Introduction of Stock Trading to the Beginners
The stock market is where the stock of listed companies is purchased and sold. Follow these six things to avoid mistakes that a beginner generally does.
There are two major participants investors and traders, investors generally invest for long term, they identify good companies and hold their stocks for years, hoping their value will increase overtime.
Trade means to buy and sell shares the same day, with the purpose of obtaining profits. Trade is all about protecting your money from making money.There is myth that trading is for professional but remember no one is born great trader, one learns by trading.
Follow these six things to avoid mistakes that a beginner generally does.
1.) Learn to use trading platform
The very first step to trading is too open Demat account and trading account with the stock broker. After opening it, learn to use the mobile application of the broker as no one wants to be dependent and everyone love their privacy. The features of trading application are generally same with some exclusive features that make them different. Some user-friendly trading platforms are Zerodha, upstox, angel broking, 5 paisa and grow app.
2.) Avoid traders’ mistakes
Even before entering the stock market, avoid these mistakes that forces trader to lose their money early. The most common mistakes that trader do is follow random tips or alerts from free chat rooms, just remember the quote by Augustine “if experts were so expert, they would be buying stock, not selling advice.” So, follow your own strategy by doing proper research. The next mistake is trader gets emotional while trading, they get greedy to earn more and lose in short span of time. The other mistake trader perform is no risk management.
3.) Fundamental analysis
Everyone knows that technical analysis is the heart of trading, but fundamental analysis is necessary to know the value of a company. To start trading, first select a company in an industry you are familiar with, then analyse its balance sheet, management, and the latest news. Go to the market and observe how the news affects price movements.
Fundamental Analysis helps you discover the true value of a company and understand its stock. This will help you make better trading decisions.
Being a beginner start with fundamental analysis of the company you want to invest, then perform technical analysis followed by sentimental analysis where the movement of prices depends on the people sentiments.
4.) Risk management
Many traders invest their whole capital in one stock hoping it to go up but they do not prepare for what will happen if it goes down. Risk management protect you when things do not go according to plan. Some of the risk management techniques are:
i) How much to invest
Trader must know how much he can invest i.e., he should know the trade size, which can be found out by dividing the capital to the number of shares you want to own.
ii) Stop loss
Stock market is volatile in nature, the price keeps on fluctuating and are unpredictable, stop loss restricts your loss, as soon as the price hits the stop loss your share is sold and no further losses are made. Many traders do not use this feature of stop loss and end up losing money. Being beginner get habited to always place stop loss for all the trade you do.
iii) Diversify your portfolio
As said by Buffet do not put all eggs in one basket. Trader must invest in different stocks as it is not possible to be profited every time, the diversified portfolio will balance your profit and avoid making huge losses.
In order to control risk, learn some concepts like risk to reward ratio, risk per trade, risk capital, etc. the next thing to learn is stop loss as discussed earlier and the last thing paper your trade. You must note down your trade at the price you bought and sold, the number losses you made and profits earned, you can analyse the trading strategy that suits you the best.
You would have heard to be updated and school days you were forced to read newspaper and told to upgrade the knowledge, today also to stay with the stock market, news are required all types of news whether local news, national news, international news, sports news all have the power to affect the stock market prices. Among various factors, news also has great impact on stock market prices. So as a beginner you must start following news regularly and observe how stock prices are affected, which company are getting affected and so on.
The next question is which sources to follow: there are many free sources you can access to for business related news, one of the best among them is Ticker by finology where you get all information about company whether it is fundamentals or technical or news. The best thing is you can access it for free and take benefits of some exclusive features of ticker for free.
6.) Read books
There is no age to learn so keep exploring by reading books and journals. The stock market is only place where you do not require education you need to start from first, to increase knowledge reading some books like the intelligent investor, the candlestick course and some other books related to stock market. the books will help in understanding about the basics of stock market, little bit about fundamental analysis, technical analysis and can build your own trading strategies.
Follow these beginners’ strategies to successfully trade in stock market. and remember two rules by warren buffet.
1) Do not lose money
2) Never forget rule no. 1.