Some share trading advice for newbies
Stock trading can easily burn fingers if the strategies employed are immature, lacking and out of fashion. Known for its complex and highly unpredictable nature (atleast what the Indian bourses are known for) a new entrant can really lose out of hi hard earned money in no time if he invests without any basic know how of the game.
Therefore, get your basics intact before planning to invest in the stock market. Though, it’s an unwritten rule that a first timer always reaps profits in the first trade but thereon (trading with same strategy) markets can get really cruel to him.
For someone wishing to trade first time in his life needs to open a trading account (for trading stocks) and a Demat account ( for storing stocks in dematerialized form) in order to begin with trading in shares. An active bank account is a must and has to be linked with the other two accounts for purchasing and selling shares.
How does it work?
Presently, stocks are traded online in digital form and this has saved a lot of cost and precious time of a trader. When a person wants to buy or sell his shares he just needs to log on to his trading account and specify the details such as company name, lot size of the shares to buy or sell and the price quote. When the desired price is reached, the trade is executed and the required amount is credited or debited to the bank account. For the service every brokerage house charges some transaction fee.
How can a novice defend his position against the imminent risks?
Imagine you invest (buy) in 50 stocks of a company ABC which are trading at Rs 100/share. Presume fresh news about the company suffering substantial loss strikes the stock market and leads to a fall in the price of the stock. Suppose the stock falls down to Rs 20, you are bound to bear Rs 80 loss on a share that adds up to a hammering of Rs 4,000 in total.This can be really dispiriting for a novice.
Then should he limit his losses?
He can fix a stop loss (an order to buy or sell the lot once the price of the equity climbs up or drops down from the specified stop price) for his order at around Rs 96 ( a price decided in consultation with a market analyst) and limit his losses. As soon the stock falls to the price level of Rs 96 his sell order will execute on its own thus saving him more losses as the share plunges further. One can easily set a minimum monthly loss percentage limit as per his capacity of supporting losses.
However, one should definitely get enrolled in a stock market training course and learn about the nuances of the trade.
Market trends and technical charts really help
Other than following the financial news on a regular basis one should also learn to track technical charts and study changing market trends in detail. One who knows how to track the resistance and support level for a stock would not ever find himself in failure. Although, market is also affected by unsystematic risks (other than systematic risks) and with respect to Indian markets where FII’s play an important part, there are miscellaneous factors affecting its rise and fall.
Invest in long term
It always beneficial to invest in the long term as it will not only provide you tax benefits in form of long term capital gains but also lead to proper realization of stock’s actual potential —– thus providing you with high profits.