned trading strategy may go for a toss.

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. The majority of 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. 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 which in turn leads 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 that they don\’t miss out on opportunities. This highly impacts their other activities and day-to-day work causing high levels of stress.

Intraday trading cannot create sustainable wealth

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

\”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. A power that all short-term investors are completely unaware of.

Don’t just take my word for this. Check out the below numbers which validate what I am 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 just for illustration purposes only and 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 only and 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.

The real power of compounding in investments can only be experienced if you invest for the long term and probably for a lifetime.

What this means if you invest Rs. 500,000 now, it 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 above table only showcases if you make an investment one time. Imagine the magnitude of wealth one can create by investing every month. If this may seem too good to be true – it is as well.

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 as compared to long-term capital gains which are applicable on selling stocks after holding them for a year or more.

This is a highly overlooked aspect by many traders and in the long run, reduces the overall gains.

Bottom line – Is intraday trading profitable?

It is challenging to earn consistent profits from intraday trading due to 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 automatically 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 just need two things – patience and the correct approach to stock picking.

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 26/02/21



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