The term stock trader typically refers to someone who frequently buys and sells stocks to capitalize on daily price fluctuations.
These short-term traders are betting that they can make a few bucks in the next minute, hour, days or month, rather than buying stock in a blue-chip company to pass along to their grand-kids someday. That being said there are long term traders who hold positions for multiple years. Stock trading for beginners in india is becoming increasingly popular as a work from home job.
1. Always Use a Trading Plan
There is an old expression in business that, if you fail to plan, you plan to fail. In stock trading I always say that in order to succeed in a trade we need to have a trading plan. Some people tend to challenge the market. If there is a loss they trade more every time hoping that the previous loss will be recovered this time. This is a big mistake. No revenge trading please.
Decide how much money you are going to deploy in each trade. This is important because even if you make a loss you don’t lose out on everything. Some traders even set a profit target in their trading strategy. For example, a 2.5% profit in each trade is Ok. Trading is an exciting game!
2. Use Technology to Your Advantage
Apps and websites have changed trading and investment landscape. They have smoothed the way of stock trading for beginners in india Information of companies are easily accessible today. Expert advice, market behavior, who’s buying and who’s selling, everything is available fast and easy.
Earlier in the days where investors were resigned to speaking to humans for executing their trades, there were priorities given to large investors and traders both in terms of access and better brokerage rates. Now with discount brokers and even traditional brokers having cutting edge apps, this bias has been eradicated/ reduced.
All benefits of using technology can be understood only when you start using it. However, technology hasn’t changed the effects of human psychology and human behavior. Also, if you think that technology will find the next best investment for you, I would say that hasn’t happened yet. You need to have some knowledge for that. It is the human who needs to take the final call with the assistance of technology.
3. Learn to read charts
In the last point I spoke about using tech in the form of apps and websites. Robotrading is also an option these days. However, it is extremely important that a wannabe trader starts understanding the charts. Using candle stick patterns with the use of technical indicators and oscillators will help to eliminate the weak stocks and focus on those that will make real money.
Let’s look at Yes bank. The Yes bank share price went down due to governance issues. But if someone would have followed just the charts, he would have made more than 27% returns in a month. During good days of Yes Bank in the past one would have made 138% returns. Candlestick pattern study is the key to success. You would not need to keep a close eye on the ticker. This is possible for someone who is doing a 9 to 5 job.
4. Stoploss – Protect your capital
Everybody pays attention while buying but fails to get out on time. Many traders cannot sell if they are down because they don’t want to take a loss. Get over it, learn to accept losses, or you will not make it as a trader. Maintain a strict stop loss. Professional traders lose more trades than they win, but by managing money and limiting losses, they still make profits. Before you enter a trade, you should know your exits. Have 2 stop loss points (S1 and S2). Ideally a stop loss should be 3% below a crucial point on a closing basis.
Let’s look at Tata Motors. Do you see how the stock price has gone up from a support zone? A 91% profit in by holding Tata Motors for 8 months. It has also given a 40% profit in 2 months. I am hopeful that Tata Motors share price will show such magic down the line as well. Keep in mind weekly and monthly charts are more reliable than daily charts. The higher the time frame the better it is. Also, you do not have to stay glued to your system all day.
5. Risk Only What You Can Afford to Lose
Do not use more than 10% of your capital in a single trade. This is because even if you lose money in one trade you have enough funds available for another that will help you to recover your loss. I’m personally not in favour of taking leverage on stock holdings. At times it wipes out the entire profit of a long term holding. It works like this:
a. You buy stocks by pledging let’s say 30% of your cash holdings.
b. Price goes against you and the loss is deducted from the pledged stock.
c. Finally, when the price of the newly purchased stock has gone down too much the pledged stock is sold off by the broker.
Do not do this. Trade only if you have surplus money to risk.
6. Know When to Stop Trading
Trading is a game of mind. Sometimes when people make profit, they become overconfident and trade too much to make even more money. What they forget is more trades increase the chances of loss as well. Same way when there is a loss people get into revenge trading and end up trading too much. This most of the times leads to total loss of capital.
7. Prepare your trading rules
Whatever trading system and program you use, label major and minor support and resistance levels on the charts, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal.
8. Analyse performance
After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so you can reference them later. Remember, there will always be losing trades. What you want is a trading plan that wins over the longer term.
9. What is the best stock broker for you?
Lastly there are many stock brokers. Decide whether you need a full-service broker who will also provide you an individual relationship manager, or you can work with a discount broker. I have worked with both. Since it is a matter of money and some times customer service lines are too busy, I prefer a full-service broker. My RM is some one I can see and talk to. He can solve my problems far better than a customer support representative.
Things to remember:
- Have a trading plan.
- Use right technology and tolls.
- Learn to read charts accurately.
- Have a proper risk management policy.
- Choose the right broker.
The Bottom Line
Successful practice trading does not guarantee that you will find success when you begin trading with real money. But practice always makes a man perfect. Thus stock trading for beginners in India have become a level playing field for everyone. This is when emotions come into play. But successful practice trading does give the trader confidence in the system they are using, if the system is generating positive results in a practice environment. Deciding on a system is less important than gaining enough skill to make trades without second-guessing or doubting the decision. Confidence is the key.