What is BTST Trading and How it works?

BTST Trading is one of the most popular short-term trading strategies used in the share market. Traders use BTST trading to buy shares today and sell them on the next trading day without waiting for the delivery of shares.

The BTST trading strategy is often compared with intraday trading and Sell Today, Buy Tomorrow (STBT) trading. It is because all these strategies aim to capture short-term price swings to generate profit.

This article discusses Buy Today Sell Tomorrow (BTST) trading, how to execute, trading strategies, advantages and disadvantages.

What is BTST Trading?

BTST trading stands for Buy Today Sell Tomorrow. In this strategy, a trader buys shares on one trading day and sells them on the next day before receiving delivery in the demat account.

Normally, shares bought in the share market are credited into the demat account after T+1 settlement. However, BTST trading allows traders to sell those shares before the settlement is completed.

The main objective of BTST trading is to benefit from overnight price movement. Traders generally use a BTST trade when they expect bullish momentum in stocks.

Features of BTST Trading

Here are the main features of BTST trading:

• Short-term opportunity:

BTST trading helps traders capture quick gains from short-term price movements in the share market.

• No delivery required:

Traders can sell shares before actual delivery into the demat account under the BTST trade mechanism.

• Lower holding period:

This type of trading usually involves holding shares only for one trading session before selling.

• Momentum-based strategy:

BTST trade mainly depends on overnight news, technical breakouts, and positive market sentiment.

• Higher flexibility:

BTST trading gives traders flexibility compared to intraday trading because positions are carried overnight.

How to execute a BTST Trade?

Executing a BTST trade is simple if you understand the T+1 settlement mechanism and broker policies. Here is a step-by-step process for BTST trading.

• Select a stock:

Choose stocks with strong momentum, high liquidity, and positive technical indicators for BTST trading opportunities.

• Analyse market trend:

Study price action, volume, news flow, and chart patterns before entering a BTST trade position.

• Buy shares today:

Purchase shares during market hours using the delivery option through your trading account.

• Hold overnight position:

Carry the purchased stock overnight, expecting favourable price movement during the next trading session.

• Sell shares tomorrow:

Exit the BTST trading position on the following trading day before market closing.

• Book profit or loss:

Profit or loss depends on the difference between buying and selling prices during the BTST trade.

Example of BTST Trading

Suppose you buy 100 shares of a company at Rs. 500 on Monday. You expect positive quarterly earnings and bullish market sentiment.

On Tuesday morning, the stock opens at Rs. 525 due to strong buying interest. You sell all shares at Rs. 525.

In this BTST trade, you earn a profit of Rs. 25 per share, resulting in a total profit of Rs. 2,500 before brokerage and taxes.

Factors to Keep in Mind for BTST Trading

Here are some important factors which a trader should consider before doing BTST trading.

• Settlement risk:

BTST trading involves settlement-related risks because shares are sold before actual demat account delivery completion.

• Market gap risk:

Overnight global events may cause sudden gap-up or gap-down openings, affecting BTST trade profitability significantly.

• Choose liquid stocks:

Highly liquid stocks reduce execution problems and ensure smooth buying and selling during BTST trading sessions.

• Avoid volatile penny stocks:

Low-quality stocks can experience unpredictable price movements, creating heavy losses in BTST trading.

• Check broker policies:

Different brokers have different BTST trading rules, margins, and penalties regarding settlement shortages.

• Use stop loss orders:

Stop losses help traders manage downside risk and protect capital during unfavourable BTST trade movements.

• Monitor corporate actions:

Stock splits, dividends, and bonus issues may affect settlement and execution.

Popular BTST Trading Strategies

Here are some popular BTST trading strategies used by the traders.

• Breakout strategy:

Traders buy stocks breaking important resistance levels with high volume, expecting continuation during the next trading session.

• Gap-up strategy:

Stocks showing strong closing momentum may open higher the next day, providing profitable BTST trade opportunities.

• News-based strategy:

Positive company announcements and earnings reports often create short-term momentum suitable for BTST trading positions.

• Swing momentum strategy:

Traders identify short-term bullish trends using moving averages and momentum indicators for BTST trading.

• Sector rotation strategy:

Strong-performing sectors during market rallies may provide better BTST trade opportunities for overnight gains.

• Support bounce strategy:

Stocks rebounding from strong support levels can generate profitable moves suitable for Buy Today Sell Tomorrow trading.

• Volume expansion strategy:

A sudden increase in trading volume often indicates institutional buying and potential BTST trading opportunities.

Technical Indicators Used in BTST Trading

Here are some common technical indicators used in BTST trading.

• Moving averages:

Traders use moving averages to identify bullish trends and short-term momentum for BTST trading setups.

• RSI indicator:

The Relative Strength (RSI) Index helps traders identify overbought and oversold conditions during BTST trade analysis.

• MACD indicator:

Moving average convergence divergence (MACD) crossover signals help traders confirm momentum strength before entering the trade.

• Volume analysis:

Higher trading volume confirms breakout strength and improves the probability of a successful BTST trade.

• Candlestick patterns:

Bullish candlestick formations help traders identify BTST trading opportunities.

Advantages of BTST Trading

BTST trading offers several benefits to short-term traders in the share market.

• Opportunity for quick gains:

BTST trading allows traders to earn profits from overnight price movements in stocks.

• No same-day pressure:

Unlike intraday trading, BTST trading gives additional time for price movement and decision-making.

• Can benefit from gap-up opening:

Positive overnight developments may create profitable gap-up openings for BTST trading positions.

• Useful in bullish markets:

Strong bullish trends often create excellent Buy Today Sell Tomorrow trading opportunities for active traders.

• Less screen monitoring:

BTST trading requires comparatively less continuous monitoring than intraday trading throughout the trading session.

• Flexible holding period:

Traders can sometimes convert a BTST trade into a delivery position, depending on broker policies and market conditions.

• Works well with technical analysis:

BTST trading strategies can effectively use chart patterns and momentum indicators for stock selection.

Disadvantages of BTST Trading

Despite several benefits, BTST trading has some limitations and challenges.

• Overnight risk exposure:

Global events and unexpected news can negatively impact stock prices during overnight holding periods.

• Settlement-related complications:

Short delivery and auction risks may occur if shares are not properly settled in BTST trading.

• Higher uncertainty:

Overnight market movements are difficult to predict accurately in Buy Today Sell Tomorrow trading strategies.

• Limited stock eligibility:

Not all stocks are eligible for BTST trading due to broker restrictions and settlement concerns.

• Gap-down opening losses:

Negative news can cause sharp gap-down openings, resulting in heavy losses during BTST trading.

• Emotional trading pressure:

Sudden overnight market developments may create emotional stress among BTST trading participants.

Difference Between BTST and Intraday Trading

Here are the main differences between the BTST and intraday trading.

BTST vs STBT Trading

BTST and STBT trading are two opposite trading strategies used in the share market.

• Traders use the BTST trading strategy when they expect the prices of stocks to rise on the next trading day.

• However, traders use the STBT trading strategy when they expect the prices of stocks to fall on the next trading day.