Trading is an art, Let me tell you how to start!
Trading isn’t about indicators or analysis, trading is predicting what is going to happen to the share price.
How do you start riding a cycle or walking as a child? You learn!
The problem is that when it comes to Finance or trading in Stock Market, people just want a shortcut without learning or educating themselves.
There are no shortcuts, I will give you the BluePrint of how to start trading in the Stock Market.
- Educate yourself about how to Start Trading in the Stock Market as a beginner.
- Learn about what trading is and the different types of analysis used for trading in the Stock Market.
- Learn about What are the types of trading used in the stock market and how to invest in the Stock Market.
- Educate yourself about Risk Management in the stock market,
What is Trading?
It’s as simple as it sounds, Trading is buying something with hopes of selling it for a higher price.
Be it at a shop, a mall or an online store, if you think about it we’re surrounded by traders.
Trading your skills for a job to Trading in the stock market.
When it comes to the stock market you buy a piece of a business listed on the National Stock Exchange.
Learn more about Stock Market and The Stock Exchange
The correct method for that is to learn and educate yourself about “WHY” you’re buying that rather than asking for tips or relying on the news.
How to Start Trading Online?
It’s pretty easy to start, just make a Demat account.
So how do you plan on predicting what’s going to happen to the price?
You have to learn to analyze to be able to predict.
There are two types of analysis used in trading:
- Technical Analysis
- Fundamental Analysis
Technical involves reading charts and figuring out patterns that have been backtested.
Whereas Fundamental involves reading revenue reports and balance sheets.
Technical analysis is essential if you want to become a Trader, while Fundamental is essential if you want to Invest.
Confused already? Don’t worry, It’s not easy but it’s simple!
1. Technical Analysis in Trading
Reading charts and candlestick patterns and figuring out support and resistance levels are all included in the technical analysis.
Now, if you go to youtube they’ll give you so many free strategies that don’t work and will help you lose money before you even realise what happened.
Warren Buffet says, Don’t lose money, if you lose 50% of your portfolio, you have to gain 100% just to make it back.
One thing you must realise about technical indicators is that Indicators work and show you data based on the price.
You can’t depend on Indicators, rather use them as a method of confirmation based on price action.
What is Price Action? There’s a Marathi saying, “Bhav Bhagwan Che” meaning price is god.
Price action involves studying support and resistance levels and trendlines to make an accurate prediction.
Support is a particular price at which the demand is high, while resistance is the price where demand is low.
When the demand is high, more people are buying so the price goes up, when the demand is low, more people are selling so the price falls.
There are certain trendlines that price follows making constant lows and highs along the way.
Now, you have a brief idea about what technical analysis is.
2. Fundamental analysis in Trading
Almost all Indian Stock Market Billionaires used Fundamental Analysis to earn their fortune.
This is the simpler of the two, I mean if you see that the revenue of the company has been increasing for the last 10 years.
More people would like to be a part of that success and buy shares hence increasing the demand and price of the share.
It’s not easy but it is simple, just like maths.
You will also need to Educate yourself on Financial Ratios like PE, DE, ROI and ROCE.
PE means Product to Equity ratio, Equity is Assets held by a company minus the Liabilities.
A low PE ratio means that the stock is Undervalued.
While DE is the Debt to Equity ratio, how much Debt a company has compared to its Equity.
This varies from sector to sector, Find out the DE of different sectors as an exercise and the meanings of ROI and ROCE.
What are the Types of Trading in Stock Market?
Based on the time intervals, I have classified the different types of Trading:
1. Intraday Trading /Day Trading
Firstly to say Intraday Trading and Day Trading are the same. As the name suggests Intraday Trading allows you to buy and sell the share on the same day.
The benefit is that Intraday allows you to have a Leverage of around 20%, meaning you only have to pay 20% of the price of the share you’re buying for that day.
You also need to sell the share on that same day to avoid penalties.
Leverage isn’t something you should use as a beginner trader, it might look tempting but do remember that you could lose more money too.
2. Swing Trading
Swing trading is buying and selling a share within two weeks.
It allows you to generate an income from the market, and since you’re holding shares you can’t use Leverage.
No leverage means no big losses.
The one thing every trader must avoid, once you enter a trade there are 5 possibilities, Big profit, Small profit, no profit no loss, Small loss, and Big loss.
If you can limit yourself to never having Big losses, you will make money due to the balance of probability.
3. Positional Trading
However, Swing trading allows you to generate a steady income from the market.
Two weeks aren’t enough for a huge movement in the share price.
So based on this can you guess What is Positional Trading?
Positional Trading involves holding a share for a period of a few months based on your analysis.
There is a chance that if you do your research, you might get the dividend of that year just by buying the shares for a few months.
The craze of Investment is at an all-time high.
However, most people don’t even know how to invest in the stock market and why?
Investment uses the most powerful force in the Universe, “Compound Interest”.
A man bought shares of Wipro worth 10,000 Rupees in 1980, do you know how much those shares are worth today?
Over 800 Crores! That is the power of compound interest.
Tips to Start Trading in the Stock Market
As a beginner, I would advise you to open a Demat account with an Institute that offers Personal Assistance.
That way if you face any issues or have any problems, you will have someone to call and ask for help.
Don’t Be Greedy! Risk management is what makes money in the stock market.
Risk Management can be applied to all walks of life. High risk, High reward and vice versa.
Calculate the risk you are willing to take per trade and only then execute the trade.
Do remember, if the risk you’re taking is for 1000 rupees the reward should at least be 2000.
A risk to reward ratio of 1:2 or higher.
One of the less talked about topics is the psychology of a trader.
Learn more about Psychology and its Benefits.
It’s tough when you’re facing continuous losses and when all your plans are failing.
Don’t jump into trading with real money, practice for a few months using Paper Trading, which allows you to trade with fake money.
These are some of the stock trading tips you should follow as a beginner.
In my own trading experience, it’s not hard to make money from the stock market, it’s hard to lose it.
Learning takes time, and so will your journey as a trader, there will be extreme highs and extreme lows.
Amateurs care about how much money they can make, and Professionals care about how much money they can lose.
Lastly, being a trader is a challenging journey and to be honest, it’s not for everyone.
Hope this was helpful, I wish you the best.
Frequently Asked Questions (FAQ’s)
Is Trading better than Investing?
Trading is short term and riskier, while Investing is long term and has less risk.
What is Trading and How does it Work?
Trading is buying something at a lower price only to sell it later at a higher price and vice versa.
Is Trading Gambling?
Unlike Gambling there is no clear win or lose in trading, companies improve their services with time hence increasing the share value.
Is Trading hard to learn?
Trading is hard work, it is hard to learn, it’s an endless journey of learning and improving your strategies.