BTST Trading: Meaning, Benefits, and How to Trade

BTST trading has recently become quite popular amongst active traders and investors. But what exactly is BTST in the share market? And why is it gaining so much traction? This blog post will explore what is the BTST trade or BTST trade means to help you understand this concept better.

What is BTST in the Share Market?

BTST Trade meaning in share market is Buy Today, Sell Tomorrow. It is a very short-term trading strategy in which traders buy shares one day and aim to sell them the next day. The goal is to capitalise on minor price movements in highly liquid stocks to earn small but regular profits.

In a BTST trade, traders typically hold shares for only one day. They buy stocks in the morning session and square off the positions either later in the day or early the next day. The profits come from the difference between the buying and selling price. Even slight price upticks of 1-3% can result in decent returns due to leverage from intraday margins.

What is BTST trade:

• It is an intraday trading strategy for very short holding periods.
• Traders aim to profit from minor price movements in liquid shares.
• Positions are squared off within the same day or the next day morning.
• Profits come from the difference between the buying and selling price of shares.

What is more important than simply knowing BTST full form or BTST trade meaning is knowing the entry and exit BTST share price well. In essence, BTST trading means riding short-term market trends and volatility. The aim is to get in and out of trades quickly while stocks display momentum in a particular direction.

Why is it Called Buy Today Sell Tomorrow (BTST)?

The BTST trading strategy gets its name from the actual trade execution process. Traders buy company shares during the current trading session and aim to sell them the next day to pocket the difference as profit.

If traders are bullish on a stock for the next day, they buy shares today to sell when prices rise in the next trading session. So ‘Buy Today, Sell Tomorrow’ aptly describes this short-term trading behaviour focused on making overnight profits.

Benefits of BTST Trading

BTST trading offers several advantages that make it appealing for active traders:

1. Requires Lower Capital

BTST trades are done on an intraday basis. So, they require significantly lower capital than delivery trades. You only need to fund the margins needed for intraday positions. Margin requirements can be as low as 20-25% of the total trade value. This allows you to take more prominent positions to magnify profits with limited capital.

2. Captures Short-Term Opportunities

BTST trades target short-term uptrends and volatility in stock prices. So you can capitalise even if you expect a price rise over the next 1-2 days. You don’t need more extended directional views on stocks to earn profit. These short-term movements are relatively more straightforward to predict.

3. Allows Better Risk Management

The short holding period of BTST trades keeps the risks under control. Positions are squared off within a day or two. So, the risk of prices reversing and incurring overnight losses is lower. Traders usually place tight stop losses to contain the downside movement. Quickly exiting positions helps prevent significant losses.

4. Requires Less Monitoring

Unlike intraday trades, which need daily monitoring, BTST trades can be left overnight after initiating the buy order. A simple sell order can help the traders pocket the gains the next day. So, it requires less active tracking of price movements.

5. Provides Higher Leverage

Given the low margins required for BTST trading, you can trade with higher exposure. This leverage results in more significant profits on percentage price movements. However, leverage can also magnify losses, so appropriate position sizing is crucial.

In essence, BTST trading enables traders to profit from short-term opportunities in the market with the benefits of leverage and lower capital needs.

Step-by-Step Guide to Trading BTST

If you want to venture into BTST trading, follow these key steps:

Step 1: Identify the Right Stocks

Choosing the right stocks to trade BTST plays a considerable role in profitable trades. Some parameters to look for include the following:

• Liquidity: Choose highly liquid large-cap stocks with good trading volumes. Liquid stocks have wider spreads and price risk.
• Volatility: Look for stocks displaying intraday price momentum and volatility. Low-volatility stocks won’t give much range to the possibility of earning profits.
• Technical Indicators: Use indicators like MACD and RSI to spot upside momentum. Breakouts from ranges and chart patterns also work well.

Step 2: Plan Orders and Positions

Once you’ve shortlisted stocks for BTST trades, plan the entry, exit and stop loss levels. Also, position sizes should be determined based on the investor’s risk appetite. Try using a trading calculator to estimate profit potential. Appropriate position sizing can help traders control risks.

Step 3: Place Buy Orders

During the day, place intraday buy orders at pre-planned levels and fill positions in stocks showing strength. Try staggering the orders across multiple trades rather than taking a concentrated bet.

Step 4: Square Off Trades

In the next trading session, square off the open positions in profit by placing intraday sell orders. Book profits either early morning or during the day if targets are met. If stop loss triggers, exit promptly.

Step 5: Analyse Performance

Analyse your BTST trades at the end of each week. Assess what worked well and what didn’t. Refine stock selection, order placement and risk management accordingly. Continual improvement is key to BTST trading success.

Dos and Don’ts of BTST Trading

Here are some best practices to keep in mind:

Do’s:

• Stick to liquid large-cap stocks
• Place tight stop losses on all positions
• Book profits at pre-set target levels
• Start small to test the viability of the strategy
• Analyse trades regularly and improve

Don’ts:

• Overtrade by taking too many positions
• Risk more than 1-2% of capital per trade
• Hold positions longer than intended
• Chase trades that aren’t working out
• Neglect risk management

The Bottom Line

BTST trading offers active traders a strategy to profit from short-term opportunities in the stock markets. Its benefits, like leverage, lower capital needs and risk management, make it popular. However, appropriate stock selection, disciplined risk management and continual learning are vital. Try using BTST as a part of an overall trading approach rather than the only strategy. Start small, make refinements based on experience, and scale up prudently. Avoid trading decisions clouded with greed or fear. Stay rational, focused and persistent to attain long-term BTST trading success.

Frequently Asked Questions – FAQs

1. What does BTST stand for in stock trading?

BTST stands for “Buy Today, Sell Tomorrow”. It refers to a short-term trading strategy where traders buy stocks one day and aim to sell them the next day.

2. Why is the strategy called Buy Today Sell Tomorrow?

The name comes from the actual trade execution – traders buy shares in the current trading session and aim to sell them in the very next session to pocket the price difference as profit.

3. What are the key benefits of BTST trading?

Key benefits include requiring lower capital, capturing short-term opportunities, allowing better risk management, requiring less monitoring, and providing higher leverage.

4. What type of stocks are best suited for BTST trades?

Traders should look for highly liquid large-cap stocks displaying intraday price momentum, volatility and upside breakouts.

5. How long do traders typically hold BTST positions?

BTST positions are usually held for one day only. Traders buy stocks intraday and aim to sell them either the same day or early next day morning.

Author: All Content is verified by SMC Global Securities.